AIMCO
AIMCO Properties, L.P.
is offering to purchase limited partnership units in
Real Estate Associates Limited II
FOR $117.00 PER UNIT IN CASH
Upon the terms and subject to the conditions set forth herein, we will accept
units validly tendered in response to our offer. If units are validly tendered
(and not properly withdrawn) and the purchase of those units would result in
there being fewer than 320 unitholders in your partnership, we will not purchase
any of the units tendered, terminate the offer, and return all units to the
tendering limited partners. See "The Offer--Section 2. Acceptance for Payment
and Payment for Units" and "--Section 17. Conditions of the Offer."
Our offer and your withdrawal rights will expire at midnight, New York City
time, on October 11, 2002, unless we extend the deadline.
You will not pay any partnership transfer fees if you tender your units. You
will pay any other fees and costs, including any transfer taxes.
Our offer price will be reduced by the amount of any distributions subsequently
made by your partnership prior to the expiration of our offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS OFFER TO PURCHASE FOR A
DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH OUR
OFFER, INCLUDING THE FOLLOWING:
o Our offer price may not reflect the fair market value of your units. We
determined the offer price of $117.00 per unit without any arms-length
negotiations. In determining the offer price, we noted that an
unaffiliated third party recently offered $35.00 per unit for your
units in an offer to purchase up to 240 units. We also noted that, as
of June 30, 2002, your partnership had reserved cash and cash
equivalents of $139,881, or approximately $26.25 per unit.
(Continued on next page)
------------------------------------------------------
If you decide to accept our offer, you should complete and sign the
enclosed acknowledgment and agreement as instructed in the letter of
transmittal, which is attached to this offer to purchase as Annex II. The signed
acknowledgment and agreement and any other documents required by the letter of
transmittal must be mailed or delivered to River Oaks Partnership Services,
Inc., which is acting as Information Agent in connection with our offer, at one
of its addresses set forth on the back cover of this offer to purchase.
QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES OF THIS OFFER TO
PURCHASE, THE ACKNOWLEDGMENT AND AGREEMENT, OR THE LETTER OF TRANSMITTAL MAY BE
DIRECTED TO THE INFORMATION AGENT AT (888) 349-2005.
September 16, 2002
(Continued from prior page)
o Your partnership's general partner is a subsidiary of ours; therefore,
the general partner has substantial conflicts of interest with respect
to our offer. See "The Offer - Section 13. Certain Information
Concerning Your Partnership."
o We are making this offer with a view to making a profit and, therefore,
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.
o Continuation of your partnership will result in our affiliates
continuing to receive management fees from your partnership. Such fees
would not be payable if your partnership were liquidated.
o It is possible that we may conduct a future offer at a higher price.
o For any units that we acquire from you, you will not receive any future
distributions from operating cash flow of your partnership or upon a
sale or refinancing of property owned by your partnership and the Local
Partnerships in which your partnership has an interest.
o The general partner makes no recommendation as to whether you should
tender your units.
o If we acquire a substantial number of units, we will increase our
ability to influence voting decisions with respect to your partnership
and may control such voting decisions, including but not limited to the
removal of the general partner of your partnership and most amendments
to the partnership agreement.
THE INFORMATION AGENT FOR THE OFFER IS:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<Table>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, NJ 07606-2065 Carlstadt, NJ 07072 Carlstadt, NJ 07072
Attn: Reorganization Dept. Attn: Reorganization Dept.
By facsimile: For information please call:
(201) 460-2889 TOLL FREE (888) 349-2005
Or
(201) 896-1900
</Table>
-ii-
TABLE OF CONTENTS
<Table>
<Caption>
Page
----
SUMMARY TERM SHEET....................................................................................................1
RISK FACTORS..........................................................................................................4
WE DID NOT OBTAIN A THIRD-PARTY VALUATION OR APPRAISAL AND DID NOT DETERMINE OUR OFFER PRICE THROUGH
ARMS-LENGTH NEGOTIATION.........................................................................................4
OUR OFFER PRICE MAY NOT REPRESENT FAIR MARKET VALUE................................................................4
OUR OFFER PRICE DOES NOT REFLECT FUTURE PROSPECTS..................................................................4
OUR OFFER PRICE IS BASED ON OUR ESTIMATE OF THE VALUE OF THE DISCOUNTED NET CASH FLOW LIKELY TO BE RECEIVED
BY YOUR PARTNERSHIP.............................................................................................4
OUR OFFER PRICE MAY BE LESS THAN LIQUIDATION VALUE.................................................................5
THERE IS NO ASSURANCE THAT DISTRIBUTIONS WILL BE MADE TO LIMITED PARTNERS..........................................5
FUTURE TAXABLE INCOME MAY EXCEED DISTRIBUTIONS.....................................................................5
CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF PARTNERSHIP INTERESTS.............................5
CHANGES IN THE LAWS AND POLICIES RELATED TO GOVERNMENT-ASSISTED HOUSING COULD NEGATIVELY AFFECT THE CASH
FLOW OF THE LOCAL PARTNERSHIPS FURTHER REDUCING THE POTENTIAL FOR FUTURE CASH DISTRIBUTIONS.....................5
HOLDING YOUR UNITS MAY RESULT IN GREATER FUTURE VALUE..............................................................6
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER.........................................6
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES.......................................6
YOUR GENERAL PARTNER IS NOT MAKING A RECOMMENDATION WITH RESPECT TO THIS OFFER.....................................6
WE MAY MAKE A FUTURE OFFER AT A HIGHER PRICE.......................................................................6
YOU WILL RECOGNIZE TAXABLE GAIN ON A SALE OF YOUR UNITS............................................................6
IF YOU TENDER UNITS TO US IN THIS OFFER, YOU WILL NO LONGER BE ENTITLED TO DISTRIBUTIONS FROM YOUR
PARTNERSHIP.....................................................................................................7
IF WE ACQUIRE A SUBSTANTIAL NUMBER OF UNITS IN THIS OFFER, WE COULD CONTROL YOUR PARTNERSHIP.......................7
IF YOU TENDER ALL OF YOUR UNITS, YOU MAY NOT BE ABLE TO PARTICIPATE IN ANY FINAL LITIGATION RELIEF OR
SETTLEMENT......................................................................................................7
YOU COULD RECOGNIZE GAIN IN THE EVENT OF A REDUCTION IN YOUR PARTNERSHIP'S LIABILITIES.............................7
YOU MAY BE UNABLE TO TRANSFER YOUR UNITS FOR A 12-MONTH PERIOD.....................................................7
WE MAY DELAY OUR ACCEPTANCE OF, AND PAYMENT FOR, YOUR UNITS........................................................8
CHANGES IN THE U.S. FEDERAL TAX LAWS HAVE NEGATED THE PRIMARY ORIGINAL ANTICIPATED BENEFIT OF INVESTING IN
THE PARTNERSHIP.................................................................................................8
PARTNERS COULD RECOGNIZE GAIN OR COD INCOME UPON A FORECLOSURE OF AN INTEREST IN A LOCAL PARTNERSHIP...............8
THE OFFER.............................................................................................................8
SECTION 1. TERMS OF THE OFFER; EXPIRATION DATE; PRORATION.........................................................8
SECTION 2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS...........................................................9
SECTION 3. PROCEDURE FOR TENDERING UNITS.........................................................................10
SECTION 4. WITHDRAWAL RIGHTS.....................................................................................13
SECTION 5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT; NO SUBSEQUENT OFFERING PERIOD.....................13
SECTION 6. CERTAIN FEDERAL INCOME TAX MATTERS....................................................................14
SECTION 7. EFFECTS OF THE OFFER..................................................................................18
SECTION 8. INFORMATION CONCERNING US AND CERTAIN OF OUR AFFILIATES...............................................18
SECTION 9. BACKGROUND AND REASONS FOR THE OFFER..................................................................21
SECTION 10. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE OFFER........................26
SECTION 11. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES...............................................27
SECTION 12. FUTURE PLANS OF THE PURCHASER........................................................................28
SECTION 13. CERTAIN INFORMATION CONCERNING YOUR PARTNERSHIP......................................................29
SECTION 14. VOTING POWER.........................................................................................35
</Table>
-iii-
<Table>
SECTION 15. SOURCE OF FUNDS......................................................................................35
SECTION 16. DISSENTERS' RIGHTS...................................................................................36
SECTION 17. CONDITIONS OF THE OFFER..............................................................................36
SECTION 18. CERTAIN LEGAL MATTERS................................................................................38
SECTION 19. FEES AND EXPENSES....................................................................................39
ANNEX I - OFFICERS AND DIRECTORS......................................................................................1
ANNEX II - LETTER OF TRANSMITTAL......................................................................................1
</Table>
-iv-
SUMMARY TERM SHEET
This summary term sheet highlights the most material information
regarding our offer, but it does not describe all of the details thereof. We
urge you to read this entire offer to purchase, which contains the full details
of our offer. We have also included in the summary term sheet references to the
sections of this offer to purchase where a more complete discussion may be
found.
o THE OFFER. Subject to the terms hereof, we are offering to acquire
limited partnership interests (units) of Real Estate Associates Limited
II, your partnership, for $117.00 per unit in cash. See "The
Offer--Section 1. Terms of the Offer; Expiration Date; Proration", "The
Offer--Section 7. Effects of the Offer" and "The Offer--Section 9.
Background and Reasons for the Offer--Determination of Offer Price."
o FACTORS IN DETERMINING THE OFFER PRICE. In determining the offer price
per unit we principally considered:
o The net present value of the anticipated net cash flow likely
to be received by your partnership from 2002 through the
maturity of the existing mortgage maturity.
o The fact that the annualized net operating income of the
partnership for the first six months of 2002 declined by
2.83%, as compared to 2001.
o Prices at which units have recently sold to the extent such
information is available to us. In connection with this
review, we noted that an unaffiliated third party recently
offered $35.00 per unit for your units in an offer to purchase
up to 240 units.
o As reflected on your partnership's balance sheet, dated June
30, 2002, your partnership had reserved cash and cash
equivalents of $139,881, or approximately $26.25 per unit. See
"The Offer Section 13. Certain Information Concerning Your
Partnership."
o The absence of a trading market for the units. See "The Offer
- Section 9. Background and Reasons for the Offer - Comparison
of Offer Price to Alternative Consideration."
o PRORATIONS. If more units than can be purchased under the partnership
agreement are tendered and not withdrawn, we will accept for payment
and pay for those units so tendered, which do not violate the terms of
your partnership agreement, pro rata according to the number of units
so tendered, with appropriate adjustments to avoid purchases of
fractional units. See "The Offer--Section 2. Acceptance for Payment and
Payment for Units."
o EXPIRATION DATE. Our offer expires on October 11, 2002, unless
extended, and you can tender your units until our offer expires. See
"The Offer--Section 1. Terms of the Offer; Expiration Date; Proration."
o RIGHT TO EXTEND THE EXPIRATION DATE. We can extend the offer in our
sole discretion, and we will either issue a press release or send you a
notice of any such extension. See "The Offer--Section 5. Extension of
Tender Period; Termination; Amendment; No Subsequent Offering Period."
o HOW TO TENDER. To tender your units, complete the accompanying
acknowledgment and agreement and send it, along with any other
documents required by the letter of transmittal which is attached to
this offer to purchase as Annex II, to the Information Agent, River
Oaks Partnership Services, Inc., at one of the addresses set forth on
the back of this offer to purchase. See "The Offer--Section 3.
Procedure for Tendering Units."
o WITHDRAWAL RIGHTS. You can withdraw your units at any time prior to the
expiration of the offer, including any extensions. In addition, you can
withdraw your units at any time on or after November 14, 2002
if we have not already accepted units for purchase and payment. See
"The Offer--Section 4. Withdrawal Rights."
o HOW TO WITHDRAW. To withdraw your units, you need to send a notice of
withdrawal to the Information Agent, identifying yourself and the units
to be withdrawn. See "The Offer--Section 4. Withdrawal Rights."
o TAX CONSEQUENCES. Your sale of units in this offer will be a taxable
transaction for federal income tax purposes. The consequences to each
limited partner may vary, and you should consult your tax advisor on
the precise tax consequences to you. See "The Offer--Section 6. Certain
Federal Income Tax Matters."
o AVAILABILITY OF FUNDS. We currently have the necessary cash and a line
of credit to consummate the offer. See "The Offer--Section 15. Source
of Funds."
o CONDITIONS OF THE OFFER. There are a number of conditions of our offer,
including our having adequate cash and borrowings under a line of
credit, the absence of competing tender offers, the absence of certain
changes in your partnership, the absence of certain changes in the
financial markets, and there being at least 320 unit holders
outstanding upon the consummation of the offer. See "The Offer--Section
7. Effects of the Offer," and "Section 17. Conditions of the Offer."
o REMAINING AS A LIMITED PARTNER. If you do not tender your units, you
will continue to remain a limited partner in your partnership. We have
no plans to alter the operations, business or financial position of
your partnership or to take your partnership private. See "The
Offer--Section 7. Effects of the Offer."
o WHO WE ARE. We are AIMCO Properties, L.P., the main operating
partnership of Apartment Investment and Management Company, a New York
Stock Exchange listed company ("AIMCO"). See "The Offer--Section 8.
Information Concerning Us and Certain of our Affiliates." We and our
affiliates currently own seven units, representing less than one
percent of the outstanding units of your partnership.
o LOCAL PARTNERSHIPS. Your partnership's principal assets are limited
partnership interests in 14 limited partnerships (the "Local
Partnerships"). Each of the Local Partnerships in turn owns a low
income housing project, which is subsidized and/or has a mortgage note
payable to, or insured by, an agency of the federal government or a
local housing agency. Each property owned by the Local Partnerships is
referred to herein as a "Property" and collectively as the
"Properties."
o CONFLICTS OF INTEREST; MANAGEMENT FEES. The general partner of your
partnership, which is our subsidiary, is entitled to receive management
fees and reimbursement of certain expenses involving your partnership.
As a result, a conflict of interest exists between continuing the
partnership and receiving these fees, and the liquidation of the
partnership and the termination of these fees because, if your
partnership were liquidated, your general partner would not continue to
receive the fees it currently receives. But we do not believe that the
liquidation of your partnership is in the best interest of the
unitholders and therefore believe that the fees paid to the general
partner would continue even if the offer were not consummated. See "The
Offer--Section 11. Conflicts of Interest and Transactions with
Affiliates" and "The Offer--Section 13. Certain Information Concerning
Your Partnership."
o NO GENERAL PARTNER RECOMMENDATION. The general partner makes no
recommendation as to whether you should tender or refrain from
tendering your units, and each limited partner should make his or her
own decision whether or not to tender. See "The Offer--Section 10.
Position of the General Partner of your Partnership with respect to the
Offer." But your partnership is the limited partner of the Local
Partnerships, and as a result does not control the management of the
Local Partnerships. Your general partner does not have the ability to
cause the Local Partnerships to sell all or substantially all of the
Properties. Moreover, to the extent that your general partner could
cause such a sale, at this time your general partner does not believe
that selling all or substantially all of the Properties or liquidating
the partnership would be in the best interest of the unitholders. See
"The Offer--Section 9. Background and Reasons for the Offer."
-2-
o ADDITIONAL INFORMATION. For more assistance in tendering your units,
please contact our Information Agent at one of the addresses or the
telephone number set forth on the back cover page of this offer to
purchase.
-3-
RISK FACTORS
Before deciding whether or not to tender any of your units, you should
consider carefully the following risks and disadvantages of the offer:
WE DID NOT OBTAIN A THIRD-PARTY VALUATION OR APPRAISAL AND DID NOT DETERMINE OUR
OFFER PRICE THROUGH ARMS-LENGTH NEGOTIATION.
We did not base our valuation of the interests in the Local
Partnerships owned by your partnership or the Property owned by the Local
Partnerships on any third-party appraisal or valuation. We established the terms
of our offer without any arms-length negotiation. The terms of the offer could
differ if they were subject to independent third-party negotiations. It is
uncertain whether our offer price reflects the value that would be realized upon
a sale of your units to a third party.
As reflected on your partnership's balance sheet, dated June 30, 2002,
your partnership had reserved cash and cash equivalents of $139,881, or
approximately $26.25 per unit. See "The Offer - Section 13. Certain Information
Concerning Your Partnership."
OUR OFFER PRICE MAY NOT 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. Our offer price does not necessarily reflect the price that you would
receive upon a sale of your units in an open market. Such prices could be higher
than our offer price. For example, we note that an unrelated third party
commenced an offer in August 2002 to acquire up to 240 units in your partnership
for $35.00 per unit. Also, units of your partnership have been purchased since
January 1, 2000 in secondary markets for prices up to $71.26 per unit as
reported by The American Partnership Board (see "Section 9. Background and
Reasons for the Offer - Prices on Secondary Markets").
OUR OFFER PRICE DOES NOT REFLECT FUTURE PROSPECTS.
Our offer price is based on the income your partnership has received
from the Local Partnerships. It does not ascribe any value to potential future
improvements in the operating performance of the Property owned by the Local
Partnerships.
OUR OFFER PRICE IS BASED ON OUR ESTIMATE OF THE VALUE OF THE DISCOUNTED NET CASH
FLOW LIKELY TO BE RECEIVED BY YOUR PARTNERSHIP.
Our offer price is based on our estimate of the value of the
anticipated net cash flow likely to be received by your partnership from the
Local Partnerships. We determined the anticipated net cash flow by aggregating
the value of the following: (i) available cash and cash equivalents resulting
from the operations of the Local Partnerships as distributed to your
partnership, and (ii) the net present value of the anticipated net cash flow
from 2002 through the maturity of the existing mortgage maturity. Cash flow will
be affected by the expiration of any applicable Housing Assistance Payment
Contracts (the "HAP Contracts"). In making the foregoing calculations, we
assumed that (i) the rental payments under the leases would increase by the
maximum amount permitted under any HAP Contract and (ii) upon their expiration,
any HAP Contract would not be renewed and that the rental rates under the leases
would be at the then fair market rent, which may be more or less than the
current amounts charged. We determined appropriate discount rates using our best
judgment, but our valuation is a subjective estimate and someone else might
apply a different discount rate. Although we believe this method of
determination is reasonable for determining the value of units in the
partnerships, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. If
actual Property income, or different assumptions were used, a higher valuation
could result. Other methods of valuing your units could also result in a higher
valuation.
-4-
OUR OFFER PRICE MAY BE LESS THAN LIQUIDATION VALUE.
The actual proceeds obtained from liquidation are highly uncertain and
could be more or less than our estimate. If your partnership were to sell its
assets and liquidate, the value of the assets would be determined through
negotiations with third parties, who may use different valuation methods to
determine the price of your partnership's assets. Accordingly, our offer price
could be higher or lower than the net proceeds that you would realize upon an
actual liquidation of your partnership.
THERE IS NO ASSURANCE THAT DISTRIBUTIONS WILL BE MADE TO LIMITED PARTNERS.
The Local Partnerships have not made any material distributions to the
partnership since 1999, and the general partner of your partnership does not
expect the Local Partnerships to make distributions in the future.
FUTURE TAXABLE INCOME MAY EXCEED DISTRIBUTIONS.
For the foreseeable future, the Local Partnerships may generate taxable
income for the partnership but will probably not distribute sufficient cash to
the partnership to enable the partnership to distribute cash to the limited
partners to enable them to pay resulting tax liabilities.
CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF PARTNERSHIP
INTERESTS.
Your general partner, which is our subsidiary, is proposing to continue
to operate your partnership and not to attempt to liquidate it at the present
time. The original prospectus offering units in your partnership in 1980
anticipated that the interests in the Local Partnerships owned by your
partnership would not be sold for twenty years or longer. It would be difficult,
if not impossible, for your general partner to liquidate the partnership at this
time under the terms of the partnership agreement. Your partnership is a limited
partner in the Local Partnerships. Neither we nor your general partner is
affiliated with the general partners of the Local Partnerships. We are not
involved with the management, long term planning, or liquidation decisions for
the Properties. The non-affiliated general partners of the Local Partnerships
control the management and liquidation decisions for their Properties and
receive annual fees for the management of these Properties. It is not known when
the Properties may be sold or liquidated or if they will be sold or liquidated
before the termination of the Local Partnerships. The partnership agreements for
the Local Partnerships provide that these partnership terminate on varying dates
between 2021 and 2038. There may be no way to liquidate your investment in the
partnership until the Properties are sold and the partnership is liquidated at
the expiration of the term of your partnership, which is December 31, 2031.
If the partnership liquidated before the Local Partnerships liquidated,
the general partner is of the opinion that the distribution of limited
partnership interests held by the partnership would decrease the benefits of
holding a portfolio of different properties, and could increase expenses of
ownership of the Local Partnerships, for example, by causing the Local
Partnerships to be held directly by the limited partners, with separate
reporting obligations, including potential reporting obligations with the
Securities and Exchange Commission. The general partner has concluded that it
would be neither feasible nor in the limited partners' best interest to force
the liquidation of the partnership.
CHANGES IN THE LAWS AND POLICIES RELATED TO GOVERNMENT-ASSISTED HOUSING COULD
NEGATIVELY AFFECT THE CASH FLOW OF THE LOCAL PARTNERSHIPS FURTHER REDUCING THE
POTENTIAL FOR FUTURE CASH DISTRIBUTIONS.
Each of the Properties was originally eligible for mortgage interest
subsidies and rent supplements from governmental agencies, which made it
possible to offer many of the dwelling units to eligible "low income" tenants at
a cost significantly below the market rate for comparable conventionally
financed dwellings in the area. In 1997, the Multi-family Assisted Housing
Reform and Affordability Act ("MAHRAA") was passed, which provides that to the
extent that rents are above market, as may be the case with some or all of the
Properties, the amount of the mortgage interest subsidies and rent supplements
paid by the federal, state or local administrating governmental agency will be
reduced. The restructuring of the Properties' subsidies and supplements will
occur, if at all, on a Property by Property basis over time. While MAHRAA also
contemplates a restructuring of the mortgage loans to reduce the current debt
service on the mortgage loans, it is expected that the combination of the
reduced payment from the HAP Contracts and the restructuring of the mortgage
loans will result in a significant reduction in the cash
-5-
flow to the Local Partnerships. Furthermore, because the general partner of the
Local Partnership will control the restructuring negotiations, and most of the
general partners of the Local Partnerships' income results from their management
fees, there can be no assurance that any restructuring negotiated by general
partners of the Local Partnerships would optimize cash flow to the partnership
or result in any cash distributions to the partnership, which could subsequently
be distributed to the limited partners. Moreover, there are a number of
uncertainties as to the restructuring process, including potential for adverse
tax consequences to the limited partners and the general partners of the Local
Partnerships. See "The Offer - Section 13. Certain Information Concerning Your
Partnership - Regulatory Arrangements."
HOLDING YOUR UNITS MAY RESULT IN GREATER FUTURE VALUE.
Although a liquidation of your partnership is not currently
contemplated in the near future, you might receive more value if you retain your
units until your partnership is liquidated.
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER.
The general partner of your partnership is our subsidiary and,
therefore, has substantial conflicts of interest with respect to our offer. We
are making this offer with a view to making a profit. 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. We determined our offer price without negotiation
with any other party, including any general or limited partner.
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES.
Because our subsidiary receives fees for managing your partnership, a
conflict of interest exists between continuing the partnership and receiving
such fees, and the liquidation of the partnership and the termination of such
fees. Also, a decision of the limited partners of your partnership to remove,
for any reason, the general partner of your partnership would result in a
decrease or elimination of the substantial fees to which it is entitled for
services provided to your partnership.
YOUR GENERAL PARTNER IS NOT MAKING A RECOMMENDATION WITH RESPECT TO THIS OFFER.
The general partner of your partnership makes no recommendation as to
whether or not you should tender or refrain from tendering your units. You must
make your own decision whether or not to participate in the offer based upon a
number of factors, including several factors that may be personal to you, such
as your financial position, your need or desire for liquidity, your preferences
regarding the timing of when you might wish to sell your units, other financial
opportunities available to you, and your tax position and the tax consequences
to you of selling your units.
WE MAY MAKE A FUTURE OFFER AT A HIGHER PRICE.
It is possible that we may conduct a future offer at a higher price.
Such a decision will depend on, among other things, the performance of the
partnership, the performance of the Local Partnerships, prevailing economic
conditions, and our interest in acquiring additional units.
YOU WILL RECOGNIZE TAXABLE GAIN ON A SALE OF YOUR UNITS.
Your sale of units for cash will be a taxable sale, with the result
that you will recognize taxable gain or loss measured by the difference between
the amount realized on the sale and your adjusted tax basis in the units of
limited partnership interest of your partnership you transfer to us. The "amount
realized" with respect to a unit of limited partnership interest you transfer to
us will be equal to the sum of the amount of cash received by you for the unit
sold pursuant to the offer plus the amount of partnership liabilities allocable
to the unit. 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 the units you transfer to us, whether you dispose of all of your units, and
whether you have available suspended passive losses, credits or other tax items
to offset any gain recognized as a result of your sale of your units. Therefore,
depending on your basis in the units and your tax position, your taxable gain
and any tax liability resulting from a sale of units to us pursuant to the offer
could exceed our offer price. Because the income tax
-6-
consequences of tendering units will not be the same for everyone, you should
consult your own tax advisor to determine the tax consequences of the offer to
you.
IF YOU TENDER UNITS TO US IN THIS OFFER, YOU WILL NO LONGER BE ENTITLED TO
DISTRIBUTIONS FROM YOUR PARTNERSHIP.
If you tender your units in response to our offer, you will transfer to
us all right, title and interest in and to all of the units we accept, and the
right to receive all distributions in respect of such units on and after the
date on which we accept such units for purchase. Accordingly, for any units that
we acquire from you, you will not receive any future distributions from
operating cash flow of your partnership or upon a sale of the Property or the
interests in the Local Partnerships or a refinancing of any of the debt of any
Local Partnership.
IF WE ACQUIRE A SUBSTANTIAL NUMBER OF UNITS IN THIS OFFER, WE COULD CONTROL YOUR
PARTNERSHIP.
Decisions with respect to the day-to-day management of your partnership
are the responsibility of the general partner. Because the general partner of
your partnership is our subsidiary, we control the management of your
partnership. Under your partnership's agreement of limited partnership, limited
partners holding a majority of the outstanding units must approve certain
extraordinary transactions, including the removal of the general partner, most
amendments to the partnership agreement and the sale of all or substantially all
of your partnership's assets. We and our affiliates own less than one percent of
the outstanding limited partner units of your partnership. If we acquire more
than a majority of the outstanding limited partner units, we and our affiliates
will have the ability to control such votes of the limited partners.
IF YOU TENDER ALL OF YOUR UNITS, YOU MAY NOT BE ABLE TO PARTICIPATE IN ANY FINAL
LITIGATION RELIEF OR SETTLEMENT.
Certain legal actions have been filed alleging, among other things,
breaches of fiduciary duty by your partnership's general partner and certain of
its affiliates. These legal actions predated AIMCO's acquisition of your general
partner. Although we cannot predict the precise outcome of these actions or the
precise nature of any final relief or settlement with respect to these actions,
a limited partner who tenders his units in the offer may not participate in or
benefit from such relief or any settlement. There can be no assurance that a
limited partner would not realize greater value for his units by not tendering
his units in our offer, and participating in any such relief or settlement.
YOU COULD RECOGNIZE GAIN IN THE EVENT OF A REDUCTION IN YOUR PARTNERSHIP'S
LIABILITIES.
Generally, a decrease in your share of partnership liabilities is
treated, for federal income tax purposes, as a deemed cash distribution.
Although the general partner of your partnership does not have any 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 the
general partner to reduce the liabilities of your partnership. If you retain all
or a portion of your units and the liabilities of your partnership were to be
reduced, you would be treated as receiving a hypothetical distribution of cash
resulting from a decrease in your share of the liabilities of the 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. Gain recognized by you on the disposition of retained units
with a holding period of 12 months or less may be classified as short-term
capital gain and subject to taxation at ordinary income tax rates.
YOU MAY BE UNABLE TO TRANSFER YOUR UNITS FOR A 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
capital and profits of your partnership to be transferred within such 12-month
period. During the last 12 months, one percent or less of the total interest in
capital and profits of your partnership has been transferred. If more units are
validly tendered and not withdrawn, that would cause more than 50% of the total
interest in capital and profits of your partnership to be transferred within a
12-month period, we will accept for payment and pay for those units so tendered
pro rata according to the number of units so tendered, with appropriate
adjustments to avoid purchases of fractional units. We are offering to purchase
the maximum amount of units allowed to be purchased under the partnership
agreement, given its prohibition on transferring units that exceed 50% of all
transfers during the
-7-
preceding twelve months. 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.
WE MAY DELAY OUR ACCEPTANCE OF, AND PAYMENT FOR, YOUR UNITS.
We reserve the right to extend the period of time during which our
offer is open and thereby delay acceptance for payment of any tendered units.
The offer may be extended, and no payment will be made in respect of tendered
units until the expiration of the offer and acceptance of units for payment.
CHANGES IN THE U.S. FEDERAL TAX LAWS HAVE NEGATED THE PRIMARY ORIGINAL
ANTICIPATED BENEFIT OF INVESTING IN THE PARTNERSHIP.
The partnership's investment in the Properties was initially structured
primarily to obtain tax deductions to shelter income from other sources and not
to provide cash distributions. The partnership has substantially fulfilled its
original objective of providing tax deductions to the limited partners. The
partnership has generated tax losses equal to at least 327%, plus investment tax
credit of 2.6%, of each limited partner's equity investment since the inception
of the partnership through December 31, 2001 (assuming a limited partner claimed
such deduction in accordance with the passive loss transitional relief rules
contained in the Tax Reform Act of 1986 and in connection with property
distributions).
PARTNERS COULD RECOGNIZE GAIN OR COD INCOME UPON A FORECLOSURE OF AN INTEREST IN
A LOCAL PARTNERSHIP.
As of December 31, 2001, the Local Partnerships were obligated on
approximately $32,831,093.00 of mortgage indebtedness. If any Local Partnership
defaults on its obligation, and the holder of the obligation successfully
forecloses on the interest in the Property held by one or more Local
Partnerships, the Local Partnerships will recognize taxable gain upon the
transfer of the property in satisfaction of the mortgage. The amount of such
gain is equal to the excess of the sum of the amount due under the indebtedness
over the partnership's basis in the property. A Local Partnership also may
recognize cancellation of debt ("COD") income in connection with such a
foreclosure if it is unable to satisfy all of its other indebtedness. In
addition, a liquidation of a Local Partnership subsequent to such a foreclosure
also may result in the recognition of gain by your partnership. The amount of
such gain will be equal to the excess of (1) the amounts received by the
partnership from the Local Partnership, plus (2) your partnership's share of the
Local Partnership's liabilities, over (3) your partnership's basis in its Local
Partnership interest after adjustment for any gain and COD income recognized in
connection with foreclosure of the Local Partnership's property. See "The
Offer--Section 6. Certain Federal Income Tax Matters - Tax Consequences of
Foreclosure." Limited partners should consult their tax advisors regarding the
tax consequences to them.
THE OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE; PRORATION
We are offering to acquire limited partnership units in your
partnership for $117.00 per unit in cash, upon the terms and subject to the
conditions of the offer. The purchase price per unit will be automatically
reduced by the aggregate amount of distributions per unit, if any, made by your
partnership on or after the commencement of our offer and prior to the date on
which we acquire your units pursuant to our offer. If the offer price is reduced
in this manner, we will notify you and, if necessary, we will extend the offer
period so that you will have at least ten business days from the date of our
notice to withdraw the units.
If, prior to the expiration date, we increase the consideration offered
pursuant to the offer, everyone whose units are accepted in the offer will
receive the increased consideration, regardless of whether the units were
tendered prior to the increase in offer consideration.
Upon the terms and subject to the conditions of the offer, we will
accept (and thereby purchase) units that are validly tendered on or prior to the
expiration date and not withdrawn in accordance with the procedures set forth in
"The Offer--Section 4. Withdrawal Rights." For purposes of the offer, the term
"expiration date" shall mean midnight, New York City time, on October 11, 2002
unless we in our sole discretion shall have extended the period
-8-
of time for which the offer is open, in which event the term "expiration date"
shall mean the latest time and date on which the offer, as extended by us, shall
expire. See "The Offer--Section 5. Extension of Tender Period; Termination;
Amendment; No Subsequent Offering Period," for a description of our right to
extend the period of time during which the offer is open and to amend or
terminate the offer.
If more units than can be purchased under your partnership agreement
are tendered and not withdrawn, we will accept for payment and pay for those
units so tendered, which do not violate the terms of your partnership agreement,
pro rata according to the number of units so tendered, with appropriate
adjustments to avoid purchases of fractional units. See "The Offer - Section 2.
Acceptance for Payment and Payment for Units."
THE OFFER IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING
TENDERED. However, the offer is conditioned on satisfaction of certain
conditions, including among other things, there being at least 320 unitholders
remaining after our purchase of all units validly tendered and not properly
withdrawn prior to the expiration date in accordance with the procedures set
forth in "The Offer--Section 4. Withdrawal Rights." See "The Offer--Section 17.
Conditions of the Offer," which sets forth in full the conditions of the offer.
We reserve the right (but in no event shall we be obligated) to waive any or all
of those conditions. If, on or prior to the expiration date, any or all of the
conditions have not been satisfied or waived, we reserve the right to (i)
decline to purchase any of the units tendered, terminate the offer and return
all tendered units to tendering limited partners, (ii) waive all the unsatisfied
conditions and purchase, subject to the terms of the offer, any and all units
validly tendered, (iii) extend the offer and, subject to your withdrawal rights,
retain the units that have been tendered during the period or periods for which
the offer is extended, or (iv) amend the offer. In accordance with the terms of
the partnership agreement, the transfer of units will be effective on the last
day of the calendar month following receipt by the partnership of the written
notice of transfer.
This offer is being mailed on or about September 16, 2002 to the
persons shown by your partnership's records to have been limited partners as of
September 11, 2002.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT FOR UNITS.
Upon the terms and subject to the conditions of the offer, we will
purchase, by accepting for payment, and will pay for, units validly tendered as
promptly as practicable following the expiration date. 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 acknowledgment
and agreement and other documents required by the letter of transmittal attached
as Annex II. The purchase price per unit will automatically be reduced by the
aggregate amount of distributions per unit, if any, made by your partnership on
or after the commencement of our offer and prior to the date on which we acquire
your units pursuant to our offer. See "The Offer--Section 3. Procedure for
Tendering Units." UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE OFFER
PRICE BY REASON OF ANY DELAY IN MAKING SUCH PAYMENT.
We will, upon the terms and subject to the conditions of the offer,
accept for payment and pay for units validly tendered, with appropriate
adjustments to avoid purchases that would violate the agreement of limited
partnership of your partnership and any relevant procedures or regulations
promulgated by the general partner or applicable law. In some circumstances, we
may pay you the full offer price and accept an assignment of your right to
receive distributions and other payments and an irrevocable proxy in respect of
the units and defer, perhaps indefinitely, the transfer of ownership of the
units on the partnership books.
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
capital and profits of your partnership to be transferred within such 12-month
period. During the last 12 months, one percent or less of the total interest in
capital and profits of your partnership has been transferred. If more units are
validly tendered and not withdrawn that would cause more than 50% of the total
interest in capital and profits of your partnership to be transferred within a
12-month period, we will accept for payment and pay for those units so tendered
pro rata according to the number of units so tendered, with appropriate
adjustments to avoid purchases of fractional units. We are offering to purchase
the maximum amount of units allowed to be purchased under the partnership
agreement, given its prohibition on transferring units that exceed 50% of all
transfers during the
-9-
preceding twelve months. If we acquire a significant percentage of the interest
in your partnership, you may not be able to transfer units for a 12-month period
following our offer.
If the number of units validly tendered and not properly withdrawn on
or prior to the expiration date is less than or equal to the maximum number we
can purchase under the partnership agreement, we will purchase all units so
tendered and not withdrawn, upon the terms and subject to the conditions of the
offer. But if more units than can be purchased under the partnership agreement
are so tendered and not withdrawn, we will accept for payment and pay for those
units so tendered which do not violate the terms of your partnership agreement,
pro rata according to the number of units so tendered, with appropriate
adjustments to avoid purchases of fractional units.
If proration of tendered units is required, then, subject to our
obligation under Rule 14e-1(c) under the Securities Exchange Act of 1934 (the
"Exchange Act") to pay limited partners the purchase price in respect of units
tendered or return those units promptly after termination or withdrawal of the
offer, we do not intend to pay for any units accepted for payment pursuant to
the offer until the final proration results are known. Notwithstanding any such
delay in payment, no interest will be paid on the offer price.
For purposes of the offer, we will be deemed to have accepted for
payment pursuant to the offer, and thereby purchased, validly tendered units,
if, as and when we give verbal or written notice to the Information Agent of our
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 limited partners for the purpose of
receiving cash payments from us and transmitting cash payments to tendering
limited partners.
If any tendered units are not accepted for payment by us for any
reason, the acknowledgment and agreement with respect to such units not
purchased may be destroyed by the Information Agent or us or returned to you.
You may withdraw tendered units until the expiration date (including any
extensions). In addition, if we have not accepted units for payment by November
14, 2002, you may then withdraw any tendered units. After the expiration date,
the Information Agent may, on our behalf, retain tendered units, and those units
may not be otherwise withdrawn, if, for any reason, acceptance for payment of,
or payment for, any units tendered pursuant to the offer is delayed or we are
unable to accept for payment, purchase or pay for units tendered pursuant to the
offer. Any such action is subject, however, to our obligation under Rule
14e-1(c) under the Exchange Act to pay you the offer price in respect of units
tendered or return those units promptly after termination or withdrawal of the
offer.
We reserve the right to transfer or assign, in whole or in part, to one
or more of our affiliates, the right to purchase units tendered pursuant to the
offer, but no such transfer or assignment will relieve us of our obligations
under the offer or prejudice your rights to receive payment for units validly
tendered and accepted for payment pursuant to the offer.
3. PROCEDURE FOR TENDERING UNITS.
VALID TENDER. To validly tender units pursuant to the offer, a properly
completed and duly executed acknowledgment and agreement and any other documents
required by the letter of transmittal attached as Annex II must be received by
the Information Agent, at one of its addresses set forth on the back cover of
this offer to purchase, on or prior to the expiration date. You may tender all
or any portion of your units. No alternative, conditional or contingent tenders
will be accepted.
SIGNATURE REQUIREMENTS. If the acknowledgment and agreement is signed
by the registered holder of a unit and payment is to be made directly to that
holder, then no signature guarantee is required on the acknowledgment and
agreement. Similarly, if a unit is 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 acknowledgment and agreement. However, in all other cases, all
signatures on the acknowledgment and agreement must be guaranteed by an Eligible
Institution.
In order for you to tender in the offer, your units must be validly
tendered and not withdrawn on or prior to the expiration date.
-10-
THE METHOD OF DELIVERY OF THE ACKNOWLEDGMENT AND AGREEMENT AND ALL
OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND DELIVERY WILL BE DEEMED
MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS BY
MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY.
APPOINTMENT AS PROXY; POWER OF ATTORNEY. By executing the
acknowledgment and agreement, you are irrevocably appointing us and our
designees as your proxy, in the manner set forth in the acknowledgment and
agreement and each with full power of substitution, to the fullest extent of
your rights with respect to the units tendered by you and accepted for payment
by us. 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, we accept the tendered units for payment. Upon such acceptance for
payment, all prior proxies given by you with respect to the units will, without
further action, be revoked, and no subsequent proxies may be given (and if given
will not be effective). We and our designees will, as to those units, be
empowered to exercise all voting and other rights as a limited partner as we, in
our sole discretion, may deem proper at any meeting of limited partners, by
written consent or otherwise. We reserve the right to require that, in order for
units to be deemed validly tendered, immediately upon our acceptance for payment
of the units, we must be able to exercise full voting rights with respect to the
units, including voting at any meeting of limited partners and/or limited
partners then scheduled or acting by written consent without a meeting. By
executing the acknowledgment and agreement, 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 our directions. The proxy and
power of attorney granted by you to us will remain effective and be irrevocable
for a period of ten years following the termination of our offer.
By executing the acknowledgment and agreement, you also irrevocably
constitute and appoint us and our designees as your attorneys-in-fact, each with
full power of substitution, to the full extent of your rights with respect to
the units tendered by you and accepted for payment by us. Such appointment will
be effective when, and only to the extent that, we pay for your units and will
remain effective and be irrevocable for a period of ten years following the
termination of our offer. You will agree not to exercise any rights pertaining
to the tendered units without our prior consent. Upon such payment, all prior
powers of attorney granted by you with respect to such units will, without
further action, be revoked, and no subsequent powers of attorney may be granted
(and if granted will not be effective). Pursuant to such appointment as
attorneys-in-fact, we and our designees each will have the power, among other
things, (i) to transfer ownership of such units on the partnership books
maintained by your general partner (and execute and deliver any accompanying
evidences of transfer and authenticity it may deem necessary or appropriate in
connection therewith), (ii) upon receipt by the Information Agent of the offer
consideration, to become a substituted limited partner, to receive any and all
distributions made by your partnership on or after the date on which we acquire
such units, and to receive all benefits and otherwise exercise all rights of
beneficial ownership of such units in accordance with the terms of our offer,
(iii) to execute and deliver to the general partner of your partnership a change
of address form instructing the general partner to send any and all future
distributions to which we are entitled pursuant to the terms of the offer in
respect of tendered units to the address specified in such form, and (iv) to
endorse any check payable to you or upon your order representing a distribution
to which we are entitled pursuant to the terms of our offer, in each case in
your name and on your behalf.
By executing the acknowledgment and agreement, you will irrevocably
constitute and appoint us and any of our designees as your true and lawful agent
and attorney-in-fact with respect to such units, with full power of substitution
(such power of attorney being deemed to be an irrevocable power coupled with an
interest), to withdraw any or all of such units that have been previously
tendered in response to any other tender or exchange offer, provided that the
price per unit we are offering is equal to or higher than the price per unit
being offered in the other tender or exchange offer. Such appointment is
effective upon the execution and receipt of the acknowledgment and agreement and
shall continue to be effective unless and until you validly withdraw such units
from this offer.
ASSIGNMENT OF INTEREST IN FUTURE DISTRIBUTIONS. By executing the
acknowledgment and agreement, you will irrevocably sell, assign, transfer,
convey and deliver to, or upon the order of, AIMCO Properties, 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 your ownership in the units, including, without limitation,
distributions in the ordinary course, distributions from sales of assets,
distributions
-11-
upon liquidation, winding-up or dissolution, payments in settlement of existing
or future litigation, damages paid in connection with any existing or future
litigation and all other distributions and payments made from and after the
expiration date, in respect of the units tendered by you and accepted for
payment and thereby purchased by us; (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 or any agreement pursuant to
which the units were sold (the "Purchase Agreement"), 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, the Purchase Agreement or your
ownership of the units, including, without limitation, any and 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 past,
present and future claims, if any, whether on behalf of your partnership,
individually or on behalf of a putative class (including without limitation any
claims against limited partners of the partnership, the general partner(s)
and/or any affiliates thereof), under, arising out of or related to your
partnership's agreement of limited partnership, the Purchase Agreement, your
status as a limited partner, the terms or conditions of this offer, the
management of your partnership, monies loaned or advanced, services rendered to
your partnership or its partners, or any other claims arising out of or related
to your ownership of the units. If, after the unit is accepted for payment and
purchased by us, you receive any distribution from any source and of any nature,
including, without limitation, distributions in the ordinary course,
distributions from sales of assets, distributions upon liquidation, winding-up
or dissolution, payments in settlement of existing or future litigation and all
other distributions and payments, from your partnership in respect of such unit,
you will agree to forward promptly such distribution to us.
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 our offer will be determined by us, in our reasonable
discretion, which determination shall be final and binding on all parties. We
reserve the absolute right to reject any or all tenders of any particular unit
determined by us not to be in proper form or if the acceptance of or payment for
that unit may, in the opinion of our counsel, be unlawful. We also reserve the
absolute right to waive any defect or irregularity in any tender with respect to
any particular unit of any particular limited partner, and to waive or amend any
of the conditions of the offer that we are legally permitted to waive as to the
tender of any particular unit, provided that if we waive any condition with
respect to one unit, we will waive such condition as to all units. Our
interpretation of the terms and conditions of the offer (including the
acknowledgment and agreement and the letter 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 we, 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 unit
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 30% with respect to
payment of the offer price, you may have to provide us with your correct
taxpayer identification number. See the instructions to the acknowledgment and
agreement set forth in the letter of transmittal attached as Annex II and "The
Offer--Section 6. 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 on the disposition (the amount
realized is generally the offer price plus the partnership liabilities allocable
to each unit purchased), you must certify that you are not a foreign person if
you tender units. See the instructions to the acknowledgment and agreement set
forth in the letter of transmittal attached as Annex II and "The Offer--Section
6. Certain Federal Income Tax Matters."
TRANSFER TAXES. The amount of any transfer taxes (whether imposed on
the registered holder of units or any person) payable on account of the transfer
of units will be deducted from the purchase price unless satisfactory evidence
of the payment of such taxes or exemption therefrom is submitted.
BINDING AGREEMENT. A tender of a unit pursuant to any of the procedures
described above and the acceptance for payment of such unit will constitute a
binding agreement between the tendering limited partner and us on the terms set
forth in this offer to purchase and the related acknowledgment and agreement and
letter of transmittal.
-12-
4. WITHDRAWAL RIGHTS.
You may withdraw your tendered units at any time prior to our
acceptance of such units for payment.
For a withdrawal to be effective, a written notice of withdrawal must
be timely received by the Information Agent at one of its addresses set forth on
the back cover of the offer to purchase. 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 who signed the acknowledgment and agreement in the same manner as the
acknowledgment and agreement was signed.
If purchase of, or payment for, a unit is delayed for any reason, or if
we are unable to purchase or pay for a unit for any reason, then, without
prejudice to our rights under the offer, tendered units may be retained by the
Information Agent; subject, however, to our obligation, pursuant to Rule
14e-1(c) under the Exchange Act, to pay the offer price in respect of units
tendered or return those units promptly after termination or withdrawal of our
offer.
Any units properly withdrawn will thereafter be deemed not to have been
validly tendered for purposes of our offer. However, withdrawn units may be
re-tendered at any time prior to the expiration date by following the procedures
described in "The Offer--Section 3. Procedure for Tendering Units."
All questions as to the validity and form (including time of receipt)
of notices of withdrawal will be determined by us in our reasonable discretion,
which determination will be final and binding on all parties. Neither the
Information Agent, any other person, nor we 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.
5. EXTENSION OF TENDER PERIOD; TERMINATION; AMENDMENT; NO SUBSEQUENT
OFFERING PERIOD.
We expressly reserve the right, in our reasonable discretion (i) to
extend the period of time during which our offer is open and thereby delay
acceptance for payment of, and the payment for, any unit, (ii) to terminate the
offer and not accept any units not theretofore accepted for payment or paid for
if any of the conditions of the offer are not satisfied or if any event occurs
that might reasonably be expected to result in a failure to satisfy such
conditions, (iii) upon the occurrence of any of the conditions specified in "The
Offer--Section 17. Conditions of the Offer," or any event that might reasonably
be expected to result in such occurrence, to delay the acceptance for payment
of, or payment for, any units not already accepted for payment or paid for, and
(iv) to amend our offer in any respect (including, without limitation, by
increasing or decreasing the consideration offered, increasing or decreasing the
units being sought, or both). Notice of any such extension, termination or
amendment will promptly be disseminated to you in a manner reasonably designed
to inform you of such change. In the case of an extension of the offer, the
extension may be followed by a press release or public announcement which will
be issued no later than 9:00 a.m., New York City time, on the next business day
after the scheduled expiration date of our offer, in accordance with Rule
14e-1(d) under the Exchange Act.
The offer may be extended or delayed, and no payment will be made in
respect of the tendered units until the expiration of the offer and the
acceptance of units for payment. If we extend the offer, or if we delay payment
for a unit (whether before or after its acceptance for payment) or are unable to
pay for a unit pursuant to our offer for any reason, then, without prejudice to
our rights under the offer, the Information Agent may retain tendered units and
those units may not be withdrawn except to the extent tendering limited partners
are entitled to withdrawal rights as described in "The Offer--Section 4.
Withdrawal Rights," subject, however, to our obligation, pursuant to Rule
14e-l(c) under the Exchange Act, to pay the offer price in respect of units
tendered or return those units promptly after termination or withdrawal of the
offer.
If we make a material change in the terms of our offer, or if we waive
a material condition to our offer, we will extend the offer and disseminate
additional tender offer materials to the extent required by Rules 14d-4 and
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, if any, will depend upon the facts and
circumstances, including the
-13-
materiality of the change, but generally will be five business days. 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, if
any, a minimum of ten business days from the date of such change is generally
required to allow for adequate dissemination to limited partners. Accordingly,
if, prior to the expiration date, we increase (other than increases of not more
than two percent of the outstanding units) or decrease the number of units being
sought, or increase or decrease the offer price, and if the offer is scheduled
to expire at any time earlier than the tenth business day after the date that
notice of such increase or decrease is first published, sent or given to limited
partners, the offer will be extended at least until the expiration of such ten
business days. As used in the offer to purchase, "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, New York City time.
Pursuant to Rule 14d-11 under the Exchange Act, subsequent offering
periods may be provided in tender offers for "any and all" outstanding units of
a partnership. A subsequent offering period is an additional period of from
three to twenty business days following the expiration date of the offer,
including any extensions, in which limited partners may continue to tender units
not tendered in the offer for the offer price. Because of the remote possibility
that we may purchase fewer than all units tendered, a subsequent offering period
is not available to us.
6. CERTAIN FEDERAL INCOME TAX MATTERS.
The following summary is a general discussion of certain of the United
States federal income tax consequences of the offer that may be relevant to (i)
limited partners who tender some or all of their units for cash pursuant to our
offer, and (ii) limited partners who do not tender any of their units pursuant
to our offer. This discussion is based on the Internal Revenue Code of 1986, as
amended (the "Internal Revenue Code"), Treasury Regulations, rulings issued by
the Internal Revenue Service (the "IRS"), and judicial decisions, all as of the
date of this offer to purchase. All of the foregoing is subject to change or
alternative construction, possibly with retroactive effect, and any such change
or alternative construction could affect the continuing accuracy of this
summary. This summary is based on the assumption that your partnership is
operated in accordance with its organizational documents including its
certificate of limited partnership and agreement of limited partnership. 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), nor (except as otherwise expressly indicated) does
it describe any aspect of state, local, foreign or other tax laws. This summary
assumes that the units constitute capital assets in the hands of the limited
partners (generally, property held for investment). No advance ruling has been
or will be sought from the IRS regarding any matter discussed in this offer to
purchase. Further, no opinion of counsel has been obtained with regard to the
offer.
THE UNITED STATES FEDERAL INCOME TAX TREATMENT OF A LIMITED PARTNER
PARTICIPATING IN THE OFFER DEPENDS IN SOME INSTANCES ON DETERMINATIONS OF FACT
AND INTERPRETATIONS OF COMPLEX PROVISIONS OF UNITED STATES FEDERAL INCOME TAX
LAW FOR WHICH NO CLEAR PRECEDENT OR AUTHORITY MAY BE AVAILABLE. ACCORDINGLY, YOU
SHOULD CONSULT YOUR TAX ADVISOR REGARDING THE UNITED STATES FEDERAL, STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES OF SELLING THE INTERESTS IN YOUR PARTNERSHIP
REPRESENTED BY YOUR UNITS PURSUANT TO OUR OFFER OR OF A DECISION NOT TO SELL IN
LIGHT OF YOUR SPECIFIC TAX SITUATION.
TAX CONSEQUENCES TO LIMITED PARTNERS TENDERING UNITS FOR CASH. You will
recognize gain or loss on a sale of a unit of limited partnership interest of
your partnership equal to the difference between (i) your "amount realized" on
the sale and (ii) your adjusted tax basis in the unit sold. The "amount
realized" will be equal to the sum of the amount of cash received by you for the
unit sold pursuant to the offer plus the amount of partnership liabilities
allocable to the unit (as determined under Section 752 of the Internal Revenue
Code). Thus, your taxable gain and tax liability resulting from a sale of a unit
could exceed the cash received upon such sale.
ADJUSTED TAX BASIS. If you acquired your units for cash, your initial
tax basis in such units was generally equal to your cash investment in your
partnership increased by your share of partnership liabilities at the time you
acquired such units. Your initial tax basis generally has been increased by (i)
your share of partnership income and gains, and (ii) any increases in your share
of partnership liabilities, and has been decreased (but not below zero) by
-14-
(a) your share of partnership cash distributions, (b) any decreases in your
share of partnership liabilities, (c) your share of partnership losses, and (d)
your share of nondeductible partnership expenditures that are not chargeable to
capital. For purposes of determining your adjusted tax basis in your units
immediately prior to a disposition of your units, your adjusted tax basis in
your units will include your allocable share of partnership income, gain or loss
for the taxable year of disposition. If your adjusted tax basis is less than
your share of partnership 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 with respect to a unit pursuant to the offer will exceed the
cash proceeds realized upon the sale of such unit.
CHARACTER OF GAIN OR LOSS RECOGNIZED PURSUANT TO THE OFFER. Except as
described below, the gain or loss recognized by you on a sale of a unit pursuant
to the offer generally will be treated as a long-term capital gain or loss if
you held the unit for more than one year. Long-term capital gains recognized by
individuals and certain other noncorporate taxpayers generally will be subject
to a maximum United States federal income tax rate of 20%. If the amount
realized with respect to a unit of limited partnership interest of your
partnership that is attributable to your share of "unrealized receivables" of
your partnership exceeds the tax basis attributable to those assets, such excess
will be treated as ordinary income. Among other things, "unrealized receivables"
include depreciation recapture for certain types of property. In addition, the
maximum United States 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 units) held for more than one year is currently 25%
(rather than 20%) with respect to that portion of the gain attributable to
depreciation deductions previously taken on the Property.
If you tender a unit of limited partnership interest of your
partnership in the offer, you will be allocated a share of partnership taxable
income or loss for the year of tender with respect to any units sold. You will
not receive any future distributions on units tendered on or after the date on
which such units are accepted for purchase and, accordingly, you may not receive
any distributions with respect to such accreted income. Such allocation and any
partnership cash distributions 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
Internal Revenue Code limit the use of losses derived from passive activities,
which generally include investments in limited partnership interests such as
your 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 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 units is treated as a passive
activity, you may be able to reduce gain from the sale of your units pursuant to
the offer with passive 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 your sale,
you will generally be entitled to use your current and "suspended" passive
activity losses (if any) from your partnership and other passive sources to
offset that gain. In general, if you sell all or a portion of your units
pursuant to the offer and recognize 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
from your partnership that were not otherwise utilized against passive activity
income as described in the two preceding sentences will generally no longer be
suspended and will generally 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. You are urged to 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 reduce gain from the sale of units pursuant to the offer.
INFORMATION REPORTING, BACKUP WITHHOLDING AND FIRPTA. If you tender any
units, you must report the transaction by filing a statement with your United
States federal income tax return for the year of the tender which provides
certain required information to the IRS. To prevent the possible application of
back-up United States federal income tax withholding of 30% with respect to the
payment of the offer consideration, you are
-15-
generally required to provide us with your correct taxpayer identification
number. See the instructions to the acknowledgment and agreement set forth in
the letter of transmittal attached as Annex II.
Gain realized by a foreign person on the sale of a unit pursuant to the
offer will be subject to federal income tax under the Foreign Investment in Real
Property Tax Act of 1980. Under these provisions of the Internal Revenue Code,
the transferee of an interest held by a foreign person in a partnership which
owns United States real property generally is required to deduct and withhold
10% of the amount realized on the disposition. Amounts withheld would be
creditable against a foreign person's United States federal income tax liability
and, if in excess thereof, a refund could be claimed from the Internal Revenue
Service by filing a United States income tax return. See the instructions to the
acknowledgment and agreement set forth in the letter of transmittal attached as
Annex II.
TAX CONSEQUENCES TO NON-TENDERING AND PARTIALLY-TENDERING LIMITED
PARTNERS. Section 708 of the Internal Revenue 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 United
States federal income tax purposes. Your partnership's agreement of limited
partnership prohibits such a sale or exchange of units. If units are validly
tendered and not withdrawn that would cause such a transfer, we will accept for
payment and pay for those units so tendered pro rata according to the number of
units so tendered, with appropriate adjustments to avoid purchases of fractional
units. See "The Offer--Section 2. Acceptance for Payment and Payment for Units."
If your partnership is deemed to terminate for tax purposes, the
following federal income tax events will be deemed to occur: the terminated
partnership will be deemed to have contributed all of its assets (subject to its
liabilities) to a 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 to the remaining limited
partners in proportion to their respective interests in the old partnership in
liquidation of the old partnership.
You will not recognize any gain or loss upon such deemed contribution
of your partnership's assets to the new partnership or upon such deemed
distribution of interests in the new partnership, and your capital account in
your partnership will carry over to the new partnership. A termination of your
partnership for federal income tax purposes may change (and possibly shorten)
your holding period with respect to interests in your partnership that you
choose to retain. Gain recognized by you on the disposition of retained units
with a holding period of 12 months or less may be classified as short-term
capital gain and subject to taxation at ordinary income tax rates.
A termination of your partnership for federal income tax purposes may
also 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
for certain years following our offer if you do not tender all of your interests
in your partnership (thereby increasing the taxable income allocable to your
interests in your partnership each such year), but would have no effect on the
total depreciation deductions available over the useful lives of the assets of
your partnership. Additionally, upon a termination of your partnership, the
taxable year of your partnership will close for federal income tax purposes,
which could result in the recognition of partnership income, gain, or loss in an
earlier taxable period than such income, gain, or loss would otherwise be
reported for income tax purposes had your partnership not terminated.
TAX CONSEQUENCES OF FORECLOSURE. As of December 31, 2001, the Local
Partnerships were obligated to repay approximately $32,831,093.00 of mortgage
indebtedness. If any Local Partnership defaults on its obligation, and the
holder of the obligation successfully forecloses on the interest in the Property
held by one or more Local Partnerships, the Local Partnerships will recognize
taxable gain upon the transfer of the property in satisfaction of the mortgage.
The amount of such gain is equal to the excess of the sum of the amount due
under the indebtedness over the partnership's basis in the property.
Further, if your partnership defaults on any obligation secured by
interests in one or more Local Partnerships and the holder of the obligation
successfully forecloses on the interest in the Local Partnership, your
partnerships will recognize taxable gain upon the transfer of the interest in
the Local Partnership in satisfaction of such obligation. The amount of such
taxable gain is equal to the excess of the sum of the amount due under the
indebtedness plus your partnership's share of the Local Partnership's
liabilities over the partnership's basis in the interests in the Local
Partnership.
-16-
Although ordinarily gain recognized by the partnership as a result of a
foreclosure of property held by a Local Partnership will be taxed as capital
gain income, it is expected that all or a substantial portion of such gain will
be taxed as "unrecaptured section 1250 gain" or depreciation recapture gain that
is taxed the same as ordinary income to the partners. The maximum rate of tax at
which unrecaptured section 1250 gain may be taxed is 25%. Generally, the
unrecaptured section 1250 gain tax rate applies only to individuals, trusts and
estates. The maximum rate of tax at which ordinary income may be taxed is 38.6%.
Gain in excess of depreciation recapture gain and unrecaptured section
1250 gain generally will be taxed as section 1231 gain, which may be taxed at
capital gain rates (currently, the maximum capital gains tax rate is 20%)
depending upon a partner's individual tax circumstances. Generally, this special
capital gains tax rate applies only to individuals, trust and estates. However,
little, if any, of the gain is expected to be taxed as section 1231 gain.
In the event of such a foreclosure of an interest in a Local
Partnership, if the Local Partnership does not satisfy in full all of its
existing debt obligations, the Local Partnership (and thus, your partnership)
will generally recognize COD income, taxable as ordinary income. Any such COD
income will be allocated to the partners in accordance with the terms of the
partnership agreement.
In addition, a liquidation of a Local Partnership subsequent to such a
foreclosure also may result in the recognition of gain by your partnership. The
amount of such gain will be equal to the excess of (1) the amounts received by
the partnership from the Local Partnership, plus (2) your partnership's share of
the Local Partnership's liabilities, over (3) your partnership's basis in its
Local Partnership interest after adjustment for any gain recognized in
connection with foreclosure of the Local Partnership's property.
If a partner possesses suspended tax losses, tax credits, or other
items of tax benefit, such items may potentially be able to be used to reduce
any tax liability that arises with respect to the gain recognized as a result of
such a foreclosure of a Local Partnership's Property, COD income, and/or gain
from a liquidation of your partnership's interest in the Local Partnership. The
determination of whether a partner possesses suspended tax losses, tax credits,
or other items of tax benefit that may be used to reduce any gain resulting from
such a foreclosure of a Local Partnership's Property, COD income, and/or gain
from a liquidation of your partnership's interest in the Local Partnership will
depend upon each Partner's individual circumstances. Limited Partners are urged
to consult with their tax advisers in this regard.
Because there can be no assurance that any proceeds will be available
for distribution to the partners if such a foreclosure occurs, partners,
including the limited partners, will likely need to use funds from other sources
to satisfy any tax liabilities resulting from the recognition of any gain
relating to such foreclosure, or any COD income to the partners from the
partnership.
EACH LIMITED PARTNER IS URGED TO CONSULT HIS OR HER TAX ADVISOR
REGARDING THE SPECIFIC TAX CONSEQUENCES OF A FORECLOSURE OF AN INTEREST IN A
LOCAL PARTNERSHIP AS DESCRIBED HEREIN, INCLUDING THE APPLICATION OF FEDERAL,
STATE, LOCAL, FOREIGN AND OTHER TAX LAWS.
7. EFFECTS OF THE OFFER.
Because the general partner of your partnership is our subsidiary, we
have control over the management of your partnership. If we acquire more than a
majority of the outstanding limited partnership units pursuant to this offer,
such ownership would, when combined with our control of your partnership's
general partner, allow us to control the outcome of most voting decisions with
respect to your partnership. Even if we acquire a lesser number of units
pursuant to this offer, we may be able to significantly influence the outcome of
most voting decisions with respect to your partnership. In general, we will vote
the units owned by us in whatever manner we deem to be in our best interests,
which may not be in the interest of other limited partners. This could (1)
prevent non-tendering limited partners from taking action that they desire but
that we oppose and (2) enable us to take action desired by us but opposed by
non-tendering limited partners.
DISTRIBUTIONS TO US. If we acquire units in the offer, we will
participate in any subsequent distributions to limited partners to the extent of
the units purchased.
-17-
PARTNERSHIP STATUS. We believe our purchase of units in accordance with
the terms of our offer should not adversely affect the issue of whether your
partnership is classified as a partnership for federal income tax purposes.
BUSINESS. Our offer will not affect the operation of the Local
Partnerships owned by your partnership or the Property owned by the Local
Partnerships. We will continue to control the general partner of your
partnership. Consummation of the offer will not affect your agreement of limited
partnership, the operations of your partnership, the business and assets owned
by your partnership or any other matter relating to your partnership, except it
would result in us increasing our ownership of units. We have no current
intention of changing the fee structure for your general partner.
EFFECT ON TRADING MARKET; REGISTRATION UNDER 12(g) OF THE EXCHANGE ACT.
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 capital
and profits of your partnership to be transferred within such 12-month period.
During the last 12 months, one percent or less of the total interest in capital
and profits of your partnership has been transferred. If more units are validly
tendered and not withdrawn that would cause more than 50% of the total interest
in capital and profits of your partnership to be transferred within a 12-month
period, we will accept for payment and pay for those units so tendered pro rata
according to the number of units so tendered, with appropriate adjustments to
avoid purchases of fractional units. 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.
Further, if a substantial number of unitholders tender their units
pursuant to our offer, the result will be a reduction in the number of
unitholders in your partnership. In the case of certain kinds of equity
securities, a reduction in the number of securityholders might be expected to
result in a reduction in the liquidity and volume of activity in the trading
market for the security. In the case of your partnership, however, there is no
established public trading market for the units and, therefore, we do not
believe a reduction in the number of limited partners will materially further
restrict your ability to find purchasers for your units through secondary market
transactions.
The units are registered under Section 12(g) of the Exchange Act, which
means, among other things, that your partnership is required to file periodic
reports with the SEC and to comply with the SEC's proxy rules. We do not expect
or intend that consummation of the offer will cause the units to cease to be
registered under Section 12(g) of the Exchange Act. If the units were to be held
by fewer than 300 persons, your partnership could apply to de-register the units
under the Exchange Act. Your partnership currently has 1,583 unitholders. If
units are validly tendered (and not properly withdrawn) and the purchase of
those units would result in there being fewer than 320 unitholders in your
partnership, we will not purchase any of the units tendered, terminate the
offer, and return all tendered units to the tendering limited partners to assure
that there is no reasonable likelihood that the partnership would have fewer
than 320 unitholders as a result of the offer. See "The Offer--Section 17.
Conditions of the Offer."
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.
8. INFORMATION CONCERNING US AND CERTAIN OF OUR AFFILIATES.
GENERAL. We are AIMCO Properties, L.P., a Delaware limited partnership
("AIMCO Properties"). Together with our subsidiaries, we conduct substantially
all of the operations of Apartment Investment and Management Company, a Maryland
corporation ("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 by the National Multi Housing Council, we believe
that AIMCO is one of the largest owners and managers of multi-family apartment
properties in the United States, with a total portfolio of 326,006 apartment
units in 1,841 properties located in 47 states, the District of Columbia and
Puerto Rico. As of June 30, 2002, AIMCO:
o owned and controlled (consolidated) and managed 170,592 units
in 663 apartment properties;
-18-
o held an equity interest (unconsolidated) and managed 128,911
units in 966 apartment properties; and
o managed for third party owners 26,503 units in 212 apartment
properties, primarily pursuant to long-term, non-cancelable
agreements.
AIMCO's Class A Common Stock is listed and traded on the New York Stock
Exchange under the symbol "AIV."
Our general partner is AIMCO-GP, Inc., a Delaware corporation, which is
a wholly-owned subsidiary of AIMCO. Our principal executive offices are located
at Colorado Center, Tower Two, 2000 South Colorado Boulevard, Suite 2-1000,
Denver, Colorado 80222, and our telephone number is (303) 757-8101.
The names, positions and business addresses of the directors and
executive officers of AIMCO and your general partners (each of which is our
subsidiary), as well as a biographical summary of the experience of such persons
for the past five years or more, are set forth on Annex I attached hereto and
are incorporated herein by reference.
We and AIMCO are both subject to the information and reporting
requirements of the Exchange Act and, in accordance therewith, file reports and
other information with the Securities and Exchange Commission (the "SEC")
relating to our business, financial condition and other matters, including the
complete financial statements summarized below. Such reports and other
information may be inspected at the public reference facilities maintained by
the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549,
Citicorp Center, 500 West Madison Street, Chicago, Illinois 60661, and the
Woolworth Building, 233 Broadway, New York, New York 10279. Copies of such
material can also be obtained from the Public Reference Room of the SEC in
Washington, D.C. at prescribed rates. The SEC also maintains a site on the World
Wide Web at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the SEC. In addition, information filed by AIMCO with the New York Stock
Exchange may be inspected at the offices of the New York Stock Exchange at 20
Broad Street, New York, New York 10005.
For more information regarding AIMCO Properties, please refer to our
Annual Report on Form 10-K/405 for the year ended December 31, 2001, filed April
1, 2002 (particularly the management's discussion and analysis of financial
condition and results of operations) and other reports and documents we have
filed with the SEC.
Except as described in "The Offer--Section 9. Background and Reasons
for the Offer", and "The Offer--Section 11. Conflicts of Interest and
Transactions with Affiliates" and "The Offer--Section 13. Certain Information
concerning your Partnership--Beneficial Ownership of Interests in your
Partnership," neither we nor, to the best of our knowledge, any of the persons
listed on Annex I attached hereto, (i) beneficially own or have a right to
acquire any units, (ii) has effected any transaction in the units in the past 60
days, or (iii) have any contract, arrangement, understanding or relationship
with any other person with respect to any securities of your partnership,
including, but not limited to, contracts, arrangements, understandings or
relationships concerning transfer or voting thereof, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies. Neither we nor our affiliates intend to
tender any units beneficially owned in this offer.
SUMMARY SELECTED FINANCIAL INFORMATION FOR AIMCO PROPERTIES, L.P.
Certain financial information relating to AIMCO Properties is hereby
incorporated by reference to the audited financial statements for AIMCO
Properties' 2001 and 2000 fiscal years set forth in Part II, Item 6 of AIMCO
Properties' Annual Report on Form 10-K405 for the fiscal year ended December 31,
2001 filed with the SEC on April 1, 2002 (the "2001 10-K") and the unaudited
financial statements for the quarters ended June 30, 2002 and 2001 set forth in
Part I, Item 1 of AIMCO Properties' Quarterly Report on Form 10-Q for the
quarter ended June 30, 2002 filed with the SEC on August 14, 2002 (the "2001
10-Q"). These reports may be inspected at, and copies may be obtained from, the
same places and in the manner set forth above.
Set forth below is certain selected consolidated financial information
relating to AIMCO Properties and its subsidiaries which has been derived from
the financial statements contained in the 2001 10-K and the 2001 10-Q.
-19-
More comprehensive financial information is included in the 2001 10-K, the 2001
10-Q and other documents filed by AIMCO Properties with the SEC. The financial
information that follows is qualified in its entirety by reference to these
reports and other documents, including the financial statements and related
notes contained therein, which may be obtained as provided below.
AIMCO PROPERTIES L.P.
(in thousands, except per unit data)
<Table>
<Caption>
FOR THE YEAR FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
-------------------------- --------------------------
Operating Data: 2001 2000(1) 2002 2001
----------- ----------- ----------- -----------
Rental and other property revenues $ 1,272,734 $ 1,042,536 $ 688,710 $ 631,288
Property operating and owned management expenses (500,716) (437,148) (273,277) (243,116)
Income from rental property operations 772,018 605,388 415,433 388,172
Income (loss) from investment management business 27,591 15,795 15,759 14,064
General and administrative expenses (18,461) (18,028) (8,017) (8,549)
Depreciation of rental property(2) (336,794) (295,702) (139,907) (185,754)
Interest expense (305,831) (268,004) (168,376) (162,754)
Interest and other income, net 68,594 66,206 45,268 32,038
Operating earnings 148,704 106,008 150,368 57,222
Distribution to minority interest partners in excess of income (46,359) (24,375) (10,972) (10,814)
Gain (loss) on disposition of real estate property 18,719 28,084 6,106 2,779
Net income 121,064 109,717 145,502 49,187
Net income attributed to preferred stockholders 100,134 70,217 57,797 45,394
Net income attributed to common stockholders 20,930 39,500 87,705 3,793
Other Information:
Total owned or controlled properties (end of period) 552 566 663 575
Total owned or controlled apartment units (end of period) 156,142 153,872 170,592 156,572
Total equity properties (end of period) 574 683 966 607
Total equity apartment units (end of period) 92,626 111,748 128,911 99,594
Units under management (end of period) 31,520 60,669 26,503 56,243
Basic earnings per unit $ 0.25 $ .53 $ 0.96 $ 0.05
Dividends paid per unit $ 0.25 $ .52 $ 0.94 $ 0.05
Distributions paid per common OP unit $ 3.12 $ 2.80 $ 1.64 $ 1.56
BALANCE SHEET INFORMATION:
Real estate, before accumulated depreciation $ 8,241,058 $ 6,837,954 $ 9,556,052 $ 7,539,503
Real estate, net of accumulated depreciation 6,643,627 5,935,346 7,830,140 6,289,484
Total assets 8,200,526 7,683,425 9,459,858 7,838,815
Total indebtedness 4,631,332 4,217,666 5,197,100 4,582,952
Mandatorily redeemable convertible preferred securities 20,637 32,330 20,637 25,347
Partners' capital 3,080,071 2,831,964 3,680,427 3,018,642
</Table>
(1) Certain reclassifications have been made to 2001 and 2000 amounts to conform
with the 2002 presentation. These reclassifications represent certain
eliminations of self-charged management fee income and expenses in accordance
with consolidation accounting principles, as well as discontinued operations
resulting from the adoption of Statement of Financial Accounting Standard No.
144. Effective January 1, 2001, AIMCO Properties began consolidating its
previously unconsolidated subsidiaries. Prior to this date, AIMCO Properties had
significant influence but did not have control. Accordingly, such investments
were accounted for under the equity method.
(2) Effective July 1, 2001 for certain assets and October 1, 2001 for the
majority of the portfolio, AIMCO Properties extended the estimated useful lives
of its buildings and improvements from a weighted average composite life of 25
years to a weighted average composite life of 30 years. This change increased
net income by approximately $36 million or $0.42 per diluted unit in 2001.
-20-
For the years ended December 31, 2001 and 2000 and the quarters ended
June 30, 2002 and 2001 AIMCO Properties' FFO is calculated as follows (amounts
in thousands):
<Table>
<Caption>
FOR THE YEAR FOR THE SIX MONTHS
ENDED DECEMBER 31, ENDED JUNE 30,
---------------------- ----------------------
2001 2000 2002 2001
--------- --------- --------- ---------
Net income $ 121,064 $ 109,717 $ 145,502 $ 49,187
Real estate depreciation, net of minority interests 324,649 274,492 123,921 176,079
Real estate depreciation related to unconsolidated entities 57,506 59,360 17,202 28,867
Distribution to minority interest partners in excess of
Income 47,701 24,375 10,972 10,814
Amortization of intangibles 18,729 12,068 2,040 9,233
Income tax arising from disposition of real estate property 3,202 768 --
Gain on disposition of real estate property (18,848) (26,335) (8,493) (1,556)
Gain on disposition of land 3,843 -- -- --
Deferred income tax benefit -- 154 -- --
Interest expenses on mandatorily redeemable convertible
Preferred securities 1,568 8,869 517 1,014
Preferred unit distributions (35,747) (26,112) (27,978) (14,861)
--------- --------- --------- ---------
Funds from operations 528,653 439,830 267,366 262,640
</Table>
9. BACKGROUND AND REASONS FOR THE OFFER.
GENERAL. We are in the business of acquiring direct and indirect
interests in apartment properties such as the Properties. 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.
BACKGROUND. The general partners of your partnerships are AIMCO
Capital, Inc., a California corporation ("ACI"), and National Partnership
Investment Associates, a California limited partnership. The business of your
partnership is conducted primarily by ACI.
Prior to December 30, 1998, ACI was a wholly owned subsidiary of Casden
Investment Corporation ("CIC"), which is wholly owned by Alan I. Casden. On
December 30, 1998, Casden Properties Operating Partnership, L.P. (the "Operating
Partnership"), a majority owned subsidiary of Casden Properties Inc. ("Casden"),
a real estate investment trust organized by Alan I. Casden, acquired 100% of the
nonvoting stock and 5% of the voting stock of ACI, corresponding to a 95.25%
economic interest. Alan Casden (through an affiliate) retained 95% of the voting
stock.
On December 3, 2001, Casden and the Operating Partnership entered into
a merger agreement and certain other transaction documents with AIMCO and
certain of its subsidiaries, pursuant to which, on March 11, 2002, AIMCO
acquired Casden and its subsidiaries, including ACI (the "Casden Acquisition").
AIMCO's affiliates own less than one percent of the outstanding units. AIMCO
owns a 1% interest held by the general partner.
During our negotiations with Casden, we decided that if the merger with
Casden were consummated, we could also benefit from making offers for limited
partnership interests of some of the limited partnerships formerly controlled or
managed by Casden (the "Casden Partnerships"). Such offers would provide
liquidity for the limited partners of the Casden Partnerships and would provide
us with a larger asset and capital base and increased diversification and an
opportunity to benefit from increases in the value of the underlying properties.
While some of the Casden Partnerships are public partnerships and information
is publicly available on such partnerships for weighing the benefits of making a
tender offer, such public partnerships only hold limited partnership interests
in underlying housing projects. We do not control or have any relationship with
the general partners of the Local Partnerships other than as set out in the
partnership agreements for the Local Partnerships. As a result it is very
difficult to ascertain the value of these interests. With respect to many of the
private partnerships (not held by your partnership), information about such
partnerships comes principally from the general partner. Our control of the
-21-
general partner makes it possible for us to obtain access to such information.
Further, such control also means that we control the operations of the
partnerships. Casden did not propose that we conduct such tender offers; rather,
we initiated the offers on our own. AIMCO Properties has previously not made any
offer to the unitholders of your partnership. We are making this offer with a
view to providing you with liquidity for your investment, but we may not make
any more offers and will not be bound to do so.
Except as set forth herein and in "The Offer--Section 15. Source of
Funds," neither we, nor, to the best of our knowledge, any of our affiliates,
(i) beneficially own or have a right to acquire any units, (ii) has effected any
transactions in the units in the past 60 days, or (iii) have any contract,
arrangement, understanding or relationship with any other person with respect to
any securities of your partnership, including, but not limited to, contracts,
arrangements, understandings or relationships concerning transfer or voting
thereof, joint ventures, loan or option arrangements, puts or calls, guarantees
of loans, guarantees against loss, or the giving or withholding of proxies.
ALTERNATIVES CONSIDERED BY YOUR GENERAL PARTNER. Before we commenced
this offer, your general partner (which is our subsidiary) considered a number
of alternative transactions. The following is a brief discussion of the
advantages and disadvantages of the alternatives that could have been pursued by
your general partner.
CONTINUATION OF THE PARTNERSHIP WITHOUT THE OFFER
One alternative would be for the partnership to continue operation in
accordance with its existing business strategy and its partnership agreement.
However, the partnership is not currently realizing material cash flow for
distribution to the limited partners and does not anticipate realizing
sufficient cash flow in the future to enable it to make distributions to limited
partners. The partnership has recognized portfolio income in prior taxable
periods, which cannot be reduced by the passive losses generated by you
partnership. If this situation were to continue in future periods, you may have
to use cash from other sources to satisfy any tax liability from the recognition
of portfolio income by the partnership.
The other primary disadvantage of continuing the operations of your
partnership is that you would be limited in your ability to sell your units.
Because there appears to be no active trading market for the units and because
there are no immediate economic benefits from continued ownership of units,
limited partners may not be able to liquidate their investment in the units
while the partnership remains in existence.
MARKETING THE PROPERTIES FOR SALE TO THIRD PARTIES
The general partner also considered marketing the Properties to third
parties. Because your partnership owns limited partnership interests in the
Local Partnerships that hold title to the Properties, your general partner could
not sell the Properties without the consent of the general partners of the Local
Partnerships. The general partners of such Local Partnerships are unaffiliated
with the general partner of your partnership, and your general partner has no
ability to influence the general partners of the Local Partnerships. In some
circumstances, the general partners of the Local Partnerships may not be
inclined to sell Properties if the sale would deprive them of management fees,
particularly where the management fees payable to such general partners exceed
the cost of management operations. There can be no assurance that any of the
general partners of the Local Partnerships would be willing to cause the sale of
any of the Properties. Consequently, the Properties can only be marketed in
cooperation with the general partners of the Local Partnerships. In light of the
limited cash flow currently generated by the Properties, the degree of control
the general partners of the Local Partnerships exercise over the Properties and
the anticipated adverse consequences of the recent changes in the laws and
policies applicable to HAP Contracts, the general partner does not believe that
a favorable market for the Properties currently exists. The general partner
believes it would be difficult to find a single buyer for the Properties as a
group, and that selling the Properties on a Property-by-Property basis would
involve an extensive negotiating process over an extended period of time. During
the continuation of such process, the partnership would continue to be
responsible for all costs relating to the Properties and the partnership's
ongoing administrative expenses and there would likely be higher transaction
costs, such as brokers' fees and attorneys' fees, relating to sale of the
Properties if they were sold individually. The general partner has not received,
and has not been advised of, any bona fide third party offers or indications of
interest for any of the Properties.
-22-
While the general partner has not consulted any real estate brokers or
other real estate professionals concerning potential purchasers for the
interests in the Local Partnerships, based upon the general partner's experience
and familiarity with the market for low income housing, the general partner is
of the opinion that there are no potential bidders for the interests in the
Local Partnerships at a purchase price comparable to the value used in computing
the offer price. The general partner's determination was based upon a number of
factors, including the need for a purchaser to negotiate the purchase of the
interests in the Local Partnerships with the partnership and enter into a
transaction with the partnership that would require limited partner approval;
the need for a purchaser to negotiate separate transactions with each of the
general partners of the Local Partnerships; the need for a purchaser to have
sufficient capital to purchase the interests of the general partners of the
Local Partnerships and the partnership, and to purchase mortgage loans
encumbering the Properties and negotiate restructurings, which the general
partner believes is necessary to realize a return on the investment in the
Properties; and the impact of recent changes in the law and regulations of the
United States Department of Housing and Urban Development ("HUD") relating to
HAP Contracts, which impacts the value of the Properties. As a result, the
general partner is of the opinion that any transaction with a potential
purchaser would be time consuming and difficult to consummate and unlikely to
result in a purchase price higher than the value of the Properties we used in
computing our offer price. However, there can be no assurance that a higher
price would not be received if the Properties were actively marketed.
Furthermore, the partnership agreements of the Local Partnerships do not grant
the limited partner of such partnerships, which is your partnership, the right
to remove the local general partner or to compel a sale of the assets of such
Local Partnership. Because there appears to be no market for the Properties and
the partnership cannot cause a sale of the Properties, the Properties are likely
to remain under the control of the general partners of the Local Partnerships
indefinitely.
If the partnership liquidated before the Local Partnerships liquidated,
the general partner is of the opinion that the distribution of limited
partnership interests held by the partnership would decrease the benefits of
holding a portfolio of different properties, and could increase expenses of
ownership of the Local Partnerships, for example, by causing the Local
Partnerships to be held directly by the limited partners, with separate
reporting obligations, including potential reporting obligations with the
Securities and Exchange Commission. The general partner has concluded that it
would be neither feasible nor in the limited partners' best interest to force
the liquidation of the partnership.
ALTERNATIVE TRANSACTIONS CONSIDERED BY US. Before we decided to make
our offer, we considered a number of alternative transactions. One alternative
was to merge your partnership with us, which would require a vote of all the
unitholders. Another option we considered was to purchase your partnership's
interests and the local general partner interests in the Local Partnerships,
which would require a general partner willing to sell its general partnership
interests in the Local Partnership. If we offered to acquire substantially all
of your partnership's assets, that acquisition would require a vote of all of
the unitholders. If any alternative transaction were approved, all of the
unitholders, including those who wish to continue to participate in the
ownership of your partnership's interests in the Local Partnerships, would be
forced to participate in the transaction. If neither transaction were approved,
all of the unitholders, including those who would like to dispose of their
investment in your partnership's interests in the Local Partnerships, would be
forced to retain their investment. We also considered an offer to exchange units
in your partnership for limited partnership interests in AIMCO Properties.
However, because of the expense and delay associated with making such an
exchange offer, we decided to make an offer for cash only. In addition, our
historical experience has been that most holders of limited partnership units,
when given a choice, prefer cash.
DETERMINATION OF OFFER PRICE. In establishing the offer price, we
principally considered:
o The net present value of the anticipated net cash flow likely
to be received by your partnership from 2002 through the
maturity of the existing mortgage maturity.
o The fact that the annualized net operating income of the
partnership for the first six months of 2002 declined by
2.83%, as compared to 2001.
o Prices at which units have recently sold to the extent such
information is available to us. In connection with this
review, we noted that an unaffiliated third party recently
offered $35.00 per unit for your units in an offer to purchase
up to 240 units.
-23-
o As reflected on your partnership's balance sheet, dated June
30, 2002, your partnership had reserved cash and cash
equivalents of $139,881 or approximately $26.25 per unit. See
"The Offer - Section 13. Certain Information Concerning Your
Partnership."
o The absence of a trading market for the units.
Our determination of the offer price was based on our review and
analysis of the foregoing information, the other financial information and the
analyses concerning the partnership summarized below, and we considered the
actual and pro forma operating results of the partnership.
VALUATION OF UNITS. We determined our offer price by estimating the
value of the anticipated net cash flow the partnership is expected to receive
from the Local Partnerships. We determined the anticipated net cash flow by
aggregating the value of the following: (i) available cash and cash equivalents
resulting from the operations of the Local Partnerships as distributed to your
partnership, and (ii) the net present value of the anticipated net cash flow
from 2002 through the maturity of the existing mortgage maturity. Cash flow will
be affected by the expiration of any applicable HAP Contracts. In making the
foregoing calculations, we assumed that (i) the rental payments under the leases
would increase by the maximum amount permitted under any HAP Contract and (ii)
upon their expiration, any HAP Contract would not be renewed and that the rental
rates under the leases would be at the then fair market rent, which may be more
or less than the current amounts charged. We determined appropriate discount
rates using our best judgment, but our valuation is a subjective estimate and
someone else might apply a different discount rate. Although we believe this
method of determination is reasonable for determining the value of units in the
partnerships, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. If
actual Property income, or different assumptions were used, a higher valuation
could result. Other methods of valuing your units could also result in a higher
valuation. The proceeds that you would receive if you sold your units to someone
else or if your partnerships were actually liquidated might be higher or lower
than our offer price.
<Table>
Gross valuation of partnership properties $ 34,587,227
Plus: Cash and cash equivalents 383,668
Plus: Other partnership assets, net of security deposits 984,572
Less: Mortgage debt, including accrued interest (32,758,771)
Less: Loans from Partners (396,618)
Less: Accounts payable and accrued expenses (381,141)
Less: Other liabilities (753,280)
------------
Partnership valuation before taxes and certain costs 1,665,657
Less: Closing costs (1,037,617)
------------
Estimated net valuation of your partnership before certain distributions & syndicate level costs 628,040
Percentage of estimated net valuation allocated to holders of units 99%
------------
Estimated net valuation of units 621,760
Total number of units 5,328.00
============
Cash consideration per unit $ 117.00
============
</Table>
COMPARISON OF OFFER PRICE TO ALTERNATIVE CONSIDERATION. To assist
holders of units in evaluating the offer, your general partner, which is our
subsidiary, has attempted to compare the offer price against: (a) prices at
which the units have sold on the secondary market and (b) estimates of the value
of your units on a liquidation basis. The general partner of your partnership is
of the opinion that analyzing the alternatives in terms of estimated value,
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.
The results of these comparative analyses are summarized in the chart
below. You should bear in mind that some of the alternative values are based on
a variety of assumptions that have been made by us. These assumptions relate to,
among other things, the operating results since December 31, 2001, as to income
and expenses of the Local
-24-
Partnerships, other projected amounts and the capitalization rates that may be
used by prospective buyers if your partnership assets were to be liquidated.
In addition, these estimates are based upon certain information
available to your general partner, which is our subsidiary, or an affiliate 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 or an affiliate 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. 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 assets are sold and changes in availability of capital to finance
acquisitions of apartment properties.
Under your partnership's agreement of limited partnership, the term of
the partnership will continue until December 31, 2031, unless sooner terminated
as provided in the agreement or by law.
<Table>
<Caption>
COMPARISON TABLE PER UNIT
---------------- ------------
Cash offer price ............................................. $ 117.00
Alternatives
Highest price on secondary market........................ $ 71.26(1)
Estimated liquidation proceeds........................... $ 117.00
</Table>
(1) Since January 1, 2000.
PRICES ON SECONDARY MARKET. Secondary market sales information is not a
reliable measure of value because of the limited amount of any known trades.
Except for offers made by us and unaffiliated third parties, privately
negotiated sales and sales through intermediaries are the only means which may
be available to a limited partner to liquidate an investment in units (other
than our offer) because the units are not listed or traded on any exchange or
quoted on Nasdaq, on the Electronic Bulletin Board, or in "pink sheets."
Secondary sales activity for the units, including privately negotiated sales,
has been limited and sporadic.
Set forth below are the high and low sale prices of units for the
periods listed below as reported by The Partnership Spectrum, which is an
independent, third-party source. The gross sales prices reported by The
Partnership Spectrum do not necessarily reflect the net sales proceeds received
by sellers of units, which typically are reduced by commissions and other
secondary market transaction costs to amounts less than the reported price. The
Partnership Spectrum represents only one source of secondary sales information,
and other services may contain prices for the units that equal or exceed the
sales prices reported in The Partnership Spectrum. We do not know whether the
information compiled by The Partnership Spectrum is accurate or complete.
SALES PRICES OF PARTNERSHIP UNITS, AS REPORTED BY THE PARTNERSHIP SPECTRUM
<Table>
<Caption>
High Low
---- ---
Period Ended June 30, 2002: ................................ N/A N/A
Year Ended December 31, 2001: .............................. N/A N/A
Year Ended December 31, 2000: .............................. N/A N/A
</Table>
Set forth in the table below are the high and low sales prices of units
for the periods listed below, as reported by the American Partnership Board,
which is an independent, third-party source. The gross sales prices reported by
American Partnership Board do not necessarily reflect the net sales proceeds
received by sellers of units, which typically are reduced by commissions and
other secondary market transaction costs to amounts less than the reported
prices. The American Partnership Board represents one source of secondary sales
information, and other
-25-
services may contain prices for units that equal or exceed the sales prices
reported by the American Partnership Board. We do not know whether the
information compiled by the American Partnership Board is accurate or complete.
SALES PRICES OF PARTNERSHIP UNITS, AS REPORTED BY THE AMERICAN PARTNERSHIP BOARD
<Table>
<Caption>
High Low
------ ---
Period Ended June 30, 2002: ................................ N/A N/A
Year Ended December 31, 2001: .............................. N/A N/A
Year Ended December 31, 2000: .............................. $71.26 N/A
</Table>
PRIOR TENDER OFFERS. We are aware that certain unaffiliated third
parties may have offered to acquire units in your partnership in exchange for
cash. These tender offers have not been registered with the SEC, and we may be
unaware of the amounts offered, terms, tendering parties or number of units
involved in all such offers. We are aware, however, of the following third party
tender offers in the last two years: On July 21, 2000, a third party commenced a
tender offer for $39.00 per unit; on June 21, 2002, a third party commenced a
tender offer for $30.00 per unit for up to 523 units; and on August 1, 2002 a
third party commenced a tender offer for $35.00 per unit for up to 240 units. We
believe that our offer provides significantly greater value than the other
pending offer.
ESTIMATED LIQUIDATION PROCEEDS. Liquidation value is a measure of the
price at which the assets of your partnership would sell if disposed of by your
partnership in an arms-length transaction to a willing buyer that has access to
relevant information regarding the historical revenues and expenses of the
business. Your general partner, which is our subsidiary, estimated the
liquidation value of the units using the same direct capitalization method and
assumptions as we did in valuing the units for the offer price. The liquidation
analysis assumes that your partnership's property is sold to an independent
third party at the current property value, that other balance sheet assets
(excluding amortizing assets) and liabilities of your partnership are sold at
their book value, and that the net proceeds of sale are allocated to the
unitholders 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 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 are disposed of in an orderly manner and are
not sold in forced or distressed in which assets might be sold at substantial
discounts to their actual fair market value.
ALLOCATION OF CONSIDERATION. We have allocated to the unitholders the
amount of the estimated net valuation of your partnership based on your
partnership's agreement of limited partnership as if your partnership were being
liquidated at the present time.
10. POSITION OF THE GENERAL PARTNER OF YOUR PARTNERSHIP WITH RESPECT TO THE
OFFER.
The partnership and the general partner of your partnership (which is
our subsidiary) have provided the following information for inclusion in this
offer to purchase:
The general partner of your partnership is remaining neutral and makes
no recommendation as to whether you should tender or refrain from tendering your
units in the offer. You must make your own decision whether or not to
participate in any offer, based upon a number of factors, including several
factors that may be personal to you, such as your financial position, your need
or desire for liquidity, your preferences regarding the timing of when you might
wish to sell your units, other financial opportunities available to you, and
your tax position and the tax consequences to you of selling your units.
-26-
Without quantifying or otherwise attaching any particular weight to any
of the following factors or information, you may want to consider the following:
o The offer gives you an opportunity to make an individual
decision on whether to tender your units or to continue to
hold them.
o The offer price and the method used to determine the offer
price.
o The offer price is based on an estimated value of your
partnership's interests in the Local Partnerships that has
been determined using a method believed to reflect the
valuation by buyers in the market for similar assets.
o The prices at which the units have recently sold, to the
extent such information is available.
o The trading market for your units may not be a reliable
measure of value.
o An analysis of possible alternative transactions, including an
asset sale.
o The financial condition and results of operations of your
partnership.
o The fact that if your partnership were liquidated - as opposed
to continuing - the general partner (which is our affiliate)
would not receive the substantial fees it currently receives.
As discussed in "Section 9. Background and Reasons for the
Offer - Alternatives Considered by your General Partner," we
do not believe that liquidation of the partnership is in the
best interests of the unitholders. Therefore, we believe that
the fees paid to the general partner would continue even if
the offer was not consummated. We are not proposing to change
the current fee arrangements.
Except for this offer, neither the general partner of your partnership
or its affiliates have any plans or arrangements to tender any units. Except as
otherwise provided in "The Offer--Section 12. Future Plans of the Purchaser,"
the general partner does not have any present plans or proposals which relate to
or would result in an extraordinary transaction, such as a merger,
reorganization or liquidation, involving your partnership; a purchase or sale or
transfer of a material amount of your partnership's assets; or any changes in
your partnership's present capitalization, indebtedness or distribution
policies. For information relating to certain relationships between your
partnership and its general partner, on one hand, and AIMCO and its affiliates,
on the other and conflicts of interests with respect to the tender offer, see
"The Offer--Section 9. Background and Reasons for the Offer" and "The
Offer--Section 11. Conflicts of Interest and Transactions with Affiliates." See
also "The Offer--Section 9. Background and Reasons for the Offer--Comparison to
Alternative Consideration--Prior Tender Offers" for certain information
regarding transactions in units of your partnership.
11. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES.
CONFLICTS OF INTEREST WITH RESPECT TO THE OFFER. The general partner of
your partnership became a subsidiary of AIMCO on March 11, 2002, when AIMCO
merged with Casden. Accordingly, the general partner of your partnership has
substantial conflicts of interest with respect to the offer. As a consequence of
our ownership of units, we may have incentives to seek to maximize the value of
our ownership of units, which in turn may result in a conflict for your general
partner in attempting to reconcile our interests with the interests of the other
limited partners. 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 management fees paid to the general partner of your
partnership for managing your partnership. Additionally, we desire to purchase
units at a low price and you desire to sell units at a high price. Such
conflicts of interest in connection with the offer differ from those conflicts
of interest that currently exist for your partnership. YOU ARE URGED TO READ
THIS OFFER TO PURCHASE IN ITS ENTIRETY BEFORE DECIDING WHETHER TO TENDER YOUR
UNITS. The general partner makes no recommendation as to whether you should
tender or refrain from tendering your units.
-27-
CONFLICTS OF INTEREST THAT CURRENTLY EXIST FOR YOUR PARTNERSHIP. We own
the general partner of your partnership. The general partner is entitled to
receive 0.4 percent of the partnership's original remaining invested assets. The
general partner of your partnership received total fees of $175,792 for the
years ended December 31, 2000 and 2001 and total reimbursements of $14,962 in
2000 and $19,368 in 2001. We have no current intention of changing the fee
structure for your general partner.
COMPETITION AMONG PROPERTIES. Because AIMCO and your partnership both
invest in apartment properties, these properties may compete with one another
for tenants. Furthermore, you should bear in mind that AIMCO may acquire
properties in the general market areas where your partnership's property is
located. We believe that this concentration of properties in a general market
areas will facilitate overall operations through collective advertising efforts
and other operational efficiencies. In managing AIMCO's properties, we will
attempt to reduce conflicts between competing properties by referring
prospective customers to the property considered to be most conveniently located
for the customer's needs.
FUTURE OFFERS. Although we have no current plans to conduct future
tender offers for your units, our plans may change based on future
circumstances, including tender offers made by third parties. Any such future
offers that we might make could be for consideration that is more or less than
the consideration we are currently offering.
TRANSACTIONS WITH AFFILIATES. On December 30, 1998, the partnership
sold its limited partnership interests in 7 Local Partnerships to Casden
Properties Operating Partnership, L.P. (the "Operating Partnership"). The sale
resulted in net cash proceeds to the partnership of $5,250,000 and a net gain of
$4,002,592. The cash proceeds were held in escrow at December 31, 1998 and were
collected subsequent to year-end. In March 1999, the partnership made cash
distributions of $4,950,000 to the limited partners and $50,000 to the general
partners, using proceeds from the sale of the partnership interests.
The Operating Partnership purchased such limited partner interests for
cash, which it raised in connection with a private placement of its equity
securities. The purchase was subject to, among other things, (i) the purchase of
the general partner interests in the local limited partnerships by the Operating
Partnership; (ii) the approval of HUD and certain state housing finance
agencies; and (iii) the consent of the limited partners to the sale of the local
limited partnership interests held for investment by your partnership.
In August 1998, a consent solicitation statement was sent to the
limited partners setting forth the terms and conditions of the purchase of the
limited partners' interests held for investment by the partnership, together
with certain amendments to the partnership agreement and other disclosures of
various conflicts of interest in connection with the proposed transaction. Prior
to the sale of the partnership interests, the consents of the limited partners
to the sale and amendments to the partnership agreement were obtained.
12. FUTURE PLANS OF THE PURCHASER.
As described above under "The Offer--Section 9. Background and Reasons
for the Offer," we own the general partner and thereby control the management of
your partnership. We currently intend that, upon consummation of the offer, we
will hold the units acquired and 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 partnership operations.
Although we have no present intention to do so, we may acquire
additional units or sell units after completion or termination of the offer. Any
acquisition may be made through private purchases, 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 AIMCO Properties or other consideration. We
also may consider selling some or all of the units we acquire pursuant to this
offer to persons not yet determined, which may include our affiliates. We may
also buy your partnership's property, although we have no present intention to
do so. There can be no assurance, however, that we 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.
-28-
Except as set forth herein, we do not have any present plans or
proposals which relate to or would result in an extraordinary transaction, such
as a merger, reorganization or liquidation, involving your partnership; a
purchase or sale or transfer of a material amount of your partnership's assets;
any changes in composition of your partnership's senior management or personnel
or their compensation; any changes in your partnership's present capitalization,
indebtedness or distribution policy; or any other material changes in your
partnership's structure or business. We or our affiliates may loan funds to your
partnership which may be secured by your partnership's assets. If any such loans
are made, upon default of such loans, we or our affiliates could seek to
foreclose on the loan and related mortgage or security interest. Your
partnership is a limited partner in the Local Partnerships, and as a result,
your general partner has no authority or control over the operation or
disposition of the Properties or other assets owned by those Local Partnerships.
We expect that, consistent with your general partner's fiduciary obligations,
the general partner will seek and review opportunities, including opportunities
identified by us, to engage in transactions which could benefit your
partnership, such as sales or refinancings of assets or a combination of the
partnership with one or more other entities, with the objective of seeking to
maximize returns to limited partners.
We have been advised that the possible future transactions the general
partner expects to consider on behalf of your partnership include: (i) payment
of extraordinary distributions; (ii) refinancing, reducing or increasing
existing indebtedness of the Properties; (iii) sales or exchanges of Properties
owned by Local Partnerships in which the general partner is our affiliate; and
(iv) mergers or other consolidation transactions involving the partnership. Any
such merger or consolidation transaction could involve other limited
partnerships in which your general partner or its affiliates serve as general
partners, or a combination of the partnership with one or more existing,
publicly traded entities (including, possibly, affiliates of AIMCO), in any of
which limited partners might receive cash, common stock or other securities or
consideration. There is no assurance, however, as to when or whether any of the
transactions referred to above might occur. If any such transaction is effected
by the partnership and financial benefits accrue to its limited partners, we
will participate in those benefits to the extent of our ownership of units. The
agreement of limited partnership prohibits limited partners from voting on
actions taken by the partnership, unless otherwise specifically permitted by the
partnership agreement. Limited partners may vote on a liquidation, and if we
acquire a substantial number of units in this offer, we and our affiliates will
be able to significantly influence or control the outcome of any such vote. Our
primary objective in seeking to acquire the units pursuant to the offer is not,
however, to influence the vote on any particular transaction, but rather to
generate a profit on the investment represented by those units.
13. CERTAIN INFORMATION CONCERNING YOUR PARTNERSHIP.
GENERAL. Real Estate Associates Limited II was formed under the laws of
the State of California on December 4, 1979. The partnership was formed to
invest either directly or indirectly in other partnerships which own and operate
primarily federal, state and local government-assisted housing projects. The
general partner of your partnership is ACI, which is our subsidiary. National
Partnership Investment Associates, which is an affiliate of ours, is also a
general partner of your partnership (collectively with ACI, the "general
partner"). The business of the partnership is conducted primarily by ACI.
The partnership holds limited partnership interests in 14 Local
Partnerships. The Local Partnerships own residential low income rental projects
consisting of 1,079 apartment units. The mortgage loans of these projects are
payable to or insured by various governmental agencies. The partnership, as a
limited partner, is entitled to between 94 percent and 99 percent of the profits
and losses of the Local Partnerships. However, pursuant to certain state housing
finance statutes and regulations, certain of the Local Partnerships may be
subject to limitations on distributions to the partnership. Such statutes and
regulations require the Local Partnerships to hold cash flows in excess of such
distribution limitations in restricted reserve accounts that may be used only
for limited purposes.
The Local Partnerships in which the partnership has invested were, in
general, organized by private developers who acquired the sites, or options
thereon, and applied for applicable mortgage insurance and subsidies. The
partnership became the principal limited partner in these real estate holding
Local Partnerships pursuant to arm's-length negotiations with these developers,
or others, who act as general partners. As a limited partner, the partnership's
liability for obligations of the real estate holding Local Partnerships is
limited to its investment. The
-29-
general partners of such Local Partnerships retain responsibility for
maintaining, operating and managing the properties.
There are currently 5,328 units outstanding, which are held of record
by 1,583 limited partners. Your partnership's and the general partner's
principal executive offices are located at Colorado Center, Tower Two, Suite
2-1000, 2000 South Colorado Boulevard, Denver, Colorado 80222, telephone (303)
757-8101.
For additional information about your partnership, please refer to the
annual report prepared by your partnership which was sent to you earlier this
year, particularly Item 2 of Form 10-K405, which contains detailed information
regarding the assets owned, including mortgages, rental rates and taxes. In
addition, your partnership is subject to the information and reporting
requirements of the Exchange Act and information about your partnership can be
obtained in the same manner as information can be obtained about us, as set
forth in "The Offer--Section 8. Information Concerning Us and Certain of our
Affiliates."
INVESTMENT OBJECTIVES AND POLICIES; SALE OR FINANCING OF INVESTMENTS.
Your partnership is the limited partner in 14 Local Partnerships. The general
partners of the Local Partnerships are not affiliated with us or your general
partner, and so neither we nor your general partner is involved with the
management, long-term planning or liquidation decisions for those Local
Partnerships or the Properties. Your partnership does not have the power to
compel a sale of a Property or Properties to a third party. As a result, we
cannot predict when your partnership's interests in the Local Partnerships or
the Properties themselves will be sold or otherwise disposed of.
TERM OF YOUR PARTNERSHIP. Under your partnership's agreement of limited
partnership, the term of the partnership will continue until December 31, 2031,
unless sooner terminated as provided in the agreement or by law. Limited
partners could, as an alternative to tendering their units, take a variety of
possible actions, including voting to liquidate the partnership or amending the
agreement of limited partnership to authorize limited partners to cause the
partnership to merge with another entity or engage in a "roll-up" or similar
transaction.
COMPETITION. There are other residential properties within the market
areas of the Properties. The number and quality of competitive properties in
such areas could have a material effect on the rental market for the apartments
at the Properties and the rents that may be charged for such apartments. While
AIMCO is a significant factor in the United States in the apartment industry,
competition for apartments is local. According to data published by the National
Multi-Housing Council, we believe AIMCO is one of the largest owners and
managers of multifamily apartment properties in the United States.
REGULATORY ARRANGEMENTS. In order to stimulate private investment in
low income housing, the federal government and certain state and local agencies
have provided significant ownership incentives, including among others, interest
subsidies, rent supplements, and mortgage insurance, with the intent of reducing
certain market risks and providing investors with certain tax benefits, plus
limited cash distributions and the possibility of long-term capital gains. There
remain, however, significant risks. The long-term nature of investments in
government assisted housing limits the ability of the partnership to vary its
portfolio in response to changing economic, financial and investment conditions;
such investments are also subject to changes in local economic circumstances and
housing patterns, as well as rising operating costs, vacancies, rent collection
difficulties, energy shortages and other factors which have an impact on real
estate values. These projects also require greater management expertise and may
have higher operating expenses than conventional housing projects.
Under recently adopted law and policy, HUD has determined not to renew
the HAP Contracts on a long term basis on the existing terms. In connection with
renewals of the HAP Contracts under such new law and policy, the amount of
rental assistance payments under renewed HAP Contracts will be based on market
rental instead of above market rentals, which may be the case under existing HAP
Contracts. The payments under the renewed HAP Contracts may not be in an amount
that would provide sufficient cash flow to permit owners of properties subject
to HAP Contracts to meet the debt service requirements of existing loans insured
by the Federal Housing Administration of HUD ("FHA") unless such mortgage loans
are restructured. In order to address the reduction in payments under HAP
Contracts as a result of this new policy, MAHRAA provides for the restructuring
of mortgage loans insured by the FHA with respect to properties subject to the
Section 8 program. Under MAHRAA, an FHA-insured mortgage loan can be
restructured into a first mortgage loan which will be amortized on a current
basis and a low interest second mortgage loan payable to FHA which will only be
payable on maturity of the first mortgage
-30-
loan. This restructuring results in a reduction in annual debt service payable
by the owner of the FHA-insured mortgage loan and is expected to result in an
insurance payment from FHA to the holder of the FHA-insured loan due to the
reduction in the principal amount. MAHRAA also phases out project-based
subsidies on selected properties serving families not located in rental markets
with limited supply, converting such subsidiaries to a tenant-based subsidy.
When the HAP Contracts are subject to renewal, there can be no
assurance that the local limited partnerships in which the Partnership has an
investment will be permitted to restructure its mortgage indebtedness under
MAHRAA. In addition, the economic impact on the Partnership of the combination
of the reduced payments under the HAP Contracts and the restructuring of the
existing FHA-insured mortgage loans under MAHRAA is uncertain.
Although each of the partnerships in which your partnership has
invested generally owns a project which must compete in the market place for
tenants, interest subsidiaries and rent supplements from governmental agencies
make it possible to offer these dwelling units to eligible "low income" tenants
at a cost significantly below the market rate for comparable conventionally
financed dwelling units in the area.
Pursuant to the HAP Contracts, the Partnership cannot sell its
interests in a Property without the consent of HUD and, if applicable, the
appropriate state or local agency. There is no assurance that HUD will provide
such approval.
Pursuant to certain state housing finance statutes and regulations,
certain of the Local Partnerships may be subject to limitations on distributions
to the Partnership. Such statutes and regulations could require such Local
Partnerships to hold cash flows in excess of such distribution limitations in
restricted reserve accounts that may be used only for limited purposes.
FINANCIAL DATA. The selected financial information of your partnership
set forth below for the years ended December 31, 2001 and 2000 is based on
audited financial statements. The selected financial information set forth below
for the six months ended June 30, 2002 and 2001 is based on unaudited financial
statements. This information should be read in conjunction with such financial
statements, including notes thereto, and "Management's Discussion and Analysis
of Financial Condition and Results of Operations of Your Partnership" in the
Annual Report on Form 10-K of your partnership for the year ended December 31,
2001, and the Quarterly Report on Form 10-Q for the quarter ended June 30, 2002.
-31-
REAL ESTATE ASSOCIATES LIMITED II
(IN THOUSANDS, EXCEPT PER UNIT DATA)
<Table>
<Caption>
For the Year Ended For the Six Months Ended
December 31, June 30,
2001 2000 2002 2001
--------- --------- --------- ---------
Operating Data:
Total Revenues $ 24,423 $ 22,017 $ 529 $ 21,796
Net Income (Loss) (334,092) (211,608) (158,951) (151,670)
Net Income per limited partnership unit (31) (20) (15) (14)
Distributions per limited partnership unit -- -- -- --
Balance Sheet Data:
Cash & Cash Equivalents 139,881 343,527 98,440 248,479
Investment in Limited Partnerships -- -- -- --
Total Assets 139,881 343,527 98,440 248,479
Notes Payable -- -- -- --
General Partners' Capital (Deficit) (218,158) (214,817) (219,748) (216,334)
Limited Partners' Capital (Deficit) 211,889 542,640 54,528 392,487
Partners' Capital (Deficit) (6,269) 327,823 (165,220) 176,153
Total Distributions -- -- -- --
Net increase (decrease) in cash and cash equivalents (203,646) (124,784) (41,441) (95,048)
Net cash provided by operating activities $(182,553) $(124,784) $ (41,441) $ (74,705)
</Table>
DESCRIPTION OF PROPERTY. The following shows the location and the
status, as of December 31, 2001, of the Properties owned by Local Partnerships.
<Table>
<Caption>
Units Authorized For Percentage
Rental Assistance Under of Total
No. of Section 8 or Other Rent Units Units
Name and Location Units Supplement Program Occupied Occupied
- ----------------- ------ ------------------------- -------- ----------
Azalea Court 48 0/0 47 98%
Theodore, AL
Branford Elderly 38 38/0 38 100%
Branford, CT
Cherrywood/Saturn Apts. 78 78/0 74 95%
Twin Falls/Idaho Falls, ID
Clearfield Manor 40 40/0 39 97%
Clearfield, KY
Crystal Springs 28 0/28 28 100%
Crystal Springs, MS
Lakeside Apts. 48 48/0 47 98%
Mishawaka, IN
Landmark Towers 40 40/0 40 100%
Nampa, ID
</Table>
-32-
<Table>
<Caption>
Units Authorized For Percentage
Rental Assistance Under of Total
No. of Section 8 or Other Rent Units Units
Name and Location Units Supplement Program Occupied Occupied
- ----------------- ------ ------------------------- -------- ----------
Magnolia State 60 0/24 59 98%
Gulfport, MS
Redfern Grove Apts. 72 72/0 72 100%
E. Providence RI
Sugar River Mills 162 162/0 160 99%
Claremont, NH
Valebrook 151 100/0 148 98%
Lawrence, MA
Westward Ho Apts.(1) 290 290/0 277 96%
Phoenix, AZ
Willow Wick Apts. 24 0/5 14 58%
Centre, AL
------- ------ ----- ----
TOTALS 1,079 868/57 1,043 97%
</Table>
(1) In March 2002, your partnership consented to the sale of Westward Ho
Apartments for the sales price of $1,600,000. The sale is scheduled to
close in the fourth quarter of 2002; however, there can be no assurance
that the sale of the Property will be consummated on the terms consented
to, on different terms or at all.
DISTRIBUTIONS. The partnership was not designed to provide cash
distributions to investors in circumstances other than refinancing or
disposition of its investment in the limited partnerships and has not made any
distributions to limited partners since 1999.
BENEFICIAL OWNERSHIP OF INTERESTS IN YOUR PARTNERSHIP. We and our
affiliates, AIMCO and AIMCO-GP, Inc., collectively have voting and dispositive
power with respect to less than one percentage of the outstanding limited
partner units of your partnership, along with an approximate 1% general
partnership interest held by the general partner. Except as set forth in this
offer to purchase, neither we, nor, to the best of our knowledge, any of our
affiliates, (i) beneficially own or have a right to acquire any units, (ii) has
effected any transactions in the units in the past 60 days, or (iii) have any
contract, arrangement, understanding or relationship with any other person with
respect to any securities of your partnership, including, but not limited to,
contracts, arrangements, understandings or relationships concerning transfer or
voting thereof, joint ventures, loan or option arrangements, puts or calls,
guarantees of loans, guarantees against loss, or the giving or withholding of
proxies. See "The Offer - Section 9. Background and Reasons for the Offer -
Prior Tender Offers."
COMPENSATION PAID TO THE GENERAL PARTNER AND ITS AFFILIATES. The
following table shows, for each of the years indicated, amounts paid to your
partnership's general partner and its affiliates on a historical basis. The
general partner is reimbursed for actual direct costs and expenses incurred in
connection with the operation of the partnership and is entitled to receive a
fee equal to 0.4% of the partnership's original remaining invested assets.
<Table>
<Caption>
PARTNERSHIP
YEAR FEES AND EXPENSES
---- -----------------
2000 $236,267
2001 $265,487
</Table>
-33-
LEGAL PROCEEDINGS. Your partnership may be a party to a variety of
legal proceedings related to its ownership of the partnership's properties,
arising in the ordinary course of the business, which are not expected to have a
material adverse effect on your partnership. In addition, you should note the
following with respect to the specific litigation affecting your partnership.
On August 27, 1998, two investors holding an aggregate of eight units
of limited partnership interests in Real Estate Associates Limited III (another
investment partnership in which ACI is the managing general partner) and two
investors holding an aggregate of five units of limited partnership interest in
Real Estate Associates Limited VI (another investment partnership in which ACI
is the managing general partner) commenced an action in the United States
District Court for the Central District of California against the partnership,
ACI and certain other affiliated entities. The complaint alleges that the
defendants breached their fiduciary duty to the limited partners of certain ACI
managed partnerships and made materially false and misleading statements in the
consent solicitation statements sent to the limited partners of such
partnerships relating to approval of the transfer of partnership interests in
limited partnerships, owning certain of the properties, to affiliates of Casden
Properties Inc., organized by an affiliate of ACI. The plaintiffs seek equitable
relief, as well as compensatory damages and litigation related costs. On August
4, 1999, one investor holding one unit of limited partnership interest in
Housing Programs Limited (another investment partnership in which ACI is the
managing general partner) commenced a virtually identical action in the United
States District Court for the Central District of California against the
Partnership, ACI and certain other affiliated entities. The second action has
been subsumed in the first action, which has been certified as a class action.
On August 21, 2001, plaintiffs filed a supplemental complaint, which added new
claims, including for a recission of the transfer of partnership interests and
an accounting. Trial is scheduled for October 9, 2002.
As a condition to consummating the Casden Acquisition, AIMCO Properties
and certain of its affiliates entered into a Master Indemnification Agreement,
dated December 3, 2001, with Alan I. Casden, The Casden Company, CIC and certain
of their affiliates (collectively, the "Casden Group"). Pursuant to, and in
accordance with, the Master Indemnification Agreement, the Casden Group agreed
to indemnify, defend and hold harmless AIMCO Properties and their affiliates
(the "AIMCO Indemnitees") for certain damages suffered by an AIMCO Indemnitee
from, among other things, any claims, suits, actions or proceedings based on
facts or circumstances existing or arising prior to March 11, 2002, including
the suit described above, other than ordinary course litigation disclosed to the
AIMCO Indemnitees and covered by insurance policies held by Casden and/or any of
its subsidiaries, and any claims, suits, actions or proceedings filed by or on
behalf of certain individuals or entities that is a holder of any AIMCO
Properties partnership common unit issued in connection with the Casden
Acquisition and any other securities issuable in respect thereof. The
indemnification by the Casden Group expires on March 11, 2004.
The managing general partner is involved in various lawsuits. None of
these are related to the partnership.
These legal actions arose prior to the acquisition of the general
partners by AIMCO. The managing general partner of such NAPICO managed
partnerships and the other defendants believe that the plaintiffs' claims are
without merit and intend to contest the actions vigorously. AIMCO has been
indemnified by Alan Casden and others against any losses arising out of the
litigation.
ENVIRONMENTAL. As a result of AIMCO's March 2002 acquisition of Casden
and its subsidiaries, including your general partner, the Properties are subject
to a Consent Agreement entered In the Matter of Apartment Investment and
Management Company, Docket No. HQ-2002-0003, before the Environmental Appeals
Board, United States Environmental Protection Agency, and Final Order entered
thereon on January 15, 2002, which may require, among other things, lead-based
paint disclosure to residents of Properties and/or certain remedial actions,
which may result in costs to the Local Partnerships. In addition to the costs
associated with investigating and remediating, the presence of lead-based paint
on a Property could result in claims by private plaintiffs for personal injury,
disease, disability or other infirmities. The general partner believes that the
Properties are required to be covered by adequate insurance provided by
reputable companies and with commercially reasonable deductibles and limits and
that any costs not covered by insurance are not expected to be material.
-34-
Various Federal, state and local laws subject property owners or
operators to liability for the costs of removal or remediation of certain
hazardous substances present on a property. Such laws often impart 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 failure to properly
remediate, hazardous substances may adversely affect occupancy at contaminated
apartment communities and the partnership's 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 claims by private plaintiffs for
personal injury, disease, disability or other infirmities. Various laws also
impose liability for the cost of removal or remediation of hazardous or toxic
substances at the disposal or treatment facility. Anyone who arranges for the
disposal or treatment of hazardous or toxic substances is potentially liable
under such laws. These laws often impose liability whether or not the person
arranging for the disposal ever owned or operated the disposal facility. In
connection with the ownership or operation of properties, the partnership could
potentially be liable for environmental liabilities or costs associated with its
properties or properties it may acquire in the future.
Any remaining costs are not expected to be material. The general
partner believes that the partnership's properties are covered by adequate fire,
flood and property insurance provided by reputable companies and with
commercially reasonable deductibles and limits.
ADDITIONAL INFORMATION CONCERNING YOUR PARTNERSHIP. Your partnership
files annual, quarterly and special reports, proxy statements and other
information with the SEC. You may read and copy any document your partnership
files at the SEC's public reference rooms in Washington, D.C., Chicago,
Illinois, and New York, New York. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference rooms. Your partnership's most
recent SEC filings are also available to the public at the SEC's web site at
http://www.sec.gov.
The above discussion relating to environmental matters and certain
financial evaluations is forward-looking information developed by the general
partner. These expectations incorporated various assumptions including, but not
limited to, revenue (including occupancy rates), various operating expenses,
general and administrative expenses, depreciation expenses, and working capital
levels. While the general partner deemed such expectations to be reasonable and
valid at the date made, there is no assurance that the assumed facts will be
validated or that the results will actually occur. Any estimate of the future
performance of a business, such as your partnership's business, is
forward-looking and based on assumptions some of which inevitably will prove to
be incorrect.
14. VOTING POWER.
Decisions with respect to the day-to-day management of your partnership
are the responsibility of the general partner. Because the general partner of
your partnership is our subsidiary, we control the management of your
partnership. Under your partnership's agreement of limited partnership, limited
partners holding a majority of the outstanding units must approve certain
extraordinary transactions, including most amendments to the partnership
agreement and the sale of all or substantially all of your partnership's assets.
If we acquire a substantial number of additional units pursuant to this offer,
we may be in a position to significantly influence or control such votes of the
limited partners.
15. SOURCE OF FUNDS.
We expect that approximately $311,688.00 will be required to purchase
all of the limited partnership units that we are seeking in this offer
(exclusive of fees and expenses estimated to be $11,000). For more information
regarding fees and expenses, see "The Offer--Section 19. Fees and Expenses."
We have a secured $400 million revolving credit facility with Bank of
America, Fleet National Bank and First Union National Bank with a syndicate
comprised of a total of ten lender participants. Our revolving credit facility
was amended and restated on March 11, 2002. The obligations under the amended
and restated credit facility are secured by a first priority pledge of certain
non-real estate assets of AIMCO Properties and a second priority pledge of the
equity ownership of AIMCO Properties and certain subsidiaries of AIMCO.
Borrowings under the amended and restated credit facility are available for
general corporate purposes. The amended and restated credit facility matures in
July 2004 and can be extended once at AIMCO's option, for a term of one year.
-35-
The annual interest rate under the credit facility is based on either LIBOR or a
base rate which is the higher of Bank of America, N.A.'s reference rate of 0.5%
over the federal funds rate, plus, in either case, an applicable margin.
We may make contemporaneous offers to acquire interests in other
limited partnerships. We believe that we will have sufficient cash on hand and
available sources of financing to acquire all units tendered pursuant to this
offer and all such other offers. As of May 31, 2002, we had $107.3 million of
cash on hand and $165.3 million available for borrowing under existing lines of
credit. We intend to repay any amounts borrowed to finance the offer out of
future working capital.
16. DISSENTERS' RIGHTS.
Neither the agreement of limited partnership of your partnership nor
applicable law provides any right for you to have your units appraised or
redeemed in connection with, or as a result of, our offer. In addition, we are
not extending appraisal rights in connection with the offer. You have the
opportunity to make an individual decision on whether or not to tender your
units in the offer.
No provisions have been made with regard to the offer to allow you or
other limited partners to inspect the books and records of your partnership or
to obtain counsel or appraisal services at our expense or at the expense of your
partnership. However, you have the right under your partnership's agreement of
limited partnership to obtain a list of the limited partners.
17. CONDITIONS OF THE OFFER.
Notwithstanding any other provisions of our offer, we will not be
required to accept for payment and pay for any units tendered pursuant to our
offer, may postpone the purchase of, and payment for, units tendered, and may
terminate or amend our offer if at any time on or after the date of this offer
to purchase and at or before the expiration of our offer (including any
extension thereof), any of the following shall occur or may be reasonably
expected to occur:
o 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 property,
including any regulatory determination or change in any HAP
Contracts held by the partnership or the Local Partnerships,
or any fire, flood, natural disaster, casualty loss, or act of
God that, in our reasonable judgment, are or may be materially
adverse to your partnership or the value of the units to us,
or we shall have become aware of any facts relating to your
partnership, its indebtedness or its operations which, in our
reasonable judgment, has had or may have a material adverse
effect on the value of your partnership or the value of the
units to us, or the ability of the general partners to assert
full control over the assets, privileges and immunities of the
partnership, including without limitation the ability of the
general partners to distribute the cash and cash equivalent to
the limited partners; or
o 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 price of a
share of AIMCO's Class A Common Stock of more than 5.0%
measured from the close on the last trading day preceding the
date of this offer and the close on the last trading day
preceding to the expiration of this offer, (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 25 basis point increase in LIBOR, or at least a 5.0%
decrease in the price of the 10-year Treasury Bond or the
30-year Treasury Bond, or at least a 5.0% decrease in the S&P
500 Index or the Morgan Stanley REIT Index, in each case
measured between the close on the last trading day preceding
the date of this offer and the close on the last trading day
preceding the expiration of this offer, (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 (not
existing on the date hereof),
-36-
(vi) a commencement of a war, conflict, armed hostilities or
other national or international calamity directly or
indirectly involving the United States (not existing on the
date hereof), (vii) any limitation (whether or not mandatory)
by any governmental authority on, or any other event which, in
our reasonable judgment, 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 our reasonable judgment, a
material acceleration or worsening thereof; or
o there shall have been threatened in writing, 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 our purchase of the units,
restrains, prohibits or delays the making or consummation of
our offer, prohibits the performance of any of the contracts
or other arrangements entered into by us (or any affiliates of
ours), or seeks to obtain any material amount of damages as a
result of the transactions contemplated by our offer, (ii)
seeks to make the purchase of, or payment for, some or all of
the units pursuant to our offer illegal or results in a delay
in our ability to accept for payment or pay for some or all of
the units, (iii) seeks to prohibit or limit the ownership or
operation by us or any of our affiliates of the entity serving
as general partner of your partnership or to remove such
entity as general partner of your partnership, or seeks to
impose any material limitation on our ability or the ability
of any affiliate of ours to conduct your partnership's
business or own such assets, (iv) seeks to impose material
limitations on our ability 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 us on all
matters properly presented to the limited partners, or (v)
might result, in our reasonable judgment, in a material
diminution in the value of your partnership or a limitation of
the benefits expected to be derived by us as a result of the
transactions contemplated by our offer or the value of the
units to us; or
o 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 our offer, your partnership, any general partner of your
partnership, us or any affiliate of ours or your partnership,
or any other action shall have been taken, proposed or
threatened, by any government, governmental authority or
court, that, in our reasonable judgment, might, directly or
indirectly, result in any of the consequences referred to in
clauses (i) through (v) of the immediately preceding
paragraph; or
o your partnership shall have, due to events beyond our direct
or indirect control, (i) changed, or authorized a change of,
the 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 our reasonable judgment, 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
-37-
(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
o 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 Exchange Act)
or it shall have been publicly disclosed or we 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 five percent of the units, or shall
have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than five
percent of the units, other than acquisitions for bona fide
arbitrage purposes, 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 or other business combination with or involving
your partnership; or
o the offer to purchase may have an adverse effect on AIMCO's
status as a REIT; or
o we shall not have as a result of events and circumstances
beyond our reasonable control adequate cash or financing
commitments available to pay for the units validly tendered;
or
o there would be 320 or fewer unit holders outstanding as a
result of the consummation of the offer.
The foregoing conditions are for our sole benefit and may be asserted
by us regardless of the circumstances giving rise to such conditions or may be
waived by us at any time prior to the expiration of this offer in our reasonable
discretion. The failure by us at any time to exercise any of the foregoing
rights shall not be deemed a waiver of any such right.
18. CERTAIN LEGAL MATTERS.
GENERAL. Except as set forth in this Section 18, we are not, based on
information provided by your general partner (which is our subsidiary), 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 our
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 us pursuant to the offer, other than the filing of a
Tender Offer Statement on Schedule TO with the SEC (which has already been
filed) and any required amendments thereto. While there is no present intent to
delay the purchase of units tendered pursuant to the offer pending receipt of
any such additional approval or the taking of any such action, there can be no
assurance that any such additional approval or action, if needed, would be
obtained without substantial conditions or that adverse consequences might not
result to your partnership or its business, or that certain parts of its
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 us to elect to terminate the offer without purchasing units thereunder.
Our obligation to purchase and pay for units is subject to certain conditions,
including conditions related to the legal matters discussed in this Section 18.
ANTITRUST. We do not believe that the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, is applicable to the acquisition of units
contemplated by our 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 our offer.
STATE LAWS. We are not aware of any jurisdiction in which the making of
our 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.
If, after such good faith effort, we 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 with securities
or blue sky laws that require the offer to be made by a licensed broker or
dealer, the offer shall be made on behalf of us, if at all, only by one or more
registered brokers or dealers licensed under the laws of that jurisdiction.
-38-
19. FEES AND EXPENSES.
You will not pay any partnership transfer fees if you tender your
units. Except as set forth herein, 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 have retained River Oaks Partnership Services, Inc. to act as
Information Agent in connection with our offer. The Information Agent may
contact holders of units by mail, e-mail, telephone, telex, telegraph and
personal interview and may request brokers, dealers and other nominee limited
partners to forward materials relating to the offer to beneficial owners of the
units. 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, and will indemnify it 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
the offer and any related legal fees and expenses.
----------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF US NOT CONTAINED HEREIN, IN THE ACKNOWLEDGMENT AND
AGREEMENT OR THE LETTER OF TRANSMITTAL ATTACHED AS ANNEX II AND, IF GIVEN OR
MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED.
We have filed with the SEC a Tender Offer Statement on Schedule TO,
pursuant to Section 14(d)(1) and Rule 14d-3 under the Exchange Act, furnishing
certain additional information with respect to our offer, and may file
amendments thereto. Your partnership has filed with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 pursuant to Section
14(d)(4) and Rule 14d-9 under the Exchange Act, furnishing certain additional
information about your partnership's and the general partner's position
concerning our offer, and your partnership may file amendments thereto. The
Schedules TO and 14D-9 and any amendments to either Schedule, including
exhibits, may be inspected and copies may be obtained at the same place and in
the same manner as described in "The Offer-Section 13. Certain Information
concerning your Partnership--Additional Information concerning your
Partnership."
The acknowledgment and agreement and any other required documents
should be sent or delivered by each limited partner or such limited partner's
broker, dealer, bank, trust company or other nominee to the Information Agent at
one of its addresses set forth below.
-39-
THE INFORMATION AGENT FOR THE OFFER IS:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<Table>
<Caption>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, NJ 07606-2065 Carlstadt, NJ 07072 Carlstadt, NJ 07072
Attn: Reorganization Dept. Attn: Reorganization Dept.
By facsimile: For information please call:
(201) 460-2889 TOLL FREE (888) 349-2005
Or
(201) 896-1900
</Table>
-40-
ANNEX I
OFFICERS AND DIRECTORS
The names and positions of the executive officers of Apartment
Investment and Management Company ("AIMCO"); AIMCO-GP, Inc. ("AIMCO-GP") and the
general partner of your partnership are set forth below. The directors of AIMCO
are also set forth below. The two directors of AIMCO-GP are Terry Considine and
Peter Kompaniez. The two directors of the general partner of your partnership
are Peter K. Kompaniez and David Robertson. Unless otherwise indicated, the
business address of each executive officer and director is 2000 South Colorado
Boulevard, Suite 2-1000, Denver, Colorado 80222-7900. Each executive officer and
director is a citizen of the United States of America. All titles refer to
titles with AIMCO and AIMCO-GP, except as otherwise indicated.
<Table>
<Caption>
NAME POSITION
---- --------
Terry Considine................................ Chairman of the Board of Directors and Chief Executive
Officer
Peter K. Kompaniez............................. Vice Chairman, President and Director, and Director of
the general partner
Harry G. Alcock................................ Executive Vice President and Chief Investment Officer
Charles H. Boxenbaum........................... Chairman Emeritus of the general partner
Miles Cortez................................... Executive Vice President, General Counsel and Secretary
Joseph DeTuno.................................. Executive Vice President - Redevelopment
Patrick J. Foye................................ Executive Vice President and Executive Vice President of
the general partner
Lance J. Graber................................ Executive Vice President - Acquisitions
Michael J. Hornbrook........................... Chief Operating Officer and Executive Vice President of
the general partner
Paul J. McAuliffe.............................. Executive Vice President and Chief Financial Officer and
Executive Vice President - Finance of the general partner
Ron Monson..................................... Executive Vice President and Head of Property Operations
David Robertson................................ Executive Vice President - Affordable Properties, and
President and Director of the general partner
James N. Bailey................................ Director
Richard S. Ellwood............................. Director
J. Landis Martin............................... Director
Thomas L. Rhodes............................... Director
</Table>
Annex I - Page 1
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Terry Considine..................... Mr. Considine has been Chairman and Chief Executive Officer of AIMCO
and AIMCO-GP since July 1994. Mr. Considine serves as Chairman of
the Board of Directors of American Land Lease, Inc. (formerly Asset
Investors Corporation and Commercial Asset Investors, Inc.), another
public real estate investment trust. Mr. Considine has been and
remains involved as a principal in a variety of other business
activities.
Peter K. Kompaniez.................. Mr. Kompaniez has been Vice Chairman and a director of AIMCO since
July 1994 and was appointed President in July 1997. He served as
President of the general partner from April 2002 until
September 2002. He became director of the general partner in
September 2002. Mr. Kompaniez has also served as Chief Operating
Officer of NHP Incorporated, which was acquired by AIMCO in
December 1997. From 1986 to 1993, he served as President and
Chief Executive Officer of Heron Financial Corporation ("HFC"),
a United States holding company for Heron International, N.V.'s
real estate and related assets. While at HFC, Mr. Kompaniez
administered the acquisition, development and disposition of
approximately 8,150 apartment units (including 6,217 units that
have been acquired by AIMCO) and 3.1 million square feet of
commercial real estate.
Harry G. Alcock..................... Mr. Alcock served as a Vice President of AIMCO from July 1996 to
October 1997, when he was promoted to Senior Vice President -
Acquisitions. Mr. Alcock served as Senior Vice
President-Acquisitions until October 1999, when he was promoted to
Executive Vice President and Chief Investment Officer. Mr. Alcock
has held responsibility for AIMCO's acquisition and financing
activities since July 1994. From June 1992 until July 1994, Mr.
Alcock served as Senior Financial Analyst for PDI and HFC. From
1988 to 1992, Mr. Alcock worked for Larwin Development Corp., a Los
Angeles-based real estate developer, with responsibility for raising
debt and joint venture equity to fund land acquisition and
development. From 1987 to 1988, Mr. Alcock worked for Ford
Aerospace Corp. He received his B.S. from San Jose State
University.
Charles H. Boxenbaum................ Mr. Boxenbaum is a Director, the Chairman of the Board of Directors and
Chief Executive Officer of National Partnership Investment Associates.
He was a Director, the Chairman of the Board of Directors, and Chief
Executive Officer of ACI until September 2002. He will continue to serve
as a consultant and Chairman Emeritus of ACI. Mr. Boxenbaum has been
active in the real estate industry since 1960. He founded the General
Partner in 1966, and, in 1978, purchased the outstanding stock of ACI.
Mr. Boxenbaum is one of the founders of and a past director of First Los
Angeles Bank, organized in November 1974. In March 1995, Mr. Boxenbaum
was elected to serve on the Board of Directors of the National Multi
Housing Council, and he has been a guest lecturer at national and state
realty conventions, certified properties exchangers' seminars, Los
Angeles Town Hall, National Association of Home Builders, International
Council of Shopping Centers, Society of Conventional Appraisers,
California Real Estate Association, National Institute of Real Estate
Brokers, Appraisal Institute, various mortgage bankers' seminars, and
the North American Property Forum held in London, England. Mr. Boxenbaum
received his bachelor of arts degree from the University of Chicago.
</Table>
Annex I - Page 2
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Miles Cortez........................ Mr. Cortez was appointed Executive Vice President, General Counsel
and Secretary in August 2001. Since December 1997, Mr. Cortez has
been a founding partner and the senior partner of the law firm of
Cortez Macaulay Bernhardt & Schuetze LLC. From August 1993 to
November 1997, Mr. Cortez was a partner in the law firm of McKenna &
Cuneo, LLP. Mr. Cortez was the President of the Denver Bar
Association from 1982-1983; was Chairman of the Ethics Committee of
the Colorado Bar Association from 1977-1978, was President of the
Colorado Bar Association from 1996-1997, and was a member of the
American Bar Association House of Delegates from 1990-1995. Mr.
Cortez is a Life Fellow of the Colorado Bar Foundation and American
Bar Foundation. Mr. Cortez has been listed in the national
publication "The Best Lawyers in America" for business litigation
for the past ten years.
Joseph DeTuno....................... Mr. DeTuno was appointed Executive Vice President-Redevelopment of
AIMCO in February 2001. Mr. DeTuno has been Senior Vice
President-Property Redevelopment of AIMCO since August 1997. Mr.
DeTuno was previously President and founder of JD Associates, his
own full service real estate consulting, advisory and project
management company that he founded in 1990.
Patrick J. Foye..................... Mr. Foye was appointed Executive Vice President of AIMCO in May 1998
and Executive Vice President. He was appointed Executive Vice
President of the general partner in April 2002. He is responsible
for acquisitions of partnership securities, consolidation of
minority interests, and corporate and other acquisitions. Prior to
joining AIMCO, Mr. Foye was a merger and acquisitions partner in the
law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and
Moscow offices from 1992 through 1994. Mr. Foye is also Deputy
Chairman of the Long Island Power Authority and serves as a member
of the New York State Privatization Council. He received a B.A.
from Fordham College and a J.D. from Fordham University Law School
and was Associate Editor of the Fordham Law Review.
Lance Graber........................ Mr. Graber was appointed Executive Vice President - Acquisitions in
October 1999. His principal business function is acquisitions.
Prior to joining AIMCO, Mr. Graber was an Associate from 1991
through 1992 and then a Vice President from 1992 through 1994 at
Credit Suisse First Boston engaged in real estate financial advisory
services and principal investing. He was a Director there from 1994
to May 1999, during which time he supervised a staff of seven in the
making of principal investments in hotel, multi-family and assisted
living properties. Mr. Graber received a B.S. and an M.B.A. from
the Wharton School of the University of Pennsylvania.
</Table>
Annex I - Page 3
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
Michael J. Hornbrook................ Michael J. Hornbrook is an Executive Vice President and the Chief
Operating Officer of ACI, having joined in January 2002. From
1999 until joining the General Partner, Mr. Hornbrook was a partner
in the law firm of McGuire Woods LLP in the firm's Chicago office
and specialized in the area of real estate law, including
environmental, public finance, and affordable housing and tax
credits. He received a bachelor of arts degree, magna cum laude,
from Loyola University and a juris doctorate degree from Rutgers
University. Mr. Hornbrook is a member of the Illinois and
Connecticut State Bar Associations.
Paul J. McAuliffe................... Mr. McAuliffe has been Executive Vice President of AIMCO since
February 1999 and was appointed Chief Financial Officer in October
1999. He was appointed Executive Vice President - Finance of the
general partner in April 2002. Prior to joining AIMCO, Mr.
McAuliffe was Senior Managing Director of Secured Capital
Corporation and prior to that time had been a Managing Director of
Smith Barney, Inc. from 1993 to 1996, where he was a key member of
the underwriting team that led AIMCO's initial public offering in
1994. Mr. McAuliffe was also a Managing Director and head of the
real estate group at CS First Boston from 1990 to 1993 and he was a
Principal in the real estate group at Morgan Stanley & Co., Inc.
from 1983 to 1990. Mr. McAuliffe received a B.A. from Columbia
College and an MBA from University of Virginia, Darden School.
Ron Monson.......................... Mr. Monson was appointed Executive Vice President and Head of
Property Operations of AIMCO on February 6, 2001. Mr. Monson has
been with AIMCO since 1997 and was promoted to Divisional Vice
President in 1998. Prior to joining AIMCO, Mr. Monson worked for 13
years in operations management positions in the lawn care and
landscaping industries, principally with True Green/Chemlawn. Mr.
Monson received a Bachelor of Science from the University of
Minnesota and a Masters in Business Administration from Georgia
State University.
David Robertson..................... Mr. Robertson was appointed President of the general partner in
September 2002. He was appointed Executive Vice President - Affordable
Properties in February 2002. He is responsible for affordable
property operations, refinancing and other value creation within the
Company's affordable portfolio. Prior to joining the Company, Mr.
Robertson was a member of the investment-banking group at Smith
Barney from 1991 to 1996, where he was responsible for real estate
investment banking transactions in the western United States, and
was part of the Smith Barney team that managed AIMCO's initial
public offering in 1994. Since February 1996, Mr. Robertson has
been Chairman and Chief Executive Officer of Robeks Corporation, a
privately held chain of specialty food stores.
</Table>
Annex I - Page 4
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
---- ---------------------------------------------
James N. Bailey..................... Mr. Bailey was appointed a Director of AIMCO in June 2000. In 1973,
Cambridge Associates, Inc. Mr. Bailey co-founded Cambridge Associates, Inc., which is an
1 Winthrop Square, investment consulting firm for non-profit institutions and wealthy
Suite 500 family groups. He is also Co-Founder, Treasurer and Director of The
Boston, MA 02110 Plymouth Rock Company, Direct Response Corporation and Homeowners'
Direct Corporation, each of which is a United States personal lines
insurance company. He received his M.B.A. and J.D. degrees in 1973
from Harvard Business School and Harvard Law School.
Richard S. Ellwood.................. Mr. Ellwood was appointed a Director of AIMCO in July 1994 and is
12 Auldwood Lane currently Chairman of the Audit Committee and a member of the
Rumson, NJ 07660 Compensation Committee. Mr. Ellwood is the founder and President of
R.S. Ellwood & Co., Incorporated, a real estate investment banking
firm. Prior to forming R.S. Ellwood & Co., Incorporated in 1987,
Mr. Ellwood had 31 years experience on Wall Street as an investment
banker, serving as: Managing Director and senior banker at Merrill
Lynch Capital Markets from 1984 to 1987; Managing Director at
Warburg Paribas Becker from 1978 to 1984; general partner and then
Senior Vice President and a director at White, Weld & Co. from 1968
to 1978; and in various capacities at J.P. Morgan & Co. from 1955 to
1968. Mr. Ellwood currently serves as a director of Felcor Lodging
Trust, Incorporated and Florida East Coast Industries, Inc.
J. Landis Martin.................... Mr. Martin was appointed a director of AIMCO in July 1994 and became
199 Broadway Chairman of the Compensation Committee on March 19, 1998. Mr.
Suite 4300 Martin is a member of the Audit Committee. Mr. Martin has served as
Denver, CO 80202 President and Chief Executive Officer of NL Industries, Inc., a
manufacturer of titanium dioxide, since 1987. Mr. Martin has served
as Chairman of Tremont Corporation ("Tremont"), a holding company
operating though its affiliates Titanium Metals Corporation ("TIMET")
and NL Industries, Inc. ("NL"), since 1990 and as Chief Executive
Officer and a director of Tremont since 1988. Mr. Martin has served
as Chairman of TIMET, an integrated producer of titanium, since 1987
and Chief Executive Officer since January 1995. From 1990 until its
acquisition by a predecessor of Halliburton Company ("Halliburton")
in 1994, Mr. Martin served as Chairman of the Board and Chief
Executive Officer of Baroid Corporation, an oilfield services
company. In addition to Tremont, NL and TIMET, Mr. Martin is a
director of Halliburton, which is engaged in the petroleum services,
hydrocarbon and engineering industries, and Crown Castle International
Corporation, a communications company.
Thomas L. Rhodes.................... Mr. Rhodes was appointed a Director of AIMCO in July 1994 and is a
215 Lexington Avenue member of the Audit and Compensation Committees. Mr. Rhodes has
4th Floor served as the President and a Director of National Review magazine
New York, NY 10016 since November 1992, where he has also served as a Director since
1998. From 1976 to 1992, he held various positions at Goldman, Sachs
& Co. and was elected a General Partner in 1986 and served as a
General Partner from 1987 until November 1992. He is currently
Co-Chairman of the Board, Co-Chief Executive Officer and a Director
of American Land Lease, Inc. He also serves as a Director of Delphi
Financial Group and its subsidiaries, Delphi International Ltd.,
Oracle Reinsurance Company and the Lynde and Harry Bradley
Foundation.
</Table>
Annex I - Page 5
ANNEX II
LETTER OF TRANSMITTAL
TO TENDER UNITS OF LIMITED PARTNERSHIP INTEREST IN
REAL ESTATE ASSOCIATES LIMITED II (THE "PARTNERSHIP")
PURSUANT TO AN OFFER TO PURCHASE
DATED SEPTEMBER 16, 2002 (THE "OFFER DATE")
BY
AIMCO PROPERTIES, L.P.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL
EXPIRE AT MIDNIGHT, NEW YORK CITY TIME,
ON OCTOBER 11, 2002, UNLESS EXTENDED
(AS EXTENDED FROM TIME TO TIME, THE "EXPIRATION DATE")
- --------------------------------------------------------------------------------
TO PARTICIPATE IN THE OFFER, YOU MUST SEND A DULY COMPLETED AND EXECUTED COPY OF
THE ENCLOSED ACKNOWLEDGMENT AND AGREEMENT AND ANY OTHER DOCUMENTS REQUIRED BY
THIS LETTER OF TRANSMITTAL SO THAT SUCH DOCUMENTS ARE RECEIVED BY RIVER OAKS
PARTNERSHIP SERVICES, INC., THE INFORMATION AGENT, ON OR PRIOR TO THE EXPIRATION
DATE, UNLESS extended. THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL AND
ALL OTHER REQUIRED DOCUMENTS IS AT YOUR OPTION AND RISK, AND DELIVERY WILL BE
DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION AGENT. IF DELIVERY IS
BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED IS RECOMMENDED. IN ALL
CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY DELIVERY. DELIVERY OF
THE ACKNOWLEDGMENT AND AGREEMENT OR ANY OTHER REQUIRED DOCUMENTS TO AN ADDRESS
OTHER THAN AS SET FORTH BELOW DOES NOT CONSTITUTE VALID DELIVERY.
--------------------------
IF YOU HAVE THE CERTIFICATE ORIGINALLY ISSUED TO REPRESENT YOUR
INTEREST IN THE PARTNERSHIP, PLEASE SEND IT TO THE INFORMATION
AGENT WITH THE ACKNOWLEDGMENT AND AGREEMENT.
---------------------------
FOR INFORMATION OR ASSISTANCE IN CONNECTION WITH THE OFFER OR THE
COMPLETION OF THE ACKNOWLEDGMENT AND AGREEMENT, PLEASE CONTACT THE INFORMATION
AGENT AT (888) 349-2005 (TOLL FREE) OR (201) 896-1900.
The Information Agent for the offer is:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<Table>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, N.J. 07606-2065 Carlstadt, N.J. 07072 Carlstadt, N.J. 07072
Attn.: Reorganization Dept. Attn.: Reorganization Dept.
By Telephone By Facsimile:
(201) 460-2889
TOLL FREE: (888) 349-2005
or (201) 896-1900
</Table>
NOTE: PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ CAREFULLY BEFORE THE
ACKNOWLEDGMENT AND AGREEMENT IS COMPLETED.
Annex II - Page 1
Ladies and Gentlemen:
The Signatory (the "Signatory") executing the Acknowledgment and
Agreement relating to the captioned offer (the "Acknowledgment and Agreement"),
which is enclosed, upon the terms and subject to the conditions set forth in the
offer to purchase, hereby and thereby tenders to the Purchaser the units set
forth in the box entitled "Description of Units Tendered" on the Acknowledgment
and Agreement, including all interests represented by such units (collectively,
the "Units"), at the consideration indicated in the offer to purchase as
supplemented or amended. Capitalized terms used herein but not otherwise defined
herein shall have the meanings ascribed thereto in such Acknowledgment and
Agreement.
SUBJECT TO AND EFFECTIVE UPON ACCEPTANCE FOR CONSIDERATION OF ANY OF
THE UNITS TENDERED HEREBY AND THEREBY IN ACCORDANCE WITH THE TERMS OF THE OFFER
TO PURCHASE, THE SIGNATORY HEREBY AND THEREBY IRREVOCABLY SELLS, ASSIGNS,
TRANSFERS, CONVEYS AND DELIVERS TO, OR UPON THE ORDER OF, THE PURCHASER ALL
RIGHT, TITLE AND INTEREST IN AND TO SUCH UNITS TENDERED HEREBY AND THEREBY THAT
ARE ACCEPTED FOR PAYMENT PURSUANT TO THE OFFER TO PURCHASE, INCLUDING, WITHOUT
LIMITATION, (I) ALL OF THE SIGNATORY'S INTEREST IN THE CAPITAL OF THE
PARTNERSHIP, AND THE SIGNATORY'S INTEREST IN ALL PROFITS, LOSSES AND
DISTRIBUTIONS OF ANY KIND TO WHICH THE SIGNATORY SHALL AT ANY TIME BE ENTITLED
IN RESPECT OF HIS OWNERSHIP OF THE UNITS, INCLUDING, WITHOUT LIMITATION,
DISTRIBUTIONS IN THE ORDINARY COURSE, DISTRIBUTIONS FROM SALES OF ASSETS,
DISTRIBUTIONS UPON LIQUIDATION, WINDING-UP, OR DISSOLUTION, PAYMENTS IN
SETTLEMENT OF EXISTING OR FUTURE LITIGATION, DAMAGES PAID IN CONNECTION WITH ANY
EXISTING OR FUTURE LITIGATION AND ALL OTHER DISTRIBUTIONS AND PAYMENTS MADE FROM
AND AFTER THE EXPIRATION DATE, IN RESPECT OF THE UNITS TENDERED BY THE SIGNATORY
AND ACCEPTED FOR PAYMENT AND THEREBY PURCHASED BY THE PURCHASER; (II) ALL OTHER
PAYMENTS, IF ANY, DUE OR TO BECOME DUE TO THE SIGNATORY IN RESPECT OF THE UNITS,
UNDER OR ARISING OUT OF THE AGREEMENT AND CERTIFICATE OF LIMITED PARTNERSHIP OF
THE PARTNERSHIP (THE "PARTNERSHIP AGREEMENT"), OR ANY AGREEMENT PURSUANT TO
WHICH THE UNITS WERE SOLD (THE "PURCHASE AGREEMENT"), WHETHER AS CONTRACTUAL
OBLIGATIONS, DAMAGES, INSURANCE PROCEEDS, CONDEMNATION AWARDS OR OTHERWISE;
(III) ALL OF THE SIGNATORY'S CLAIMS, RIGHTS, POWERS, PRIVILEGES, AUTHORITY,
OPTIONS, SECURITY INTERESTS, LIENS AND REMEDIES, IF ANY, UNDER OR ARISING OUT OF
THE PARTNERSHIP AGREEMENT OR PURCHASE AGREEMENT OR THE SIGNATORY'S OWNERSHIP OF
THE UNITS, INCLUDING, WITHOUT LIMITATION, ANY AND ALL VOTING RIGHTS, RIGHTS OF
FIRST OFFER, FIRST REFUSAL OR SIMILAR RIGHTS, AND RIGHTS TO BE SUBSTITUTED AS A
LIMITED PARTNER OF THE PARTNERSHIP; AND (IV) ALL PAST, PRESENT AND FUTURE
CLAIMS, IF ANY, OF THE SIGNATORY WHETHER ON BEHALF OF THE PARTNERSHIP,
INDIVIDUALLY OR ON BEHALF OF A PUTATIVE CLASS (INCLUDING WITHOUT LIMITATION ANY
CLAIMS AGAINST LIMITED PARTNERS OF THE PARTNERSHIP, THE GENERAL PARTNER(S)
AND/OR ANY AFFILIATES THEREOF) UNDER, ARISING OUT OF OR RELATED TO THE
PARTNERSHIP AGREEMENT, THE PURCHASE AGREEMENT, THE SIGNATORY'S STATUS AS A
LIMITED PARTNER, THE TERMS OR CONDITIONS OF THE OFFER TO PURCHASE, THE
MANAGEMENT OF THE PARTNERSHIP, MONIES LOANED OR ADVANCED, SERVICES RENDERED TO
THE PARTNERSHIP OR ITS PARTNERS, OR ANY OTHER CLAIMS ARISING OUT OF OR RELATED
TO THE SIGNATORY'S OWNERSHIP OF UNITS IN THE PARTNERSHIP.
NOTWITHSTANDING ANY PROVISION IN THE PARTNERSHIP AGREEMENT OR ANY
PURCHASE AGREEMENT TO THE CONTRARY, THE SIGNATORY HEREBY AND THEREBY DIRECTS
EACH GENERAL PARTNER OF THE PARTNERSHIP TO MAKE ALL DISTRIBUTIONS AFTER THE
PURCHASER ACCEPTS THE TENDERED UNITS FOR PAYMENT TO THE PURCHASER OR ITS
DESIGNEE. Subject to and effective upon acceptance for payment of any Unit
tendered hereby and thereby, the Signatory hereby requests that the Purchaser be
admitted to the Partnership as a limited partner under the terms of the
Partnership Agreement. Upon request, the Signatory will execute and deliver
additional documents deemed by the Information Agent or the Purchaser to be
necessary or desirable to complete the assignment, transfer and purchase of
Units tendered hereby and thereby and will hold any distributions received from
the Partnership after the Expiration Date in trust for the benefit of the
Purchaser and, if necessary, will promptly forward to the Purchaser any such
distributions immediately upon receipt. The Purchaser reserves the right to
transfer or assign, in whole or in part,
Annex II - Page 2
from time to time, to one or more of its affiliates, the right to purchase Units
tendered pursuant to the offer to purchase, but any such transfer or assignment
will not relieve the Purchaser of its obligations under the offer to purchase or
prejudice the rights of tendering limited partners to receive payment for Units
validly tendered and accepted for payment pursuant to the offer to purchase.
By executing the enclosed Acknowledgment and Agreement, the Signatory
represents that either (i) the Signatory is not a plan subject to Title I of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or
Section 4975 of the Internal Revenue Code of 1986, as amended (the "Code"), or
an entity deemed to hold "plan assets" within the meaning of 29 C.F.R. Section
2510.3-101 of any such plan, or (ii) the tender and acceptance of Units pursuant
to the offer to purchase will not result in a nonexempt prohibited transaction
under Section 406 of ERISA or Section 4975 of the Code.
The Signatory understands that a tender of Units to the Purchaser will
constitute a binding agreement between the Signatory and the Purchaser upon the
terms and subject to the conditions of the offer to purchase. The Signatory
recognizes that under certain circumstances set forth in the offer to purchase,
the Purchaser may not be required to accept for consideration any or all of the
Units tendered hereby. In such event, the Signatory understands that any
Acknowledgment and Agreement for Units not accepted for payment may be returned
to the Signatory or destroyed by the Purchaser (or its agent). THIS TENDER IS
IRREVOCABLE, EXCEPT THAT UNITS TENDERED PURSUANT TO THE OFFER TO PURCHASE MAY BE
WITHDRAWN AT ANY TIME PRIOR TO THE EXPIRATION DATE OR ON OR AFTER NOVEMBER 14,
2002 IF UNITS VALIDLY TENDERED HAVE NOT BEEN ACCEPTED FOR PAYMENT.
THE SIGNATORY HAS BEEN ADVISED THAT THE PURCHASER IS AN AFFILIATE OF
THE GENERAL PARTNER OF THE PARTNERSHIP AND THE GENERAL PARTNER DOES NOT MAKE ANY
RECOMMENDATION AS TO WHETHER TO TENDER OR REFRAIN FROM TENDERING UNITS IN THE
OFFER TO PURCHASE. THE SIGNATORY HAS MADE HIS OR HER OWN DECISION TO TENDER
UNITS. THE SIGNATORY ALSO REPRESENTS AND WARRANTS THAT HE OR SHE WAS ADVISED TO
CONSULT AN ATTORNEY WITH RESPECT TO HIS OR HER DECISION WHETHER TO TENDER
HIS/HER INTEREST(S).
The Signatory hereby and thereby represents and warrants for the
benefit of the Partnership and the Purchaser that the Signatory owns the Units
tendered hereby and thereby and has full power and authority and has taken all
necessary action to validly tender, sell, assign, transfer, convey and deliver
the Units tendered hereby and thereby and that when the same are accepted for
payment by the Purchaser, the Purchaser will acquire good, marketable and
unencumbered title thereto, free and clear of all liens, restrictions, charges,
encumbrances, conditional sales agreements or other obligations relating to the
sale or transfer thereof, and such Units will not be subject to any adverse
claims and that the transfer and assignment contemplated herein and therein are
in compliance with all applicable laws and regulations.
All authority herein or therein conferred or agreed to be conferred
shall survive the death or incapacity of the Signatory, and any obligations of
the Signatory shall be binding upon the heirs, personal representatives,
trustees in bankruptcy, legal representatives, and successors and assigns of the
Signatory.
The Signatory represents and warrants that, to the extent a certificate
evidencing the Units tendered hereby and thereby (the "original certificate") is
not delivered by the Signatory together with the Acknowledgment and Agreement,
(i) the Signatory represents and warrants to the Purchaser that the Signatory
has not sold, transferred, conveyed, assigned, pledged, deposited or otherwise
disposed of any portion of the Units, (ii) the Signatory has caused a diligent
search of its records to be taken and has been unable to locate the original
certificate, (iii) if the Signatory shall find or recover the original
certificate evidencing the Units, the Signatory will immediately and without
consideration surrender it to the Purchaser; and (iv) the Signatory shall at all
times indemnify, defend, and save harmless the Purchaser and the Partnership,
its successors, and its assigns from and against any and all claims, actions,
and suits, whether groundless or otherwise, and from and against any and all
liabilities, losses, damages, judgments, costs, charges, counsel fees, and other
expenses of every nature and character by reason of honoring or refusing to
honor the original certificate when presented by or on behalf of a holder in due
course of a holder appearing to or believed by the Partnership to be such, or by
issuance or delivery of a replacement certificate, or the making of any payment,
delivery, or credit in respect of the original certificate without surrender
thereof, or in respect of the replacement certificate.
Annex II - Page 3
INSTRUCTIONS FOR COMPLETING THE ACKNOWLEDGMENT AND AGREEMENT
1. REQUIREMENTS OF TENDER. To be effective, a duly completed and signed
Acknowledgment and Agreement (or facsimile thereof) and any other required
documents must be received by the Information Agent at one of its addresses (or
its facsimile number) set forth herein before midnight, New York Time, on the
Expiration Date, unless extended. To ensure receipt of the Acknowledgment and
Agreement and any other required documents, it is suggested that you use
overnight courier delivery or, if the Acknowledgment and Agreement and any other
required documents are to be delivered by United States mail, that you use
certified or registered mail, return receipt requested.
Our records indicate that you own the number of Units set forth in Box 2
entitled "Description of Units Tendered" on the Acknowledgment and Agreement
under the column entitled "Total Number of Units Owned (#)." If you would like
to tender only a portion of your Units, please so indicate in the space provided
in the box.
THE METHOD OF DELIVERY OF THE ACKNOWLEDGMENT AND AGREEMENT AND ALL OTHER
REQUIRED DOCUMENTS IS AT THE OPTION AND RISK OF THE TENDERING LIMITED PARTNER
AND DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE INFORMATION
AGENT. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ASSURE TIMELY
DELIVERY.
2. SIGNATURE REQUIREMENTS.
INDIVIDUAL AND JOINT OWNERS -- After carefully reading the Letter of Transmittal
and completing the Acknowledgment and Agreement, to tender Units, limited
partners must sign at the "X" in the Signature Box (Box 1) of the Acknowledgment
and Agreement. The signature(s) must correspond exactly with the names printed
(or corrected) on the front of the Acknowledgment and Agreement. NO SIGNATURE
GUARANTEE ON THE ACKNOWLEDGMENT AND AGREEMENT IS REQUIRED IF THE ACKNOWLEDGMENT
AND AGREEMENT IS SIGNED BY THE LIMITED PARTNER (OR BENEFICIAL OWNER IN THE CASE
OF AN IRA). If any tendered Units are registered in the names of two or more
joint owners, all such owners must sign the Acknowledgment and Agreement.
TRUSTEES, CORPORATIONS, PARTNERSHIP AND FIDUCIARIES -- Trustees, executors,
administrators, guardians, attorneys-in-fact, officers of a corporation,
authorized partners of a partnership or other persons acting in a fiduciary or
representative capacity must sign at the "X" in the Signature Box and have their
signatures guaranteed by an Eligible Institution by completing the signature
guarantee set forth in Box 3 in the Acknowledgment and Agreement. If the
Acknowledgment and Agreement is signed by trustees, administrators, guardians,
attorneys-in-fact, officers of a corporation, authorized partners of a
partnership or others acting in a fiduciary or representative capacity, such
persons should, in addition to having their signatures guaranteed, indicate
their title in the Signature Box and must submit proper evidence satisfactory to
the Purchaser of their authority to so act (see Instruction 3 below).
3. DOCUMENTATION REQUIREMENTS. In addition to the information required to be
completed on the Acknowledgment and Agreement, additional documentation may be
required by the Purchaser under certain circumstances including, but not limited
to, those listed below. Questions on documentation should be directed to the
Information Agent at its telephone number set forth herein.
DECEASED OWNER (JOINT TENANT) -- Copy of death certificate.
DECEASED OWNER (OTHERS) -- Copy of death certificate (see also
Executor/Administrator/Guardian below).
EXECUTOR/ADMINISTRATOR/GUARDIAN -- Copy of court appointment documents for
executor or administrator; and
(a) a copy of applicable provisions
of the will (title page,
executor(s)' powers, asset
distribution); or
(b) estate distribution documents.
ATTORNEY-IN-FACT -- Current power of attorney.
-1-
CORPORATION/PARTNERSHIP -- Corporate resolution(s) or other
evidence of authority to act.
Partnerships should furnish a copy of
the partnership agreement.
TRUST/PENSION PLANS -- Unless the trustee(s) are named in the
registration, a copy of the cover page
of the trust or pension plan, along
with a copy of the section(s) setting
forth names and powers of trustee(s)
and any amendments to such sections or
appointment of successor trustee(s).
4. TAX CERTIFICATIONS. The limited partner(s) tendering Units to the Purchaser
pursuant to the Offer must furnish the Purchaser with the limited partner(s)'
taxpayer identification number ("TIN") and certify as true, under penalties of
perjury, the representations in Box 6 and Box 7 of the Acknowledgment and
Agreement. By signing the Signature Box, the limited partner(s) certifies that
the TIN as printed (or corrected) on Acknowledgment and Agreement in the box
entitled "Description of Units Tendered" and the representations made in Box 6
and Box 7 of the Acknowledgment and Agreement are correct. See attached
Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9 for guidance in determining the proper TIN to give the Purchaser.
U.S. PERSONS. A limited partner that is a U.S. citizen or a resident alien
individual, a domestic corporation, a domestic partnership, a domestic trust or
a domestic estate (collectively, "U.S. Persons"), as those terms are defined in
the Code, should follow the instructions below with respect to certifying Box 6
and Box 7 of the Acknowledgment and Agreement.
BOX 6 - SUBSTITUTE FORM W-9.
Part (i), Taxpayer Identification Number -- Tendering limited partners must
certify to the Purchaser that the TIN as printed (or corrected) on the
Acknowledgment and Agreement in the box entitled "Description of Units Tendered"
is correct. If a correct TIN is not provided, penalties may be imposed by the
Internal Revenue Service (the "IRS"), in addition to the limited partner being
subject to backup withholding.
Part (ii), Backup Withholding -- In order to avoid 30% Federal income tax backup
withholding, the tendering limited partner must certify, under penalty of
perjury, that such limited partner is not subject to backup withholding. Certain
limited partners (including, among others, all corporations and certain exempt
non-profit organizations) are not subject to backup withholding. Backup
withholding is not an additional tax. If withholding results in an overpayment
of taxes, a refund may be obtained from the IRS.
When determining the TIN to be furnished, please refer to the following as a
guide:
Individual accounts - should reflect owner's TIN.
Joint accounts - should reflect the TIN of the owner whose name appears first.
Trust accounts - should reflect the TIN assigned to the trust. IRA custodial
accounts - should reflect the TIN of the custodian (not necessary to provide).
Custodial accounts for the benefit of minors - should reflect the TIN of the
minor.
Corporations, partnership or other business entities - should reflect the TIN
assigned to that entity.
By signing the Signature Box, the limited partner(s) certifies that the TIN as
printed (or corrected) on the front of the Acknowledgment and Agreement is
correct.
BOX 7 - FIRPTA AFFIDAVIT -- Section 1445 of the Code requires that each limited
partner transferring interests in a partnership with real estate assets meeting
certain criteria certify under penalty of perjury the representations made in
Box 7, or be subject to withholding of tax equal to 10% of the consideration for
interests purchased. Tax withheld under Section 1445 of the Code is not an
additional tax. If withholding results in an overpayment of tax, a refund may be
claimed from the IRS.
-2-
FOREIGN PERSONS -- In order for a tendering limited partner who is a Foreign
Person (i.e., not a U.S. Person, as defined above) to qualify as exempt from 30%
backup withholding, such foreign limited partner must submit a statement, signed
under penalties of perjury, attesting to that individual's exempt status. Forms
for such statements can be obtained from the Information Agent.
5. VALIDITY OF ACKNOWLEDGMENT AND AGREEMENT. All questions as to the validity,
form, eligibility (including time of receipt) and acceptance of an
Acknowledgment and Agreement and other required documents will be determined by
the Purchaser and such determination will be final and binding. The Purchaser's
interpretation of the terms and conditions of the Offer (including these
Instructions for the Acknowledgment and Agreement) will be final and binding.
The Purchaser will have the right to waive any irregularities or conditions as
to the manner of tendering. Any irregularities in connection with tenders,
unless waived, must be cured within such time as the Purchaser shall determine.
The Acknowledgment and Agreement will not be valid until any irregularities have
been cured or waived. Neither the Purchaser nor the Information Agent are under
any duty to give notification of defects in an Acknowledgment and Agreement and
will incur no liability for failure to give such notification.
6. ASSIGNEE STATUS. Assignees must provide documentation to the Information
Agent which demonstrates, to the satisfaction of the Purchaser, such person's
status as an assignee.
7. TRANSFER TAXES. The amount of any transfer taxes (whether imposed on the
registered holder or such person) payable on account of the transfer to such
person will be deducted from the consideration unless satisfactory evidence of
the payment of such taxes or exemption therefrom is submitted.
8. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If consideration is to be issued
in the name of a person other than the person signing the Signature Box of the
Acknowledgment and Agreement or if consideration is to be sent to someone other
than such signer or to an address other than that set forth on the
Acknowledgment and Agreement in the box entitled "Description of Units
Tendered," the appropriate boxes on the Acknowledgment and Agreement must be
completed.
-3-
GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
GUIDELINES FOR DETERMINING THE PROPER IDENTIFICATION NUMBER TO GIVE THE
PAYER -- Social Security numbers have nine digits separated by two hyphens:
i.e., 000-00-0000. Employer identification numbers have nine digits separated by
only one hyphen: i.e., 00-0000000. The table below will help determine the
number to give the payer.
<Table>
<Caption>
- ----------------------------------------------------------------------------------------------------------------------------
GIVE THE TAXPAYER IDENTIFICATION
FOR THIS TYPE OF ACCOUNT: NUMBER OF --
- ----------------------------------------------------------------------------------------------------------------------------
1. An individual account The individual
2. Two or more individuals (joint account) The actual owner of the account or, if combined
Funds, the first individual on the account
3. Husband and wife (joint account) The actual owner of the account or, if joint funds,
Either person
4. Custodian account of a minor (Uniform Gift to Minors Act) The minor(2)
5. Adult and minor (joint account) The adult or, if the minor is the only contributor,
the minor(1)
6. Account in the name of guardian or committee for a The ward, minor or incompetent person(3)
designated ward, minor or incompetent person (3)
7. a. The usual revocable savings trust account (grantor The grantor trustee(1)
is also trustee)
b. So-called trust account that is not a legal or valid The actual owner(1)
trust under state law
8. Sole proprietorship account The owner(4)
9. A valid trust, estate or pension trust The legal entity (Do not furnish the identifying number
of the personal representative or trustee unless the
legal entity itself is not designated in the account
title.)(5)
10. Corporate account The corporation
11. Religious, charitable, or educational organization The organization
account
12. Partnership account held in the name of the business The partnership
13. Association, club, or other tax-exempt organization The organization
14. A broker or registered nominee The broker or nominee
15. Account with the Department of Agriculture in the name The public entity
of a public entity (such as a State or local government,
school district, or prison) that receives agricultural
program payments
</Table>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security
number.
(3) Circle the ward's or incompetent person's name and furnish such
person's social security number or employer identification number.
(4) Show your individual name. You may also enter your business name.
You may use your social security number or employer identification
number.
(5) List first and circle the name of the legal trust, estate, or pension
trust.
NOTE: If no name is circled when there is more than one name, the number
will be considered to be that of the first name listed.
-1-
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER -- If you do not have a taxpayer identification number or
you do not know your number, obtain Form SS-5, Application for a Social Security
Number Card (for individuals), or Form SS-4, Application for Employer
Identification Number (for businesses and all other entities), at the local
office of the Social Security Administration or the Internal Revenue Service and
apply for a number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include
the following:
- A corporation.
- A financial institution.
- An organization exempt from tax under section 501(a) of the Internal
Revenue Code of 1986, as amended (the "Code"), or an individual
retirement plan.
- The United States or any agency or instrumentality thereof.
- A State, the District of Columbia, a possession of the United States, or
any subdivision or instrumentality thereof.
- A foreign government, a political subdivision of a foreign government, or
any agency or instrumentality thereof.
- An international organization or any agency or instrumentality thereof.
- A registered dealer in securities or commodities registered in the U.S.
or a possession of the U.S.
- A real estate investment trust.
- A common trust fund operated by a bank under section 584(a) of the Code.
- An exempt charitable remainder trust, or a non-exempt trust described in
section 4947 (a)(1).
- An entity registered at all times under the Investment Company Act
of 1940.
- A foreign central bank of issue.
- A futures commission merchant registered with the Commodity Futures
Trading Commission.
Payments of dividends and patronage dividends not generally subject to
backup withholding include the following:
- Payments to nonresident aliens subject to withholding under section 1441
of the Code.
- Payments to Partnerships not engaged in a trade or business in the U.S.
and which have at least one nonresident partner.
- Payments of patronage dividends where the amount received is not paid in
money.
- Payments made by certain foreign organizations.
- Payments made to an appropriate nominee.
- Section 404(k) payments made by an ESOP.
Payments of interest not generally subject to backup withholding include the
following:
- Payments of interest on obligations issued by individuals. NOTE: You may
be subject to backup withholding if this interest is $600 or more and is
paid in the course of the payer's trade or business and you have not
provided your correct taxpayer identification number to the payer.
- Payments of tax exempt interest (including exempt interest dividends
under section 852 of the Code).
- Payments described in section 6049(b)(5) of the Code to nonresident
aliens.
- Payments on tax-free covenant bonds under section 1451 of the Code.
- Payments made by certain foreign organizations.
- Payments of mortgage interest to you.
- Payments made to an appropriate nominee.
Exempt payees described above should file a substitute Form W-9 to avoid
possible erroneous backup withholding. FILE THIS FORM WITH THE PAYER. FURNISH
YOUR TAXPAYER IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND
RETURN IT TO THE PAYER. IF THE PAYMENTS ARE INTEREST, DIVIDENDS, OR PATRONAGE
DIVIDENDS, ALSO SIGN AND DATE THE FORM. IF YOU ARE A NONRESIDENT ALIEN OR A
FOREIGN ENTITY NOT SUBJECT TO BACKUP WITHHOLDING, FILE WITH PAYER A COMPLETED
INTERNAL REVENUE FORM W-8 (CERTIFICATE OF FOREIGN STATUS).
Certain payments other than interest, dividends, and patronage dividends,
that are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(A),
6045, and 6050A of the Code.
PRIVACY ACT NOTICE -- Section 6109 of the Code requires most recipients of
dividend, interest, or other payments to give correct taxpayer identification
numbers to payers who must report the payments to the IRS. The IRS uses the
numbers for identification purposes. Payers must be given the numbers whether or
not recipients are required to file a tax return. Payers must generally withhold
30% of taxable interest, dividend, and certain other payments to a payee who
does not furnish a correct taxpayer identification number to a payer. Certain
penalties may also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER -- If you
fail to furnish your correct taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING -- If
you make a false statement with no reasonable basis that results in no
imposition of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION - - Willfully falsifying
certifications or affirmations may subject you to criminal penalties including
fines and/or imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL
REVENUE SERVICE.
-2-
The Acknowledgment and Agreement and any other documents required by
the Letter of Transmittal should be sent or delivered by each limited partner or
such limited partner's broker, dealer, bank, trust company or other nominee to
the Information Agent at one of its addresses set forth below.
THE INFORMATION AGENT FOR THE OFFER IS:
RIVER OAKS PARTNERSHIP SERVICES, INC.
<Table>
By Mail: By Overnight Courier: By Hand:
P.O. Box 2065 111 Commerce Road 111 Commerce Road
S. Hackensack, NJ 07606-2065 Carlstadt, NJ 07072 Carlstadt, NJ 07072
Attn: Reorganization Dept. Attn: Reorganization Dept.
By facsimile: For information please call:
(201) 460-2889 TOLL FREE (888) 349-2005
Or
(201) 896-1900
</Table>
-3-