LITIGATION SETTLEMENT OFFER
(AIMCO LOGO)
AIMCO PROPERTIES, L.P.
is offering to purchase any and all limited partnership units in
SHELTER PROPERTIES I LIMITED PARTNERSHIP
FOR $192.61 PER UNIT IN CASH
This Litigation Settlement Offer is being made as part of a COURT APPROVED
SETTLEMENT of class and derivative litigation brought on behalf of limited
partners in your partnership and others. FINAL COURT APPROVAL OF THE SETTLEMENT,
WHICH REQUIRES THE MAKING OF THIS LITIGATION SETTLEMENT OFFER AS A CONDITION OF
SETTLEMENT, HAS BEEN OBTAINED. On August 12, 2003, an objector filed an appeal
of the court's order approving the settlement and is seeking to reverse or
vacate the Court's order and the judgment entered thereto. Although we reserve
our right to terminate or amend our offer if final court approval of the
settlement is reversed or vacated, we have nevertheless elected to proceed with
this offer under the terms of the settlement. Under the terms of the settlement,
the Court appointed American Appraisal Associates, Inc., as an independent
appraiser, to appraise your partnership's properties and we agreed to provide an
executive summary of the appraiser's report for each property owned by your
partnership, attached as Annex II. A complete copy of the appraiser's report
will be provided to you free of charge upon request. THE SETTLEMENT ALSO
INCLUDES THE CREATION OF A $9.9 MILLION SETTLEMENT FUND FOR MEMBERS OF THE
SETTLEMENT CLASS. AFTER DEDUCTING ATTORNEYS' FEES AND OTHER SETTLEMENT COSTS
(INCLUDING A PORTION OF THE COSTS OF THE APPRAISALS AND CERTAIN COSTS OF
ADMINISTRATION OF THE SETTLEMENT FUND), WE HAVE ALLOCATED THE REMAINING AMOUNT
IN THE SETTLEMENT FUND AMONG THE 44 REMAINING PARTNERSHIPS INVOLVED IN THE
SETTLEMENT, PRO RATA BASED ON PARTNERSHIP REVENUE FOR THE YEAR ENDED DECEMBER
31, 2002 ALLOCABLE TO UNITS HELD BY THE MEMBERS OF THE SETTLEMENT CLASS. YOUR
PRO RATA SHARE OF THE SETTLEMENT FUND IS $29.84, WHICH IS INCLUDED IN OUR OFFER
PRICE ABOVE FOR THOSE WHO TENDER.
Upon the terms and subject to the conditions set forth herein, we will
accept any and all units validly tendered in response to our offer.
You will not pay any partnership transfer fees if you tender your units
pursuant to this offer. You will pay any other fees or costs, including any
transfer taxes.
Our offer price will be reduced for any distributions subsequently made or
declared by your partnership prior to the expiration of our offer.
Our offer and your withdrawal rights will expire at midnight, New York City
time, on December 15, 2003, unless we extend the deadline.
Neither the court nor counsel for the parties in the class and derivative
litigation make any recommendation regarding whether you should accept this
Litigation Settlement Offer. You are encouraged to carefully review this
Litigation Settlement Offer, the executive summary of the independent
appraiser's report (attached as Annex II) and any other information available to
you and to seek advice from your independent lawyer, tax advisor and/or
financial advisor before deciding whether or not to accept this Litigation
Settlement Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 4 OF THIS LITIGATION SETTLEMENT OFFER
FOR A DESCRIPTION OF RISK FACTORS THAT YOU SHOULD CONSIDER IN CONNECTION WITH
OUR OFFER, INCLUDING THE FOLLOWING:
- If you want to tender your units in the offer, you must sign a letter of
transmittal in which you release us from all liability with respect to
claims that were brought or that could have been brought in the class and
derivative litigation, and assign to us your rights in any future claims.
If you requested exclusion from the settlement but tender your units, by
signing the letter of transmittal, you will release us from any claims
that you would otherwise have preserved by requesting exclusion from the
settlement class. If you did not request exclusion, you will release any
known or unknown claims arising out of the class and derivative
litigation if the judgment approving the settlement is affirmed on
appeal. By executing the enclosed letter of transmittal, moreover, you
will release those claims even if the judgment is reversed or otherwise
vacated on appeal.
(Continued on next page)
If you decide to accept our offer, you must complete and sign the enclosed
letter of transmittal in accordance with the instructions thereto and mail or
deliver the signed letter of transmittal and any other required documents to The
Altman Group, 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 Litigation
Settlement Offer. QUESTIONS AND REQUESTS FOR ASSISTANCE OR FOR ADDITIONAL COPIES
OF THIS LITIGATION SETTLEMENT OFFER, THE LETTER OF TRANSMITTAL OR FOR A COMPLETE
COPY OF AN APPRAISAL OF ANY OF YOUR PARTNERSHIP'S PROPERTIES MAY ALSO BE
DIRECTED TO THE INFORMATION AGENT AT (800) 467-0821.
November 14, 2003
(Continued from prior page)
- We determined our offer price without any arms-length negotiations, and
independently of the recent appraisals of your partnership's property (an
executive summary of each of which is attached as Annex II). Accordingly,
our offer price may not reflect the fair market value of your units. In
addition, the determination of our offer price has not been approved by
the court or counsel for the parties in the class and derivative
litigation.
- Upon a liquidation of your partnership, if the properties were sold at a
price equal to the value determined by the independent appraiser, we
estimate that your liquidation proceeds would be approximately $410.47
per unit, which is higher than our offer price of $192.61 per unit. In
order to understand the assumptions and methodology used to determine the
liquidation amount, please refer to "The Litigation Settlement Offer --
Section 8. Valuation of Units -- Estimated Liquidation Proceeds Based on
Independent Appraisal."
- Your general partner and the property manager are affiliates of ours and,
therefore, your general partner has substantial conflicts of interest
with respect to our offer.
- 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.
- 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.
- If we do not acquire all of the outstanding units in your partnership, it
is possible that we may conduct a future offer at a higher price,
although we have no obligation or current intention to do so.
- 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.
- The general partner makes no recommendation as to whether you should
tender your units.
NEITHER THE COURT NOR COUNSEL FOR THE PARTIES IN THE CLASS AND DERIVATIVE
LITIGATION MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THIS
LITIGATION SETTLEMENT OFFER. YOU ARE ENCOURAGED TO CAREFULLY REVIEW THIS
LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT
APPRAISER'S REPORT AND ANY OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK THE
ADVICE OF YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE
DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER.
THIS LITIGATION SETTLEMENT OFFER IS BEING OFFERED TO ALL CURRENT
UNITHOLDERS WHETHER OR NOT THEY HAVE REQUESTED EXCLUSION FROM THE SETTLEMENT
CLASS. IF YOU REQUESTED EXCLUSION FROM THE SETTLEMENT CLASS BUT TENDER YOUR
UNITS, BY SIGNING THE LETTER OF TRANSMITTAL, YOU WILL RELEASE US FROM CLAIMS
THAT YOU WOULD OTHERWISE HAVE PRESERVED BY REQUESTING EXCLUSION. IF YOU DID NOT
REQUEST EXCLUSION, YOU WILL RELEASE ANY KNOWN OR UNKNOWN CLAIMS ARISING OUT OF
THE CLASS AND DERIVATIVE LITIGATION IF THE JUDGMENT APPROVING THE SETTLEMENT IS
AFFIRMED ON APPEAL. BY EXECUTING THE ENCLOSED LETTER OF TRANSMITTAL, MOREOVER,
YOU WILL RELEASE THOSE CLAIMS EVEN IF THE JUDGMENT IS REVERSED OR OTHERWISE
VACATED ON APPEAL.
THE INFORMATION AGENT FOR THE OFFER IS:
THE ALTMAN GROUP, INC.
<Table>
By Mail: By Overnight Courier: By Hand:
1275 Valley Brook Avenue 1275 Valley Brook Avenue 1275 Valley Brook Avenue
Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
For information, please call:
TOLL FREE: (800) 467-0821
</Table>
TABLE OF CONTENTS
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<Caption>
PAGE
----
SUMMARY TERM SHEET..........................................
1
RISK FACTORS................................................
4
If you tender your units in this offer, you will release
us from all liability and assign to us your rights in
any future claims......................................
4
We have established the terms of our offer without
reference to the recent appraisal of your partnership's
properties.............................................
4
Our offer price may not represent fair market value.......
4
Our offer price does not reflect future prospects.........
4
The liquidation value of your partnership units exceeds
our offer price........................................
4
Continuation of the partnership; no time frame regarding
sale of property.......................................
4
Holding your units may result in greater future value.....
5
The general partner faces conflicts of interest with
respect to this offer..................................
5
Your general partner is not making a recommendation
regarding this offer...................................
5
Your general partner faces conflicts of interest relating
to management fees.....................................
5
If we do not acquire all of the outstanding units in this
offer, we may make a future offer at a higher price....
5
Your tax liability resulting from a sale of your units
could exceed our offer price...........................
6
You may recognize taxable gain on the amount paid from the
settlement fund or for release and assignment of
claims.................................................
6
If you tender your units in this offer, you will no longer
be entitled to distributions from your partnership.....
7
You could recognize gain in the event of a future
reduction in your partnership's liabilities............
7
You could be precluded from transferring your units for a
12-month period........................................
7
We could delay acceptance of, and payment for, your
units..................................................
7
There may be a possible reduction of available information
about your partnership as a result of this offer.......
7
Your partnership has a balloon payment on its mortgage
debt...................................................
7
THE LITIGATION SETTLEMENT OFFER.............................
8
1. Terms of the Offer; Expiration Date...................
8
2. Acceptance for Payment and Payment for Units..........
8
3. Procedure for Tendering Units.........................
10
4. Withdrawal Rights.....................................
13
5. Extension of Tender Period; Termination; Amendment; No
Subsequent Offering Period.............................
13
6. Certain Federal Income Tax Matters....................
14
7. Effects of the Offer..................................
17
8. Valuation of Units....................................
18
9. The Lawsuit and the Settlement........................
23
10. Information Concerning Us and Certain of Our
Affiliates.............................................
28
11. Background and Reasons for the Offer..................
31
12. Position of the General Partner of Your Partnership
With Respect to the Offer..............................
33
13. Conflicts of Interest and Transactions with
Affiliates.............................................
34
14. Future Plans of the Purchaser.........................
35
15. Certain Information Concerning Your Partnership.......
36
16. Voting Power..........................................
40
</Table>
<Table>
<Caption>
PAGE
----
17. Source of Funds.......................................
40
18. Dissenters' Rights....................................
41
19. Conditions to the Offer...............................
41
20. Certain Legal Matters.................................
43
21. Fees and Expenses.....................................
44
ANNEX -- I OFFICERS AND DIRECTORS...........................
I-1
ANNEX -- II EXECUTIVE SUMMARY OF INDEPENDENT APPRAISER'S
REPORT....................................................
II-1
</Table>
ii
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 Litigation Settlement Offer, which contains the full details of
our offer. We have also included in the summary term sheet references to the
sections of this Litigation Settlement Offer where a more complete discussion
may be found.
- The Litigation Settlement Offer. As part of the settlement of a class
and derivative litigation entitled Nuanes et al. v. Insignia Financial
Group, Inc. et al. and Heller v. Insignia Financial Group, Inc., et al.
on behalf of your partnership and limited partners in your partnership
and others, we are offering to acquire any and all of the limited
partnership units of your partnership for $192.61 per unit in cash. Under
the terms of the settlement, neither we nor our affiliates admit to any
wrongdoing, and we deny liability under all claims brought in this
litigation. FINAL COURT APPROVAL OF THE SETTLEMENT, WHICH REQUIRES THE
MAKING OF THIS LITIGATION SETTLEMENT OFFER AS A CONDITION OF SETTLEMENT,
HAS BEEN OBTAINED. On August 12, 2003, an objector filed an appeal of the
court's order approving the settlement and is seeking to reverse or
vacate the Court's order and the judgment entered thereto. Although we
reserve our right to terminate or amend our offer if final court approval
of the settlement is reversed or vacated, we have nevertheless elected to
proceed with this offer under the terms of the settlement. See "The
Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration
Date," "-- Section 7. Effects of the Offer," "-- Section 8. Valuation of
Units" and "-- Section 9. The Lawsuit and the Settlement."
- The Settlement Fund. The settlement also includes the creation of a $9.9
million settlement fund for members of the settlement class. After
deducting attorneys' fees and other settlement costs (including a portion
of the costs of the appraisals and certain costs of administration of the
settlement fund), we have allocated the remaining amount in the
settlement fund among the 44 remaining partnerships involved in the
settlement, pro rata based on partnership revenue for the year ended
December 31, 2002 allocable to units held by the members of the
settlement class. Your partnership's allocated share of the settlement
fund is divided by the total number of units owned by members of the
settlement class, and the resulting amount is included in our offer price
above. Your pro rata share of the settlement fund is $29.84. If you
request exclusion from the settlement, you may tender any units in this
offer and you will be entitled to receive the same price per unit as
those unitholders who have not opted out of the settlement class.
However, no portion of the price paid to you will come from the
settlement fund.
If you do not request exclusion from the settlement and do not tender any
units in this offer, you will be entitled to receive your pro rata share
of the settlement fund (subject to adjustment) no later than June 2005 if
the Court's order approving the settlement and entering judgment thereto
is affirmed on appeal. If the Court's order is reversed or vacated by
virtue of the appeal, however, you will not be entitled to receive a pro
rata share of the settlement fund unless you tender your units in this
offer.
Under the terms of the settlement, we will pay the costs of printing and
mailing this Litigation Settlement Offer to limited partners of your
partnership, as well as other costs of notice. In addition, we have agreed
to pay 50% of the costs of the appraisals, with the other 50% to be paid
from the settlement fund.
- Factors in Determining the Offer Price. In determining the offer price
per unit we principally considered:
- your partnership's property income;
- our estimate of an appropriate capitalization rate for such property
income;
- the location, condition and debt structure of your partnership's
property;
1
- our estimate of the fees and expenses expected to be incurred by your
partnership if its properties are sold; and
- your partnership's other assets and liabilities.
- Expiration Date. Our offer expires on December 15, 2003, unless
extended, and you can tender your units until our offer expires. See "The
Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration
Date."
- Right to Extend the Expiration Date. Under the settlement, we can extend
the expiration date of the offer in our sole discretion up to 90 business
days from the date of commencement. We reserve the right to extend the
offer subject to customary conditions. In the event we extend the offer,
we will either issue a press release or send you a notice of any such
extension. See "The Litigation Settlement Offer -- Section 5. Extension
of Tender Period; Termination; Amendment; No Subsequent Offering Period."
- How to Tender. To tender your units, complete the accompanying letter of
transmittal and send it, along with any other documents required by the
letter of transmittal, to the Information Agent, The Altman Group, Inc.,
at one of the addresses set forth on the back of this Litigation
Settlement Offer. See "The Litigation Settlement Offer -- Section 3.
Procedure for Tendering Units."
- Release and Assignment of Future Claims. If you want to tender your
units in the offer, you must sign a letter of transmittal in which you
release us from all liability with respect to claims that were brought or
that could have been brought in the class and derivative litigation, and
assign to us your rights in any future claims. If you requested exclusion
from the settlement but tender your units, by signing the letter of
transmittal, you will release us from claims that you would otherwise
have preserved by requesting exclusion from the settlement class. If you
did not request exclusion, you will release any known or unknown claims
arising out of the class and derivative litigation if the judgment
approving the settlement is affirmed on appeal. By executing the enclosed
letter of transmittal, moreover, you will release those claims even if
the judgment is reversed or otherwise vacated on appeal.
- Covenant Not to Sue. If you requested exclusion from the settlement but
tender your units in this offer, by signing the letter of transmittal,
you agree not to bring any action, claim, suit or proceeding against us
and those affiliates who were defendants in the class and derivative
litigation concerning any of the matters that are the subject of the
Stipulation of Settlement approved by the Court in connection with the
settlement of such class and derivative litigation, including the making
of this offer, except with respect to any statements or representations
made herein other than those approved by the Court. If you do not request
exclusion from the settlement class, you will already have agreed not to
bring any such action, claim, suit or proceeding once the settlement is
final.
- 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 January 13, 2004 if we have
not already accepted units for purchase and payment. See "The Litigation
Settlement Offer -- Section 4. Withdrawal Rights."
- 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 Litigation Settlement Offer -- Section 4.
Withdrawal Rights."
- 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 Litigation Settlement
Offer -- Section 6. Certain Federal Income Tax Matters."
- Availability of Funds. We intend to pay the purchase price for any units
tendered from our existing cash balances or borrowings under our line of
credit. See "The Litigation Settlement Offer -- Section 17. Source of
Funds."
2
- Conditions of the Offer. There are a number of conditions to our offer,
including our having adequate cash balances or availability under our
line of credit, the absence of competing tender offers, that there be no
material change with respect to our financial condition, the absence of
certain changes in your partnership, and the absence of certain changes
in the financial markets. If we are unable to accept the units tendered
in this Litigation Settlement Offer due to a failure of any or all of the
conditions of our offer to be satisfied, we will conduct another offer in
accordance with the terms of the settlement (which will occur no later
than six months after the date of the commencement of this offer). We
will continue this process until we have accepted for payment all units
properly tendered in an offer conducted in accordance with the terms of
the settlement. See "The Litigation Settlement Offer -- Section 19.
Conditions to the Offer."
- Remaining as a Limited Partner. If you do not tender your units, you
will remain a limited partner in your partnership. We have no plans to
alter the operations, business or financial position of your partnership.
However, if there are fewer than 300 unitholders in your partnership as a
result of the offer, your partnership will no longer be required to file
periodic reports with the SEC, such as annual reports on Form 10-KSB
containing annual audited financial statements, and quarterly reports on
Form 10-QSB containing unaudited financial statements. See "The
Litigation Settlement Offer -- Section 7. Effects of the Offer."
- Who We Are. We are AIMCO Properties, L.P., the operating partnership of
Apartment Investment and Management Company, a New York Stock
Exchange-listed company. See "The Litigation Settlement Offer -- Section
10. Information Concerning Us and Certain of Our Affiliates."
- Conflicts of Interest. Our affiliate receives fees for managing your
partnership's property and the general partner of your partnership (which
is our affiliate) is entitled to receive reimbursement of certain
expenses involving your partnership and its property. 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. See "The Litigation Settlement
Offer -- Section 13. Conflicts of Interest and Transactions with
Affiliates" and "-- Section 15. Certain Information Concerning Your
Partnership."
- No General Partner Recommendation. The general partner of your
partnership makes no recommendation as to whether you should tender or
refrain from tendering your units. Each limited partner should make his
or her own decision whether or not to tender. YOU ARE ENCOURAGED TO
CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY
OF THE INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY
OTHER INFORMATION AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR
INDEPENDENT LAWYER, TAX ADVISOR AND/OR FINANCIAL ADVISOR BEFORE DECIDING
WHETHER OR NOT TO ACCEPT THIS LITIGATION SETTLEMENT OFFER. See "The
Litigation Settlement Offer -- Section 12. Position of the General
Partner of Your Partnership With Respect to the Offer."
- No Subsequent Offering Period. We do not currently intend to have a
subsequent offering period after the expiration date of the initial
offering period (including any extensions). See "The Litigation
Settlement Offer -- Section 5. Extension of Tender Offer Period;
Termination; Amendment; No Subsequent Offering Period."
- Additional Information. For 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 Litigation Settlement
Offer.
- No Recommendation by Court or Counsel for the Parties. Neither the court
nor counsel for the parties in the class and derivative litigation make
any recommendation regarding whether you should accept this Litigation
Settlement Offer. You are encouraged to carefully review this Litigation
Settlement Offer, the executive summary of the independent appraiser's
report and any other information available to you and to seek the advice
of your independent lawyer, tax advisor and/or financial advisor before
deciding whether or not to accept this Litigation Settlement Offer.
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:
IF YOU TENDER YOUR UNITS IN THIS OFFER, YOU WILL RELEASE US FROM ALL LIABILITY
AND ASSIGN TO US YOUR RIGHTS IN ANY FUTURE CLAIMS.
If you want to tender your units in response to our offer, you must sign a
letter of transmittal, in which you release us and our affiliates from all
liability with respect to claims that were brought or that could have been
brought in the class and derivative litigation, and assign to us your rights in
any future claims. If you requested exclusion from the settlement but tender
your units, by signing the letter of transmittal, you will release us from
claims that you would otherwise have preserved by requesting exclusion from the
settlement class. If you did not request exclusion, you will release any known
or unknown claims arising out of the class and derivative litigation if the
judgment approving the settlement is affirmed on appeal. By executing the
enclosed letter of transmittal, moreover, you will release those claims even if
the judgment is reversed or otherwise vacated on appeal.
WE HAVE ESTABLISHED THE TERMS OF OUR OFFER WITHOUT REFERENCE TO THE RECENT
APPRAISAL OF YOUR PARTNERSHIP'S PROPERTIES.
We did not base our offer price on any third party valuation or the recent
appraisal of your partnership's properties, nor did we derive our offer price
from any arms-length negotiation. Our offer price might be higher if it were
subject to independent third party negotiations. Thus, it is uncertain whether
our offer price reflects the value that would be realized upon a sale of your
units to a third party. In order to understand the assumptions and methodology
used to determine the liquidation amount, please refer to "The Litigation
Settlement Offer -- Section 8. Valuation of Units -- Estimated Liquidation
Proceeds Based on Independent Appraisal."
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 in an open market for your units. Such prices could be higher than our
offer price.
OUR OFFER PRICE DOES NOT REFLECT FUTURE PROSPECTS.
Our offer price is based on your partnership's property income for the
twelve months ended September 30, 2003. It does not ascribe any value to
potential future improvements in the operating performance of your partnership's
property.
THE LIQUIDATION VALUE OF YOUR PARTNERSHIP UNITS EXCEEDS OUR OFFER PRICE.
If your partnership was liquidated, and the properties sold at a price
equal to their recently appraised value, we estimate that you would receive a
liquidating distribution of $410.47 per unit, which exceeds our offer price of
$192.61 per unit. However, the actual proceeds obtained from a liquidation are
highly uncertain and could be more or less than our estimate.
CONTINUATION OF THE PARTNERSHIP; NO TIME FRAME REGARDING SALE OF PROPERTY.
Your general partner, which is our affiliate, is proposing to continue to
operate your partnership and not to attempt to liquidate it at the present time.
Your partnership's prospectus, dated July 3, 1980, pursuant to which units in
your partnership were sold, indicates that your partnership was intended to be
self-liquidating and that it was anticipated that the partnership's properties
would be sold within 3 to 8 years of their acquisition, subject to market
conditions. The prospectus also indicated that there could be no assurance that
the partnership would be able to so liquidate and that, unless sooner terminated
as
4
provided in the partnership agreement, the existence of the partnership would
continue until the year 2019. It is not known when the property owned by your
partnership may be sold. The market for units in the partnership is illiquid,
and it may be difficult to sell your investment in the partnership in the
future. The general partner of your partnership continually considers whether a
property should be sold or otherwise disposed of after consideration of relevant
factors, including prevailing economic conditions, availability of favorable
financing and tax considerations, with a view to achieving maximum capital
appreciation for your partnership. At the current time, the general partner of
your partnership believes that a sale of the property would not be advantageous
given market conditions, the condition of the property and tax considerations.
In particular, the general partner considered the changes in the local rental
market, the potential for appreciation in the value of a property and the tax
consequences to you on a sale of property. We cannot predict when your
partnership's property will be sold or otherwise disposed of.
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. In addition, at the current time, the general
partner of your partnership believes that a sale of the property would not be
advantageous given market conditions, the condition of the property and tax
considerations. If your partnership's property were sold in the future and the
net proceeds realized therefrom were distributed to the limited partners of your
partnership, the amount of such distribution might exceed our current offer
price.
THE GENERAL PARTNER FACES CONFLICTS OF INTEREST WITH RESPECT TO THIS OFFER.
The general partner of your partnership is our affiliate 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 IS NOT MAKING A RECOMMENDATION REGARDING THIS OFFER.
Your general partner of your partnership (which is our affiliate) makes no
recommendation as to whether or not you should tender or refrain from tendering
your units. Although the general partner believes the offer is fair, 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. You are encouraged to carefully review this
Litigation Settlement Offer, the executive summary of the independent
appraiser's report (attached as Annex II) and any other information available to
you and to seek advice from your independent lawyer, tax advisor and/or
financial advisor before deciding whether or not to accept this Litigation
Settlement Offer.
YOUR GENERAL PARTNER FACES CONFLICTS OF INTEREST RELATING TO MANAGEMENT FEES.
Because we or our subsidiaries receive fees for managing your partnership
and its property, 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.
IF WE DO NOT ACQUIRE ALL OF THE OUTSTANDING UNITS IN THIS OFFER, WE MAY MAKE A
FUTURE OFFER AT A HIGHER PRICE.
It is possible that we may conduct a future offer at a higher price,
although we have no obligation or current intention to do so. In accordance with
the terms of the settlement, we may, but are not obligated to, make another
Litigation Settlement Offer within 18 months of the order finally approving the
5
settlement. If you decide not to tender in this offer and decide to tender in a
future settlement offer, you will receive your pro rata share of the settlement
fund at that time. Our decision to conduct a future offer will depend on, among
other things, the performance of the partnership, prevailing economic
conditions, and our interest in acquiring additional units. In addition, if we
are unable to accept the units tendered in this Litigation Settlement Offer due
to a failure of any or all of the conditions of our offer to be satisfied, we
will conduct another offer in accordance with the terms of the settlement (which
will occur no later than six months after the date of the commencement of this
offer). We will continue this process until we have accepted for payment all
units properly tendered in an offer conducted in accordance with the terms of
the settlement.
YOUR TAX LIABILITY RESULTING FROM A SALE OF YOUR UNITS COULD EXCEED OUR OFFER
PRICE.
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 your unit. Depending on your basis in the units and your tax position, your
tax liability resulting from a sale of units to us pursuant to the offer could
exceed our offer price. 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. We may also be required by state or local tax laws to withhold a portion
of our offer price. Because the income tax consequences of tendering units will
not be the same for everyone, you should consult your tax advisor to determine
the tax consequences of the offer to you.
YOU MAY RECOGNIZE TAXABLE GAIN ON THE AMOUNT PAID FROM THE SETTLEMENT FUND OR
FOR RELEASE AND ASSIGNMENT OF CLAIMS.
Our offer price includes $29.84, your pro rata share of the settlement
fund, unless you request exclusion from the settlement or the Court's order
approving the settlement is reversed or vacated by virtue of the appeal. If you
request exclusion from the settlement or the Court's order approving the
settlement is reversed or vacated by virtue of the appeal, an equivalent portion
of the price paid to you may be deemed a payment for your release and assignment
of claims. The proper treatment for federal income tax purposes of your receipt
of amounts from the settlement fund or deemed payments for your release and
assignment of claims is uncertain. No opinion or assurance can be given that the
Internal Revenue Service (the "IRS") will not challenge the treatment of amounts
from the settlement fund or deemed payments for your release and assignment of
claims as additional consideration for the units, and assert that such amount
should be treated as an ordinary income payment in exchange for your release
and/or assignment of current and future claims. Moreover, while the IRS has
stated that it generally will not treat attorneys' fees and costs that are paid
directly to class counsel from a settlement fund as constituting income, profit,
or gain of a member of the class (so long as the class is an opt-out class and
the class member does not have a separate contingency fee arrangement with the
class counsel), any special awards paid to claimants who actively aid in the
prosecution of a class action or who devote substantial time or expense on
behalf of a settlement class will be treated as payments for services rendered
and will be includable in that member's gross income. You should consult your
tax advisor regarding the tax consequences to you with respect to your right to,
and your receipt of, amounts from the settlement fund or deemed payments for
your release and assignment of claims, and the treatment of special awards,
attorneys fees and costs.
6
IF YOU TENDER YOUR UNITS 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 or refinancing of the
property owned by your partnership.
YOU COULD RECOGNIZE GAIN IN THE EVENT OF A FUTURE 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 your share of the partnership liabilities. If you retain all
or a portion of your units and your share of the partnership liabilities 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 COULD BE PRECLUDED FROM TRANSFERRING 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 with such 12-month period. If
we acquire a significant percentage of the interest in your partnership, you may
not be able to transfer your units for a 12-month period following our offer.
WE COULD DELAY 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 up to 90 business days from the date of commencement of the
offer, and no payment will be made in respect of tendered units until the
expiration of the offer and acceptance of units for payment.
THERE MAY BE A POSSIBLE REDUCTION OF AVAILABLE INFORMATION ABOUT YOUR
PARTNERSHIP AS A RESULT OF THIS OFFER.
If there are less than 300 unitholders in your partnership upon
consummation of the offer, your partnership would no longer be required to file
periodic reports with the SEC, such as annual reports on Form 10-KSB containing
annual audited financial statements, and quarterly reports on Form 10-QSB
containing unaudited quarterly financial statements. Such reports are publicly
available and can be obtained on the SEC's web site. The lack of such filings
could adversely affect the already limited secondary market which currently
exists for units in your partnership and may discourage offers to purchase your
units. In such a case, you would regularly have access only to the information
your partnership's agreement of limited partnership requires your general
partner (which is our affiliate) to provide each year, which consists primarily
of tax information.
YOUR PARTNERSHIP HAS A BALLOON PAYMENT ON ITS MORTGAGE DEBT.
Your partnership has a balloon payment of $1,284,000 due on its mortgage
debt in October 2018. Your partnership may have to refinance such debt, sell
assets or otherwise obtain additional funds prior to the balloon payment due
date, or it will be in a default and could lose the property to foreclosure.
7
THE LITIGATION SETTLEMENT OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions of the offer, we will accept
(and thereby purchase) any and all units that are validly tendered on or prior
to the expiration date and not withdrawn in accordance with the procedures set
forth in "The Litigation Settlement Offer -- Section 4. Withdrawal Rights." For
purposes of the offer, the term "expiration date" shall mean midnight, New York
City time, on December 15, 2003, unless we in our sole discretion shall have
extended the period of time for which the offer is open (which may not exceed 90
business days from the date of commencement, as provided in the settlement). We
reserve the right to extend the offer subject to customary conditions. See "The
Litigation Settlement 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.
The purchase price per unit will automatically be reduced by the aggregate
amount of distributions per unit, if any, made or declared 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 your units.
If, prior to the expiration date, we increase the consideration offered
pursuant to the offer, the increased consideration will be paid for all units
accepted for payment pursuant to the offer, whether or not the units were
tendered prior to the increase in consideration.
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 Litigation Settlement
Offer -- Section 2. Acceptance for Payment and Payment for Units."
The offer is conditioned on satisfaction of certain conditions. THE OFFER
IS NOT CONDITIONED UPON ANY MINIMUM NUMBER OF UNITS BEING TENDERED. See "The
Litigation Settlement Offer -- Section 19. Conditions to the Offer," which sets
forth in full the conditions of the offer. We reserve the right (but in no event
shall we be obligated), in our reasonable discretion, 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. If we are unable to accept the
units tendered in this Litigation Settlement Offer due to a failure of any or
all of the conditions of our offer to be satisfied, we will conduct another
offer in accordance with the terms of the settlement (which will occur no later
than six months after the date of the commencement of this offer). We will
continue this process until we have accepted for payment all units properly
tendered in an offer conducted in accordance with the terms of the settlement.
The transfer of units will be effective the first day of the calendar quarter in
which the offer expires.
This offer is being mailed on or about November 14, 2003 to the persons
shown by your partnership's records to be limited partners or, in the case of
units owned of record by Individual Retirement Accounts and qualified plans,
beneficial owners of units.
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, any and all units validly
tendered as promptly as practicable following the expiration date. A tendering
beneficial owner of units whose units are owned of record by an Individual
Retirement
8
Account or other qualified plan will not receive direct payment of the offer
price; rather, payment will be made to the custodian of such account or plan. In
all cases, payment for units purchased pursuant to the offer will be made only
after timely receipt by the Information Agent of a properly completed and duly
executed letter of transmittal and other documents required by the letter of
transmittal. See "The Litigation Settlement 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 any and all 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. 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. In other circumstances we may only be able to purchase units which,
together with units previously transferred within the preceding 12 months, do
not exceed 50% of the outstanding units.
If proration of tendered units is required, then, subject to our obligation
under Rule 14e-1(c) under 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.
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.
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 letter of transmittal 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 January 13, 2004 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.
9
3. PROCEDURE FOR TENDERING UNITS
Valid Tender. To validly tender units pursuant to the offer, a properly
completed and duly executed letter of transmittal, and any other required
documents must be received by the Information Agent, at one of its addresses set
forth on the back cover of this Litigation Settlement Offer, 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 letter of transmittal 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 letter of transmittal. 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 letter of transmittal. However, in all other cases, all signatures on the
letter of transmittal 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.
THE METHOD OF DELIVERY OF THE 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.
Appointment as Proxy; Power of Attorney. By executing the letter of
transmittal, you are irrevocably appointing us and our designees as your proxy,
in the manner set forth in the letter of transmittal 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 letter of transmittal, you agree to execute
all such documents and take such other actions as shall be reasonably required
to enable the units tendered to be voted in accordance with our directions. The
proxy 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 letter of transmittal, 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
10
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 letter of transmittal, 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 letter of transmittal and shall
continue to be effective unless and until you validly withdraw such units from
this offer prior to the expiration date.
Assignment of Interest in Future Distributions. By executing the letter of
transmittal, you will irrevocably assign to us and our assigns all of your
right, title and interest in and to any and all distributions made by your
partnership 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 and after the expiration date of our offer, in respect of the
units tendered by you and accepted for payment and thereby purchased by us. 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.
Release of Claims. By executing the letter of transmittal, effective upon
acceptance for payment of the units tendered by you, you will, on behalf of
yourself, your heirs, estate, executor, administrator, successors and assigns,
and your partnership, fully, finally and forever release, relinquish and
discharge us and our predecessors, successors and assigns and our present and
former parents, subsidiaries, affiliates, investors, insurers, reinsurers,
officers, directors, employees, agents, administrators, auditors, attorneys,
accountants, information and solicitation agents, investment bankers, and other
representatives, including but not limited to AIMCO Properties, L.P.
(collectively, the "Releasees"), from any and all claims and causes of action,
whether brought individually, on behalf of a class, or derivatively, demands,
rights, or liabilities, including, but not limited to, claims for negligence,
gross negligence, professional negligence, breach of duty of care or loyalty, or
breach of duty of candor, fraud, breach of fiduciary duty, mismanagement,
corporate waste, malpractice, misrepresentation, whether intentional or
negligent, misstatements and omissions to disclose, breach of contract,
violations of any state or federal statutes, rules or regulations, whether known
claims or unknown claims that have been asserted or that could have been
asserted against the Releasees, that arise out of or relate to (a) those matters
and claims set forth in the class and derivative litigation described in this
Litigation Settlement Offer, (b) the ownership of one or more units in your
partnership, including but not limited to, any and all claims related to the
management of your partnership or the properties owned by your partnership
(whether currently or previously), the payment of management fees or other
monies to the general partner of your partnership and its affiliates, prior
acquisitions or tender offers and the prior settlement, (c) the purchase,
acquisition, holding, sale, tender or voting of one or more units in your
partnership, or (d) any of the facts, circumstances, allegations, claims, causes
of action, representations, statements, reports, disclosures, transactions,
events, occurrences, acts, omissions or failures to act, of whatever kind or
character whatsoever, irrespective of the state of mind of the actor performing
or omitting to perform the same, that have been or could have been alleged in
any pleadings, amended pleading, argument, complaint, amended complaint, brief,
motion,
11
report or filing in the class and derivative litigation described in this
Litigation Settlement Offer (collectively, the "Released Claims"); provided,
however, that the Released Claims are not intended to include any unrelated
claims that are unique to a limited partner or settlement class member (e.g., a
settlement class member slips and falls on property owned by one of the
defendants in the class and derivative litigation, loses or did not receive a
distribution check distributed to other limited partners in such partnership, or
is an employee of one of the defendants and has an employee related claim).
In addition, you will expressly waive and relinquish, to the fullest extent
permitted by law and consistent with the releases described herein, the
provisions, rights and benefits of Section 1542 of the Civil Code of California
("Section 1542"), which provides:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT
KNOW OR SUSPECT TO EXIST IN ITS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE
DEBTOR.
You will have also waived any and all provisions, rights and benefits
conferred by any law of any state or territory of the United States, or
principle of common law, that is similar, comparable or equivalent to Section
1542. You may hereafter discover facts in addition to or different from those
which you now know or believe to be true with respect to the subject matter of
the Released Claims, but you will be deemed to have fully, finally and forever
settled and released any and all Released Claims, known or unknown, suspected or
unsuspected, contingent or non-contingent, that now exist or heretofore have
existed upon any theory of law or equity now existing, including, but not
limited to, conduct that is negligent, intentional, with or without malice, or a
breach of any duty, law or rule, without regard to the subsequent discovery of
the existence of such different or additional facts.
You will acknowledge and agree that the releases contained in the letter of
transmittal is intended to include the Released Claims, which you may have and
which you do not know or suspect to exist in your favor against the Releasees
and that the releases contained in the letter of transmittal extinguishes those
claims. You will represent and warrant to the Releasees that you have been
advised by your attorney of the effect and import of the provisions of Section
1542, and that you have not assigned or otherwise transferred or subrogated any
interest in the Released Claims.
Covenant Not to Sue. By executing the letter of transmittal, you agree not
to bring any action, claim, suit or proceeding against us and those affiliates
who were defendants in the class and derivative litigation concerning any of the
matters that are the subject of the Stipulation of Settlement approved by the
Court in connection with the settlement of such class and derivative litigation,
including the making of this offer, except with respect to any statements or
representations made herein other than those approved by the Court.
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 or amend any of the conditions of the offer that we are
legally permitted to waive as to the tender of any particular unit and to waive
any defect or irregularity in any tender with respect to any particular unit of
any particular limited partner. Our interpretation of the terms and conditions
of the offer (including 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 with respect to payment of the offer
price, you may have to provide us with your
12
correct taxpayer identification number. See the instructions to the letter of
transmittal and "The Litigation Settlement Offer -- Section 6. Certain Federal
Income Tax Matters."
State and Local Withholding. If you tender any units pursuant to this
Litigation Settlement Offer, we may be required under state or local tax laws to
deduct and withhold a portion of our offer price. You should consult your tax
advisor concerning whether any state or local withholding would be required on a
disposition of your units and whether such amounts may be available to you as a
credit on your state or local tax returns.
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 letter of transmittal and "The
Litigation Settlement 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 Litigation Settlement Offer and the letter of transmittal.
4. WITHDRAWAL RIGHTS
You may withdraw your tendered units at any time prior to the expiration
date, including any extensions thereof, or on or after January 13, 2004 if the
units have not been previously accepted 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 this Litigation Settlement Offer. 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 letter of transmittal in the same
manner as the letter of transmittal 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 Litigation Settlement 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, at any time
and from time to time, (i) to extend the period of time during which our offer
is open (but not beyond 90 business days from the date of commencement of the
offer) and thereby delay acceptance for payment of, and the payment for, any
13
unit, (ii) to terminate the offer and not accept any units not theretofore
accepted for payment or paid for if any of the conditions to the offer are not
satisfied or if any event occurs that might reasonably be expected to result in
a failure to satisfy such conditions, (iii) upon the occurrence of any of the
conditions specified in "The Litigation Settlement Offer -- Section 19.
Conditions to 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.
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 Litigation Settlement 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 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 this Litigation Settlement
Offer, "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. We do not currently intend to offer a
subsequent offering period.
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 "Code"), Treasury Regulations, rulings issued by the IRS, and
judicial decisions, all as of the date of this Litigation Settlement Offer. 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
14
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 within the meaning of Section 1221 of the Code
(generally, property held for investment). No advance ruling has been or will be
sought from the IRS regarding any matter discussed in this Litigation Settlement
Offer. 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. The sale of
a unit of limited partnership interest pursuant to this offer will be a taxable
transaction for United States federal income tax purposes. You will recognize
gain or loss on a sale of a unit of limited partnership interest of your
partnership equal to the difference, if any, between (i) your "amount realized"
on the sale and (ii) your adjusted tax basis in the unit sold. The "amount
realized" with respect to a unit will be equal to the sum of the amount of cash
received by you for the unit sold pursuant to the offer plus the amount of
partnership liabilities allocable to your unit (as determined under Section 752
of the Code). Thus, your 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 (i)
your share of partnership cash distributions, (ii) any decreases in your share
of partnership liabilities, (iii) your share of partnership losses, and (iv)
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, and may result in a tax
liability to you that exceeds the cash received upon such sale.
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 15%. 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 15%) with respect to that portion of the gain attributable to
depreciation deductions previously taken on the property. Certain limitations
apply to the use of capital losses.
15
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 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.
Release and Assignment of Claims. Our offer price includes $29.84, your
pro rata share of the settlement fund, unless you request exclusion from the
settlement or the Court's order approving the settlement is reversed or vacated
by virtue of the appeal. If you request exclusion from the settlement or the
Court's order approving the settlement is reversed or vacated by virtue of the
appeal, an equivalent portion of the price paid to you may be deemed a payment
for your release and assignment of claims. The proper treatment for federal
income tax purposes of your receipt of amounts from the settlement fund or
deemed payments for your release and assignment of claims is uncertain. No
opinion or assurance can be given that the IRS will not challenge the treatment
of amounts from the settlement fund or deemed payments for your release and
assignment of claims as additional consideration for the units, and assert that
such amount should be treated as an ordinary income payment in exchange for your
release and/or assignment of current and future claims. Moreover, while the IRS
has stated that it generally will not treat attorneys' fees and costs that are
paid directly to class counsel from a settlement fund as constituting income,
profit, or gain of a member of the class (so long as the class is an opt-out
class and the class member does not have a separate contingency fee arrangement
with the class counsel), any special awards paid to claimants who actively aid
in the prosecution of a class action or who devote substantial time or expense
on behalf of a settlement class will be treated as payments for services
rendered and will be includable in that member's gross income. You should
consult your tax advisor regarding the tax consequences to you with respect to
your right to, and your receipt of, amounts from the settlement fund or deemed
payments for your release and assignment of claims, and the treatment of special
awards, attorneys fees and costs.
16
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 with respect to the payment
of the offer consideration, you are generally required to provide us with your
correct taxpayer identification number. Back-up withholding is not an additional
tax. Any amounts withheld under the back-up withholding rules may be refunded or
credited against your United States federal income tax liability, if any,
provided that the required information is furnished to the Internal Revenue
Service. See the instructions to the letter of transmittal.
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 Code, if we acquire an
interest held by a foreign person, we will be required to deduct and withhold
10% of the amount realized by such foreign person 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 letter of transmittal.
State and Local Withholding. If you tender any units pursuant to this
Litigation Settlement Offer, we may be required under state or local tax laws to
deduct and withhold a portion of our offer price. You should consult your tax
advisor concerning whether any state or local withholding would be required on a
disposition of your units and whether such amounts may be available to you as a
credit on your state or local tax returns.
7. EFFECTS OF THE OFFER
Because the general partner of your partnership is our affiliate, we have
control over the management of your partnership. In addition, we and our
affiliates own 11,938.50, or 79.59%, of the outstanding units of your
partnership. Because we and our affiliates own a majority of the outstanding
units and control your partnership's general partner, we control 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. We are also affiliated with the company that
currently manages, and has managed for some time, the property owned by your
partnership. In the event that we acquire a substantial number of units pursuant
to this offer, removal of the property manager may become more difficult or
impossible.
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.
Partnership Status. The rules regarding whether a partnership is treated
as a "publicly traded partnership" taxable as a corporation are not certain. We
believe that 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, because, taking into account
all of the facts and circumstances, the general partner of your partnership
believes that the partnership interests in your partnership should not be
treated as readily tradable on a secondary market or the substantial equivalent
thereof.
Business. Our offer will not affect the operation of the property owned by
your partnership. We will continue to control the general partner of your
partnership and the property manager, both of which will remain the same.
Consummation of the offer will not affect your agreement of limited partnership,
the operations of your partnership, the business and properties 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 or the manager of your
partnership's property.
17
Effect on Trading Market; Registration Under 12(g) of the Exchange Act. If
a substantial number of units are purchased pursuant to the offer, the result
will be a reduction in the number of limited partners in your partnership. In
the case of certain kinds of equity securities, a reduction in the number of
securityholders might be expected to result in a reduction in the liquidity and
volume of activity in the trading market for the security. In 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 326 unitholders. The lack
of filing periodic reports could affect the already limited secondary market
which currently exists for units in your partnership and may result in others
not tendering for such units. In such a case, you would regularly have access
only to the limited information your partnership's agreement of limited
partnership requires your general partner (which is our affiliate) to provide
each year, which information consists primarily of tax information. See "The
Litigation Settlement Offer -- Section 1. Terms of the Offer; Expiration Date."
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. VALUATION OF UNITS
Determination of Offer Price. We determined the offer price by estimating
the net equity value of units of limited partnership interest based on our
valuation of your partnership's properties, determined using the direct
capitalization method. This method involves applying a capitalization rate to
the property income. A capitalization rate is a percentage (rate of return),
commonly applied by purchasers of residential real estate to property income to
determine the present value of income property. The lower the capitalization
rate utilized, the higher the value produced, and the higher the capitalization
rate utilized, the lower the value produced. Our method for selecting a
capitalization rate generally begins with each property being assigned a
location and condition rating (e.g., "A" for excellent, "B" for good, "C" for
fair, and "D" for poor). We then adjust the capitalization rate based on whether
the mortgage debt that the property is subject to bears interest at a rate above
or below prevailing market rates and based on the amount of any prepayment
penalty. Generally, the capitalization rate would be increased if the mortgage
debt bears interest at above market rates. The evaluation of a property's
location and condition, and the determination of an appropriate capitalization
rate for a property, is subjective in nature, and others evaluating the same
property might use a different capitalization rate and derive a different
property value.
Property income is the difference between the revenues from the property
and related costs and expenses, excluding income derived from sources other than
regular activities and before income deductions. Income deductions include
interest, income taxes, prior-year adjustments, charges to reserves, write-offs
of intangibles, adjustments arising from major changes in accounting methods and
other material and nonrecurrent items. In this respect, property income differs
from net income disclosed in the partnership's financial statements, which does
not exclude these income sources and deductions.
Although the direct capitalization method is a widely accepted way of
valuing real estate, there are a number of other methods available to value real
estate, each of which may result in different valuations of a property. We
determined your partnership's value as follows:
- First, we estimated the gross value of your partnership's properties
using the direct capitalization method. We determined property income for
each of your partnership's properties for the twelve
18
months ended September 30, 2003, and then divided such amount by the
property's capitalization rate to derive an estimated gross property
value.
<Table>
<Caption>
ESTIMATED
CAPITALIZATION GROSS PROPERTY
PROPERTY PROPERTY INCOME RATE VALUE
- -------- --------------- -------------- --------------
Quail Hollow................................ $568,774 10.25% $ 5,549,013
Windsor Hills............................... 949,276 10.75% 8,830,474
-----------
Estimated Total Gross Property Value........ $14,379,487
</Table>
- Second, we calculated the value of the equity of your partnership by
adding to the aggregate gross property value of all properties the value
of the non-real estate assets of your partnership and deducting its
liabilities, including mortgage debt and debt owed by your partnership to
the general partner or its affiliates. We deducted from these values
certain other costs, including required capital expenditures, deferred
maintenance and estimated closing costs, to derive the net equity value
of your partnership.
- Finally, we allocated 81% of this net equity value to limited partners,
which is the percentage of net proceeds that would be paid to limited
partners in the event of a liquidation of your partnership. Our offer
price represents the net equity value per unit determined in this manner,
plus a pro rata portion of the settlement fund, as indicated below.
<Table>
Estimated gross valuation of partnership properties......... $ 14,379,487
Plus: Cash and cash equivalents (net of tenant security
deposits)................................................. 114,117
Plus: Other partnership assets, including any amounts
payable by the general partner and its affiliates upon
liquidation............................................... 143,431
Less: Mortgage debt, including accrued interest............. (11,422,198)
Less: Accounts payable and accrued expenses................. (88,554)
Less: Other liabilities..................................... 148,519
Less: Distributions to general partners and special limited
partners.................................................. (215)
------------
Partnership valuation before taxes and certain costs........ $ 3,274,587
Less: Estimated closing costs............................... (258,300)
------------
Estimated net equity value of your partnership.............. $ 3,016,287
Percentage of estimated net equity value allocable to
holders of units based on the partnership agreement....... 81%
------------
Estimated net equity value of units......................... $ 2,441,618
Total number of units..................................... 15,000.00
------------
Estimated net equity value per unit......................... $ 162.77
============
Plus: Payment from the settlement fund...................... $ 29.84
============
Cash consideration per unit................................. $ 192.61
============
</Table>
19
Comparison of Offer Price to Alternative Consideration. To assist holders
of units in evaluating the offer, your general partner, which is our affiliate,
has attempted to compare the offer price against: (a) prices at which the units
have sold on the secondary market and (b) the estimated liquidation proceeds
payable per unit, assuming a sale of properties at prices equal to appraised
values determined by the independent appraiser. The general partner of your
partnership believes 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 actual range of possible values. The results of
these comparative analyses are summarized in the chart below.
<Table>
<Caption>
COMPARISON TABLE PER UNIT
- ---------------- --------
Cash offer price............................................ $ 192.61
Alternatives
Highest prior cash tender offer price..................... $ 835.00(1)
Highest price on secondary market......................... N/A
Estimated liquidation proceeds (based on appraised
value)................................................. $ 410.47
</Table>
- ---------------
(1) Highest price offered in our 2000-2002 tender offers to date.
PRIOR TENDER OFFERS
2002. On June 25, 2002, we completed a tender offer commenced on May 13,
2002. We acquired 133.50 units in that offer at a price of $190.00 per unit. In
that case, we determined the offer price using the same valuation methodology
that we have used for the current offer.
2000. On September 28, 2000, we completed a tender offer commenced on
August 7, 2000. We acquired 298 units in that offer at a price of $835.00 per
unit. In that case, we determined the offer price using the same valuation
methodology that we have used for the current offer.
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 during the years
ended December 31, 2003 and December 31, 2002, 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
---- ---
Year Ended December 31, 2003 (through August 31): N/A N/A
Year Ended December 31, 2002: N/A N/A
</Table>
20
Set forth in the table below are the high and low sales prices of units
during the years ended December 31, 2003 and December 31, 2002, 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 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
---- ---
Year Ended December 31, 2003 (through September 30): N/A N/A
Year Ended December 31, 2002: N/A N/A
</Table>
Estimated Liquidation Proceeds Based on Independent Appraisal. Under the
terms of the settlement, your partnership's properties were recently appraised
by American Appraisal Associates, Inc., an independent appraiser appointed by
the court. An executive summary of the appraiser's report is attached as Annex
II to this Litigation Settlement Offer. You may obtain a full copy of the
appraiser's report upon request, without charge, by contacting the Information
Agent at one of the addresses or the telephone number on the back cover page of
this Litigation Settlement Offer. The following summary of the appraiser's
report is qualified in its entirety by reference to the full text of the
appraiser's report.
The appraiser represented that its report was prepared in conformity with
the Uniform Standards of Professional Appraisal Practice and the Code of
Professional Ethics and Standards of Professional Practice of the Appraisal
Institute. The appraiser performed the real estate appraisals in connection with
this Litigation Settlement Offer. The appraiser was paid $619,100 for the
appraisals and has conducted other appraisals of property held by our
affiliates. AIMCO furnished the appraiser with all of the information requested
by the appraiser in connection with the appraisal. The information furnished to
the appraiser was true, correct and complete in all material respects.
According to the appraiser's report, the scope of the appraisals included
an inspection of the properties and an analysis of the surrounding market. In
addition, the appraiser reviewed the historical operating statements for your
partnership's property for 2000, 2001 and 2002 and the operating budget for
2003, as prepared by your partnership. No limitations were imposed on the
appraiser by us or any of our affiliates. The appraiser relied principally on
the income capitalization approach to valuation and secondarily on the sales
comparison approach. Although the sales comparison approach is considered a
reliable method for valuing real property, the income capitalization approach is
the primary approach used for valuing income producing property, such as your
partnership's property.
Based on the values determined under the valuation approaches described
below, the appraiser determined the estimated market value of the fee simple
estate for each of your partnership's properties. See Annex II to this
Litigation Settlement Offer. The total appraised value of your partnership's
properties is $21,900,000, which we determined by adding the estimated market
values determined by the appraiser and which is higher than our estimated total
gross valuation of $14,379,487.
Under the sales comparison approach, the appraiser utilized the following
methods to derive a value for your partnership's property: (1) price per unit
analysis; (2) net operating income analysis; and (3) effective gross income
analysis. A complete discussion of these methods is set forth in the appraiser's
report. The aggregate estimated value for your partnership's properties under
the sales comparison approach is $21,100,000, which we have determined by adding
the estimated values determined by the appraiser for each of your partnership's
properties.
Under the income capitalization approach, the appraiser performed a direct
capitalization analysis and a discounted cash flow analysis to derive a value
for your partnership's property. The direct capitalization
21
analysis determines the value of a property by applying a capitalization rate
that takes into account all of the factors influencing the value of such
property to the net operating income of such property for a single year. The
discounted cash flow analysis determines the value of a property by discounting
to present value the estimated operating cash flow of such property and the
estimated proceeds of a hypothetical sale of such property at the end of an
assumed holding period. The aggregate estimated value for your partnership's
properties under the income capitalization approach is $21,900,000, which we
have determined by adding the estimated values determined by the appraiser for
each of your partnership's properties.
With the exception of the direct capitalization analysis, a comparison of
our valuation methodology to the other valuation methods used by the appraiser
would not be meaningful because of the different factors, assumptions and
calculations underlying such valuation methods.
The direct capitalization analysis conducted by the appraiser is the method
most comparable to our valuation methodology. However, in determining the
estimated net operating income of your partnership's property, the appraiser
relied on a projected amount for revenue and operating expenses based on your
partnership's historical operating statements. In addition, the appraiser
applied the following capitalization rates to determine each property's
estimated capitalized income, compared to the capitalization rates used in our
valuation as set forth under "Valuation of Units." The appraiser then adjusted
each property's estimated capitalized income amount by the amount of any
deferred maintenance costs, any concessions at the property (discounted to
present value), and any income loss (discounted to present value) during an
assumed lease-up period of two years. Finally, the appraiser rounded the
adjusted capitalized income amount of each property to derive an estimated
market value for such property under the direct capitalization analysis.
<Table>
<Caption>
ADJUSTED
ESTIMATED NET CAPITALIZATION CAPITALIZED
PROPERTY OPERATING INCOME RATE INCOME*
- -------- ---------------- -------------- -----------
Quail Hollow................................ $ 818,266 9.00% $ 9,100,000
Windsor Hills Apartments.................... 1,132,828 9.00% 12,600,000
-----------
Total..................................... $21,700,000
</Table>
- ---------------
* Rounded to the nearest $100,000. Value indications are after adjustments for
concessions, deferred maintenance, excess land and lease-up costs, if any.
22
In estimating the net liquidation proceeds that would be payable per unit
based on the total appraised value of your partnership's properties, we applied
the same basic methodology as described under "Valuation of Units", except that
we did not deduct any amounts that were reflected in the total appraised value
nor did we include any payment from the settlement fund. As indicated below,
based on the total appraised value of the partnership properties, the estimated
net liquidation proceeds per unit is $410.47, which is higher than our offer
price of $192.61.
<Table>
Appraised value of partnership properties................... $ 21,900,000
Plus: Cash and cash equivalents (net of tenant security
deposits)................................................. 114,117
Plus: Other partnership assets, including any amounts
payable by the general partner and its affiliates upon
liquidation............................................... 143,431
Less: Mortgage debt, including accrued interest and any
prepayment penalty........................................ (14,360,377)
Less: Accounts payable and accrued expenses................. (88,554)
Less: Other liabilities..................................... 148,519
Less: Distributions to general partners and special limited
partners.................................................. (445)
------------
Partnership valuation before taxes and certain costs........ $ 7,856,690
Less: Estimated closing costs............................... (394,170)
------------
Estimated net liquidation proceeds of your partnership...... $ 7,462,520
Percentage of estimated net liquidation proceeds allocable
to holders of units based on the partnership agreement.... 83%
------------
Estimated net liquidation proceeds of units................. $ 6,156,992
Total number of units..................................... 15,000.00
------------
Estimated net liquidation proceeds per unit................. $ 410.47
============
</Table>
9. THE LAWSUIT AND THE SETTLEMENT
BACKGROUND
In March 1998, holders of limited partnership units in the partnerships
managed by affiliates of Insignia Financial Group (collectively, "Insignia")
commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group,
Inc., et al. (the "Nuanes action") in the Superior Court of the State of
California for the County of San Mateo (the "Court"). The plaintiffs named as
defendants, among others, your partnership, its general partner and several of
their affiliated partnerships and corporate entities, as well as AIMCO, who had
announced a merger with Insignia. The action originally asserted claims on
behalf of a putative class of limited partners in over 50 limited partnerships,
including your partnership (collectively, the "Partnerships") and derivatively
on behalf of those same Partnerships (which are named as nominal defendants)
challenging, among other things, the acquisition of interests in certain general
partner entities by Insignia; past tender offers by Insignia to acquire limited
partnership units; Insignia's management of the Partnerships; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO
(hereinafter, the "Insignia Merger").
PROCEDURAL HISTORY
On June 25, 1998, your general partner filed a motion seeking dismissal of
the action. In lieu of responding to the motion, the plaintiffs filed an amended
complaint. The general partner filed demurrers to the amended complaint which
were heard in February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement, settling claims, subject to court approval, on behalf
of your partnership and all limited partners who owned units as of November 3,
1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Court, at which time the Court set a final approval hearing for
December 10,
23
1999. Prior to the December 10, 1999 hearing, the Court received various
objections to the settlement, including a challenge to the Court's preliminary
approval based upon the alleged lack of authority of prior lead counsel to enter
the settlement.
On December 14, 1999, the general partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiffs' lead and liaison counsel who negotiated
the proposed settlement on behalf of plaintiffs. On June 27, 2000, the Court
entered an order disqualifying them from the case. An appeal was taken from part
of the June 27, 2000 order on October 5, 2000. Subsequently, certain plaintiffs,
specifically, BEJ Equity Partners and J-B Investment Partners, withdrew as
plaintiffs.
On December 4, 2000, the Court appointed the law firm of Lieff Cabraser
Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative
class. Plaintiffs filed a third amended complaint on January 19, 2001 and the
general partner and its affiliates filed a demurrer to the third amended
complaint. On July 10, 2001, the Court issued an order granting in part and
denying in part defendants' demurrer. Among other things, the Court sustained
defendants' demurrer without leave to amend as to those derivative claims
involving partnerships in which the named plaintiffs did not own an interest.
The Court subsequently denied plaintiffs' motion for reconsideration.
The fourth amended complaint was filed on September 7, 2001. It was brought
by plaintiffs who owned interests in four of the Partnerships. Plaintiffs
Jeffrey Homburger, Sean O'Reilly and Norman and Doris Rosenberg formally
withdrew from the case on August 20, 2001. The general partner and affiliated
defendants filed a demurrer to the fourth amended complaint, which the Court
granted in part on January 28, 2002. The Court dismissed without leave to amend
plaintiffs' state securities fraud claim under California's Corporate Code
Section 25400(b), plaintiffs' contract claim arising out of the partnership
agreements, plaintiffs' derivative claim for statutory unfair competition as to
those partnerships in which plaintiffs lack representation, plaintiffs'
conversion claim and plaintiffs' claim under California's Corporation Code
Section 15636.
Only some of the remaining claims in the fourth amended complaint relate to
the partnership. Plaintiffs alleged that affiliates of the general partner have
issued false and misleading tender offers beginning in 1998 and continuing
through to the present for units in the partnership. Plaintiffs allege
violations of state securities fraud statutes and common law fraud against both
AIMCO and Insignia. Specifically, plaintiffs allege that the tender offers have
been misleading because they failed to disclose:
- that third parties would not use a property's historical income, but
would instead use a property's projected income, in calculating a
property's value based on the capitalization method.
- that the property income figures used in the capitalization method were
artificially lower because AIMCO charges management fees allegedly in
excess of the market.
- that AIMCO allegedly deducted all capital expenditures from property
income despite an alleged AIMCO policy of deducting only $250 to $300 per
apartment unit.
- the rating for the condition of each property, any adjustment made to the
capitalization rate as a result, the interest rate on mortgage debt for
each property and any corresponding adjustments in the capitalization
rates.
- that AIMCO allegedly negotiated lower capitalization rates for valuing
properties it owns in connection with a revolving credit facility.
- that AIMCO failed to disclose that the valuation methods and/or policies
it used for its own business purposes allegedly differ from those used in
the tender offers.
- internal valuations of the properties it used in connection with the
Insignia merger or the capitalization rates used in connection with those
valuations.
Plaintiffs alleged that the general partner breached its fiduciary duty by
assisting Insignia and AIMCO in making the tender offers by providing financial
information, failing to correct supposedly misleading
24
information given to unitholders, recommending that the prices offered were fair
and preventing third parties from making tender offers. Plaintiffs have also
included a statutory unfair competition claim against all the defendants, a
claim for tortious interference with contract, unjust enrichment and judicial
dissolution.
THE HELLER COMPLAINT
During the third quarter of 2001, a complaint was filed against the same
defendants that are named in the Nuanes action, captioned Heller v. Insignia
Financial Group, Inc., et al. (the "Heller action"). The Heller complaint was
filed in order to preserve derivative claims that were dismissed without leave
to amend in the Nuanes action by the Court's July 10, 2001 order. The first
amended complaint in the Heller action was brought as a purported derivative
action, and asserted claims for, among other things, breach of fiduciary duty;
unfair competition; conversion, unjust enrichment; and judicial dissolution. On
January 28, 2002, however, the Court, on motion by the general partner and its
affiliates, struck the Heller complaint as a violation of its July 10, 2001
order in the Nuanes action. On March 27, 2002, plaintiffs in the Heller action
filed a notice of appeal of the Court's January 28, 2002 order striking the
complaint.
THE SETTLEMENT OF THE NUANES AND HELLER COMPLAINTS
On December 20, 2002, the parties to the above-entitled litigation executed
a Stipulation of Settlement of the two actions. That settlement was the result
of over one year of negotiations and the involvement of two separate settlement
judges. Class counsel and defendants' counsel first met with the Honorable
William J. Cahill, Retired California Superior Court Judge, on two separate
occasions. Counsel also met on four separate occasions with the Honorable
Margaret J. Kemp, California Superior Court Judge, before reaching a settlement
in principle. On April 4, 2003, the Court preliminarily approved the Settlement
and, on June 13, 2003, entered an order finally approving the settlement and
dismissing both the Heller and Nuanes litigation with prejudice. On August 12,
2003, an objector filed an appeal of the court's order approving the settlement
and is seeking to reverse or vacate the Court's order and the judgment entered
thereto. Although we reserve our right to terminate or amend our offer if final
court approval of the settlement is reversed or vacated, we have nevertheless
elected to proceed with this offer under the terms of the settlement.
Under the terms of the settlement, we have agreed to make cash tender
offers for all outstanding limited partnership interests in your partnership and
43 other partnerships (the "Tender Offer Partnerships") within a year of the
Court's final approval of the settlement and to accompany each of those offers
with executive summaries of appraisals of partnership properties prepared by an
independent appraiser appointed by the Court. Our affiliate has agreed to pay
50% of the costs of the appraisals, with the other 50% to be paid from the
settlement fund. The appraiser was paid $619,100 for the appraisals. To the
extent the costs of the appraisals exceeded $2 million, the excess amount would
have been paid from the settlement fund. Under the settlement, we have the
option of making a second round of tender offers (in our sole and absolute
discretion) to purchase all remaining outstanding limited partnership interests,
at the same price, or at a higher or lower price, within 18 months of the order
finally approving the settlement.
25
In addition, as part of the settlement, we agreed to create a settlement
fund for the benefit of settlement class members in the principal amount of $9.9
million. The settlement class members consists of all limited partners in the
Tender Offer Partnerships, including your partnership, who owned units as of
December 20, 2002, and who did not validly request exclusion from the
settlement. After deducting attorneys' fees and other settlement costs,
including a portion of the costs of appraisal and certain costs of
administration of the settlement fund, we have allocated the remaining amount in
the settlement fund among the Tender Offer Partnerships pro rata based on
partnership revenue for the year ended December 31, 2002 allocable to units held
by members of the settlement class, as set forth below:
<Table>
<Caption>
(C)
OWNERSHIP ALLOCATED
PERCENTAGE OF (D) PORTION OF
(A) (B) SETTLEMENT ADJUSTED SETTLEMENT
PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4)
- ----------- ------------ ------------- -------------- ----------
Angeles Income Properties, Ltd. II........... $ 6,721,398 38.11% $ 2,561,680.99 2.12%
Angeles Income Properties, Ltd. III.......... 757,234 47.99% 363,400.46 0.30%
Angeles Income Properties, Ltd. VI........... 3,314,969 57.18% 1,895,539.00 1.57%
Angeles Opportunity Properties, Ltd.......... 2,487,492 50.42% 1,254,256.40 1.04%
Angeles Partners VII......................... 1,382,326 32.28% 446,158.51 0.37%
Angeles Partners IX.......................... 3,053,411 32.79% 1,001,090.64 0.83%
Angeles Partners X........................... 2,363,419 40.94% 967,701.17 0.80%
Angeles Partners XI.......................... 8,102,088 37.05% 3,002,068.40 2.49%
Angeles Partners XII......................... 17,579,608 30.85% 5,423,897.42 4.50%
Century Properties Fund XIV.................. 5,754,231 33.27% 1,914,451.55 1.59%
Century Properties Fund XV................... 7,891,876 35.11% 2,770,502.79 2.30%
Century Properties Fund XVI.................. 3,129,310 38.59% 1,207,704.29 1.00%
Century Properties Fund XVII................. 13,989,178 39.81% 5,568,998.68 4.62%
Century Properties Fund XVIII................ 4,652,589 44.57% 2,073,721.09 1.72%
Century Properties Fund XIX.................. 15,838,890 41.77% 6,615,207.49 5.48%
Century Properties Growth Fund XXII.......... 18,750,167 44.10% 8,268,717.87 6.86%
Consolidated Capital Growth Fund............. 11,095,122 35.45% 3,933,281.02 3.26%
Consolidated Capital Institutional
Properties................................. 17,492,318 34.85% 6,095,971.72 5.05%
Consolidated Capital Institutional Properties
2.......................................... 4,531,076 50.40% 2,283,507.96 1.89%
Consolidated Capital Institutional Properties
3.......................................... 11,898,507 46.92% 5,583,341.99 4.63%
Consolidated Capital Properties III.......... 3,319,845 48.56% 1,612,222.94 1.34%
Consolidated Capital Properties IV........... 26,375,116 43.55% 11,486,890.81 9.52%
Consolidated Capital Properties VI........... 1,790,898 49.39% 884,610.64 0.73%
Davidson Diversified Real Estate I, L.P...... 926,289 57.35% 531,230.56 0.44%
Davidson Diversified Real Estate II, L.P..... 6,679,248 50.21% 3,353,945.59 2.78%
Davidson Diversified Real Estate III, L.P.... 4,914,862 59.79% 2,938,470.22 2.44%
Davidson Growth Plus, L.P.................... 5,497,496 42.55% 2,339,052.86 1.94%
Davidson Income Real Estate, L.P............. 4,824,647 55.50% 2,677,466.62 2.22%
Fox Strategic Housing Income Partners........ 2,905,478 59.32% 1,723,635.91 1.43%
Johnstown/Consolidated Income Partners....... 1,109,711 45.50% 504,939.49 0.42%
Multi-Benefit Realty Fund 87-1............... 3,584,756
Class A Investors.......................... 1,993,125 35.01% 697,750.93 0.58%
Class B Investors.......................... 1,591,632 47.59% 757,524.59 0.63%
National Property Investors III.............. 8,886,583 25.79% 2,291,879.79 1.90%
National Property Investors 4................ 7,248,900 24.52% 1,777,282.20 1.47%
National Property Investors 5................ 4,610,576 36.17% 1,667,480.41 1.38%
National Property Investors 6................ 10,168,298 34.73% 3,531,813.61 2.93%
</Table>
26
<Table>
<Caption>
(C)
OWNERSHIP ALLOCATED
PERCENTAGE OF (D) PORTION OF
(A) (B) SETTLEMENT ADJUSTED SETTLEMENT
PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4)
- ----------- ------------ ------------- -------------- ----------
National Property Investors 7................ 7,235,037 31.17% 2,255,187.60 1.87%
National Property Investors 8................ 4,334,235 38.98% 1,689,580.96 1.40%
Shelter Properties I Limited Partnership..... 4,908,445 20.51% 1,006,722.11 0.83%
Shelter Properties II Limited Partnership.... 5,148,389 29.25% 1,505,669.73 1.25%
Shelter Properties III Limited Partnership... 5,155,756 35.20% 1,814,826.22 1.50%
Shelter Properties IV Limited Partnership.... 9,682,744 31.49% 3,048,820.05 2.53%
Shelter Properties V Limited Partnership..... 13,237,273 28.68% 3,796,475.63 3.15%
Shelter Properties VI Limited Partnership.... 8,475,852 34.45% 2,920,007.57 2.42%
Shelter Properties VII Limited Partnership... 1,497,429 37.87% 567,007.84 0.47%
------------ -------------- -------
Total...................................... $313,303,073 $ 120,611,694 100.00%
============ ============== =======
</Table>
- ---------------
(1) For the year ended December 31, 2002.
(2) Excludes units owned by AIMCO and its affiliates and other limited partners
who have requested exclusion from the settlement class.
(3) Determined, for each partnership, by multiplying the amount of revenue
(column (B)) by the percentage of outstanding units held by members of the
settlement class (column (C)).
(4) Determined, for each partnership, by dividing the amount of adjusted revenue
(column (D)) by the total amount of adjusted revenue for all partnerships.
The amount allocated to a Tender Offer Partnership is then divided by the
total number of outstanding units owned by settlement class members in such
Tender Offer Partnership (excluding units held by us and our affiliates), and
the resulting amount is included in the offer price for units in that Tender
Offer Partnership. For each unit validly tendered in the offers and accepted by
us, an amount equal to the portion of the settlement fund included in the per
unit offer price will be deducted from the settlement fund and paid to us (other
than units tendered by limited partners who have requested exclusion from the
settlement class). All limited partners who tender their units in response to
the offers will receive the same price per unit, including those persons who may
have requested exclusion from the settlement class.
If we choose to make a second round of litigation settlement offers, as
described above, any amount remaining in the settlement fund will be allocated
in the manner described above the first round of litigation settlement offers
but calculated using revenue for the most recent 12-month period and more recent
information as to the ownership of each partnership. Any balance remaining
thereafter or, in the event we do not initiate a second round of litigation
settlement offers, the entire balance will be paid to settlement class members
who have retained any units based on the allocation method used in the
litigation settlement offers no later than June 2005 if the Court's order
approving the settlement and entering judgment thereto is affirmed on appeal. If
the Court's order is reversed or vacated by virtue of the appeal, however, you
will not be entitled to receive a pro rata share of the settlement fund unless
you tender your units in this offer. The general partners of the Tender Offer
Partnerships have also agreed, as part of the settlement, to waive our right to
seek reimbursement and/or indemnification for the full amount of fees and costs
incurred in the defense of the class and derivative litigation; provided,
however, that they may charge fees and costs to your partnership and the other
partnerships involved in the litigation in an amount not to exceed $1,500,000
(which is approximately 50% of the outstanding fees and costs).
In consideration for the terms described above, plaintiffs and settlement
class members agreed, among other things, to dismiss the Nuanes action and the
Heller action with prejudice, release the defendants from all liability with
respect to all claims and causes of action, whether brought individually, on
behalf of
27
a class, or derivatively, whether known or unknown, that have been asserted or
that could have been asserted that arise out of or relate to (i) those matters
and claims set forth in the complaints in the Heller and Nuanes actions, (ii)
ownership of one or more units in any of the Tender Offer Partnerships, (iii)
the purchase, acquisition, holding, sale, tender or voting of one or more units
in any of the Tender Offer Partnerships, and (iv) any of the facts,
circumstances, allegations, claims, causes of action, representations,
statements, reports, disclosures, transactions, events, occurrences, acts,
omissions or failures to act, of whatever kind or character whatsoever,
irrespective of the state of mind of the actor performing or omitting to perform
the same, that have been or could have been alleged in any pleadings, amended
pleading, argument, complaint, amended complaint, brief, motion, report or
filing in either the Nuanes action or the Heller action, provided, however, that
the released claims are not intended to include any unrelated claims that are
unique to a particular settlement class member (e.g., a settlement class member
slips and falls on property owned by one of our affiliates, loses or did not
receive a distribution check distributed to other limited partners in your
partnership, or is an employee and has an employee related claim). Settlement
class members also covenanted and agreed not to bring any action, claim, suit,
or proceeding against any of the defendants in the class and derivative
litigation that concerns any of the matters which are the subject of the
settlement and that the stipulation of settlement will act as a bar to any such
claim, action, suit or proceeding. The plaintiffs and settlement class members
also agreed that they would not oppose a request that the Court withdraw the
finding regarding Robert A. Stanger & Co. made in the June 27, 2000 order
disqualifying lead and liaison counsel.
Under the terms of the settlement, neither we nor our affiliates admit to
any wrongdoing, and we deny liability under all claims brought in the
litigation. The final settlement of the lawsuit is the product of good faith,
arm's length negotiations between settlement class counsel and counsel for the
defendants. These negotiations resulted in the settlement set forth in the
Stipulation.
10. INFORMATION CONCERNING US AND CERTAIN OF OUR AFFILIATES
General. We are AIMCO Properties, L.P., a Delaware limited partnership.
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. AIMCO's Class A
Common Stock is listed and traded on the New York Stock Exchange under the
symbol "AIV." As of June 30, 2003, we owned or managed 264,478 apartment units
in 1,294 properties located in 47 states, the District of Columbia and Puerto
Rico. Based on apartment unit data compiled by the National Multi Housing
Council, we believe that we are one of the largest owners and managers of
multi-family apartment properties in the United States. As of June 30, 2003, we:
- owned or controlled (consolidated) 182,566 units in 713 apartment
properties;
- held an equity interest in (unconsolidated) 69,961 units in 477 apartment
properties; and
- provided services or managed, for third party owner, 53,576 units in 537
apartment properties, primarily pursuant to long term, non-cancelable
agreements (including 41,625 units in 433 properties that are asset
managed only, and not property managed).
Our general partner is AIMCO-GP, Inc., a Delaware corporation, which is a
wholly owned subsidiary of AIMCO. Our principal executive offices is located at
4582 South Ulster Street Parkway, Suite 1100, Denver, Colorado 80237, 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 partner (which is our affiliate), 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 relating to our
business, financial condition and other matters, including the complete
28
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 60601, 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 and AIMCO Properties, L.P., please
refer to our respective Annual Reports on Form 10-K for the year ended December
31, 2002 and our respective Quarterly Reports on Form 10-Q for the quarterly
periods ended March 31, 2003 and June 30, 2003 (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 Litigation Settlement Offer -- Section 11.
Background and Reasons for the Offer", "-- Section 13. Conflicts of Interest and
Transactions with Affiliates" and "-- Section 15. Certain Information Concerning
Your Partnership -- Ownership and Voting," 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. The
historical financial data set forth below for AIMCO Properties, L.P. for the six
months ended June 30, 2003 and 2002 is based on unaudited financial statements.
The historical financial data set forth below for AIMCO Properties, L.P. for the
years ended December 31, 2002, 2001 and 2000 is based on audited financial
statements. This information should be read in conjunction with such financial
statements, including the notes thereto, and "Management's Discussion and
Analysis of Financial Condition and Results of Operations of the AIMCO Operating
Partnership" included in AIMCO Properties, L.P.'s Annual Report on Form 10-K for
the year ended December 31, 2002 and its Quarterly Report on Form 10-Q for the
quarter ended June 30, 2003.
<Table>
<Caption>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------------
2003 2002 2002 2001(1) 2000(1)
----------- ---------- -------------- ------------- -------------
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING INFORMATION:
Rental and other property
revenues..................... $ 748,152 $ 639,659 $ 1,405,684 $1,224,667 $ 998,552
Property operating and owned
management expenses.......... (332,815) (249,757) (561,412) (465,721) (413,077)
----------- ---------- ----------- ---------- ----------
Income from property
operations................... 415,337 389,902 844,272 758,946 585,475
Income from investment
management business.......... 10,974 13,013 18,262 27,591 15,795
General and administrative
expenses..................... (11,900) (8,017) (20,344) (18,530) (18,123)
Depreciation of rental
property(2).................. (168,209) (129,682) (288,589) (327,070) (287,809)
Interest expense............... (183,796) (157,232) (339,737) (297,507) (260,133)
Interest and other income,
net.......................... 12,522 45,220 78,090 68,417 65,963
Operating earnings............. 66,064 143,870 258,348 144,520 103,402
</Table>
29
<Table>
<Caption>
FOR THE SIX MONTHS ENDED
JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------------ ----------------------------------------------
2003 2002 2002 2001(1) 2000(1)
----------- ---------- -------------- ------------- -------------
(UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
Distribution to minority
partners in excess of
income....................... (9,642) (10,972) (26,979) (46,359) (24,375)
Income (loss) from discontinued
operations................... 34,168 4,082 (27,902) 18,848 26,335
Net income..................... 91,866 145,502 206,202 121,064 109,717
BALANCE SHEET INFORMATION:
Real estate, before accumulated
depreciation................. $10,624,257 $9,556,052 $10,633,358 $8,102,816 $7,012,452
Real estate, net of accumulated
depreciation................. 8,841,155 7,830,140 8,924,604 6,587,624 5,887,518
Total assets................... 10,245,724 9,459,858 10,355,329 8,200,526 7,699,174
Total indebtedness............. 6,070,104 5,197,100 6,233,727 4,585,913 4,198,045
Mandatorily redeemable
preferred securities......... 115,169 20,637 15,169 20,637 32,330
Partner's capital.............. 3,359,381 3,680,427 3,576,083 3,080,071 2,830,389
OTHER INFORMATION:
Basic earnings per unit........ $ 0.39 $ 0.96 $ 1.00 $ 0.25 $ 0.53
Diluted earnings per unit...... $ 0.39 $ 0.94 $ 0.99 $ 0.25 $ 0.52
Distributions paid per common
OP unit...................... $ 1.64 $ 1.64 $ 3.28 $ 3.12 $ 2.80
Funds from operations(3)....... $ 199,325 $ 267,366 $ 504,816 $ 528,653 $ 439,830
Net cash provided by operating
activities................... $ 271,641 $ 266,211 $ 496,670 $ 491,846 $ 400,364
Net cash (used in) provided by
investing activities......... $ 130,222 $ (341,487) $ (873,832) $ (140,638) $ (545,981)
Net cash provided by (used in)
financing activities......... $ (395,501) $ 57,937 $ 398,637 $ (430,245) $ 201,128
</Table>
- ---------------
(1) Certain reclassifications have been made to the 2001 and 2000 amounts to
conform with the 2002 presentation. These reclassifications represent
certain eliminations of self-charged management fee income and expenses and
related receivables and payables 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, we began consolidating our previously unconsolidated subsidiaries.
Prior to this date, we 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, we extended the estimated useful lives of our
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.
(3) Our management believes that the presentation of funds from operations or
"FFO", when considered with the financial date determined in accordance with
generally accepted accounting principles, provides a useful measure of
performance. However, FFO does not represent cash flow and is not
necessarily indicative of cash flow or liquidity available to us, nor should
it be considered as an alternative to net income or as an indicator of
operating performance. The Board of Governors of the National Association of
Real Estate Investment Trusts ("NAREIT") defines FFO as net income (loss),
computed in accordance with generally accepted accounting principles,
excluding gains and losses from extraordinary items and disposals from
discontinued operations, net of related income
30
taxes, plus real estate related depreciation and amortization (excluding
amortization of financing costs), including depreciation for unconsolidated
partnership, joint ventures and discontinued operations. We calculate FFO
based on the NAREIT definition, plus amortization of intangibles, plus
distributions to minority partners in excess of income, and less dividends
on preferred units. We calculate FFO (diluted) by adding back the interest
expenses and preferred distribution relating to convertible securities whose
conversion is dilutive to FFO. Our management believes that the presentation
of FFO provides investors with industry-accepted measurements which help
facilitate an understanding of our ability to make required dividend
payments, capital expenditures and principal payments on our debt. There can
be no assurance that our basis of computing FFO is comparable with that of
other REITs.
The following is a reconciliation of net income to funds from operations:
<Table>
<Caption>
FOR THE SIX MONTHS
ENDED JUNE 30, FOR THE YEAR ENDED DECEMBER 31,
------------------- ---------------------------------
2003 2002 2002 2001 2000
-------- -------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
Net income.............................. $ 91,866 $145,502 $206,202 $121,064 $109,717
Real estate depreciation, net of
minority interests.................... 151,246 114,297 260,507 316,101 256,917
Real estate depreciation related to
unconsolidated entities............... 13,042 17,207 33,544 57,506 70,188
Discontinued operations:
Depreciation, net of minority
interest........................... 5,697 11,133 10,015 13,534 9,997
(Gain) loss on dispositions of real
estate, net of minority interest... (36,081) 118 (1,437) -- --
Distributions to minority partners in
excess of income................... (1,037) 1,401 1,401 1,342 --
Income tax arising from disposals..... 4,306 679 2,507 -- --
Amortization of intangibles............. 3,440 2,040 4,026 18,729 12,068
Income tax arising from disposals....... -- -- -- 3,202 --
Distributions to minority interest
partners in excess of income.......... 9,642 10,972 26,979 46,359 24,375
(Gain) loss on dispositions of real
estate................................ (1,276) (8,522) 27,902 (18,848) (26,335)
Gain on disposition of land............. -- -- -- 3,843 --
Deferred income tax benefit............. -- -- -- -- 154
Interest expense on mandatorily
redeemable convertible preferred
securities............................ 494 517 1,161 1,568 8,869
Preferred unit distributions............ (42,014) (27,978) (67,991) (35,747) (26,120)
-------- -------- -------- -------- --------
Funds from operations................... $199,325 $267,366 $504,816 $528,653 $439,830
======== ======== ======== ======== ========
</Table>
11. BACKGROUND AND REASONS FOR THE OFFER
Settlement of Class Action. We are making this offer pursuant to the terms
of the settlement agreement described in "The Litigation Settlement
Offer -- Section 9. The Lawsuit and the Settlement." 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. The settlement agreement also provides for the creation of a
$9.9 million fund for members of the settlement class, a portion of which will
be paid to those who accept this offer and is included in our offer price. If
you request exclusion from the settlement, you may tender any units in this
offer and you will be entitled to receive the same price per unit as those
unitholders who have not opted out of the settlement class. However, no portion
of the price paid to you will come from the settlement fund. If you do not
request
31
exclusion from the settlement and do not tender any units in this offer, you
will be entitled to receive your pro rata share of the settlement fund (subject
to adjustment) no later than June 2005 if the Court's order approving the
settlement and entering judgment thereto is affirmed on appeal. If the Court's
order is reversed or vacated by virtue of the appeal, however, you will not be
entitled to receive a pro rata share of the settlement fund unless you tender
your units in this offer.
Neither the Court nor counsel for the parties in the class and derivative
litigation make any recommendation regarding whether you should accept our
offer. You are encouraged to carefully review this Litigation Settlement Offer,
the executive summary of the independent appraiser's report (attached as Annex
II) and any other information available to you and to seek advice from your
independent lawyer, tax advisor and/or financial advisor before deciding whether
or not to accept our offer.
Alternatives Considered by Your General Partner. From time to time in the
past, we have made offers to acquire units of limited partnership interest in
your partnership. Before making this offer and the previous offers, your general
partner (which is our affiliate) considered a number of alternative
transactions. The following is a brief discussion of the advantages and
disadvantages of the alternatives considered by your general partner.
LIQUIDATION
One alternative would be for the partnership to sell its assets, distribute
the net liquidation proceeds to its partners in accordance with the agreement of
limited partnership, and thereafter dissolve. Partners would be at liberty to
use the net liquidation proceeds after taxes for investment, business, personal
or other purposes, at their option. If your partnership were to sell its assets
and liquidate, you would not need to rely upon capitalization of income or other
valuation methods to estimate the fair market value of partnership assets.
Instead, such assets would be valued through negotiations with prospective
purchasers (in many cases unrelated third parties).
If your partnership was liquidated, and the properties sold at prices equal
to the values recently determined by the independent appraiser (see Annex II),
we estimate that your net liquidation proceeds would be $410.47 per unit. See
"The Litigation Settlement Offer -- Section 8. Valuation of Units." However, in
the opinion of your general partner, which is our affiliate, the present time
may not be the most desirable time to sell the real estate assets of your
partnership in a private transaction, and the proceeds realized from any such
sale would be uncertain. Your general partner believes it currently is in the
best interest of your partnership to continue holding its real estate assets.
See "The Litigation Settlement Offer -- Section 15. Certain Information
Concerning Your Partnership -- Investment Objectives and Policies; Sale or
Financing of Investments." The term of the partnership will continue until
December 31, 2019, unless the partnership is terminated sooner under the
provisions of the partnership agreement.
CONTINUATION OF THE PARTNERSHIP WITHOUT THE OFFER
A second alternative would be for your partnership to continue as a
separate legal entity with its own assets and liabilities and continue to be
governed by its existing agreement of limited partnership, without our offer. A
number of advantages could result from the continued operation of your
partnership. Given improving rental market conditions or improved operating
performance, the level of distributions might increase over time. It is possible
that the private resale market for properties could improve over time, making a
sale of the partnership's property at some point in the future a more attractive
option than it is currently. The continuation of your partnership will allow you
to continue to participate in the net income and any increases in revenue of
your partnership and any net proceeds from the sale of the property owned by
your partnership. However, no assurance can be given as to future operating
results or as to the results of any future attempts to sell the property owned
by your partnership.
The primary disadvantage of continuing the operations of your partnership
without our offer is that you would be limited in your ability to sell your
units. Although you could sell your units to a third party, any such sale might
be at a price less than our offer price.
32
Alternative Transactions Considered by Us. At the present time, we have
decided to proceed with this offer pursuant to the court approved settlement.
From time to time in the past, we have considered proposing a number of
alternative transactions, including the purchase of your partnership's property
or a merger of your partnership in which you would receive cash in exchange for
your units. We decided not to pursue these alternative transactions because, in
each case, we determined that a tender offer would be a less expensive means of
acquiring additional interests in your partnership, and would not require the
consent or approval of any limited partners (other than those who elect to
tender their units). In the future, however, we may consider purchasing your
partnership's property or effecting such a merger. See "The Litigation
Settlement Offer -- Section 14. Future Plans of the Purchaser." We also
considered an offer to exchange units in your partnership for limited
partnership interests in AIMCO Properties, L.P. 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.
12. 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
affiliate) have provided the following information for inclusion in this
Litigation Settlement Offer:
The general partner of your partnership believes the offer price and the
structure of the transaction are fair to the limited partners. In making such
determination, the general partner considered all of the factors and information
set forth below, but did not quantify or otherwise attach particular weight to
any such factors or information:
- the Court's approval of the settlement pursuant to which the offer is
being made;
- the recent valuation of your partnership's property by American Appraisal
Associates, Inc., an independent appraiser appointed by the Court;
- the offer price and the method used to determine the offer price;
- the offer gives you an opportunity to make an individual decision on
whether to tender your units or to continue to hold them;
- prices at which the units have recently sold, to the extent such
information is available;
- the absence of an established trading market for your units;
- the discount traditionally applied in valuing minority interests;
- an analysis of possible alternative transactions, including a property
sale or a liquidation of the partnership; and
- an evaluation of the financial condition and results of operations of
your partnership.
While the general partner believes our offer is fair, the general partner
also believes that 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. Consequently,
the general partner makes no recommendation as to whether or not you should
tender or refrain from tendering your units in this offer. YOU ARE ENCOURAGED TO
CAREFULLY REVIEW THIS LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE
INDEPENDENT APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION
AVAILABLE TO YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR
AND/OR FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS
LITIGATION SETTLEMENT 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
Litigation Settlement Offer -- Section 14. Future
33
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 Litigation Settlement Offer -- Section 11. Background and
Reasons for the Offer" and "-- Section 13. Conflicts of Interest and
Transactions with Affiliates." See also "The Litigation Settlement Offer --
Section 8. Valuation of Units -- Comparison to Alternative Consideration" for
certain information regarding transactions with respect to units of your
partnership.
Your partnership did not receive any report, opinion or appraisal with
respect to the fairness of this Litigation Settlement Offer or the offer price
being offered to limited partners.
13. CONFLICTS OF INTEREST AND TRANSACTIONS WITH AFFILIATES
Conflicts of Interest with Respect to the Offer. The general partner of
your partnership is an affiliate of AIMCO. As a result, the general partner has
substantial conflicts of interest with respect to the offer. 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 exist in connection with the general partner's management of
your partnership. Your general partner has filed a Solicitation/ Recommendation
Statement on Schedule 14d-9 with the SEC, which indicates that it is remaining
neutral and making no recommendation as to whether limited partners should
tender their units in the offer. YOU ARE URGED TO READ THIS LITIGATION
SETTLEMENT OFFER AND THE SCHEDULE 14D-9 AND THE RELATED MATERIALS CAREFULLY AND
IN THEIR ENTIRETY BEFORE DECIDING WHETHER TO TENDER YOUR UNITS.
Conflicts of Interest That Currently Exist for Your Partnership. We own
the general partner of your partnership and are affiliated with the property
manager of your partnership's property. The general partner of your partnership
received total approximate fees and reimbursements (excluding property
management fees) of $287,000 in 2000, $521,000 in 2001 and $347,000 in 2002.
Total approximate fees and reimbursements (excluding property management fees)
for the nine months ended September 30, 2003 were $136,000. The property manager
is entitled to receive five percent of gross receipts from the partnership's
property for providing property management services. It received approximate
management fees of $276,000 in 2000, $266,000 in 2001 and $251,000 in 2002.
Management fees for the nine months ended September 30, 2003 were approximately
$138,000. We have no current intention of changing the fee structure for your
general partner or the manager of your partnership's property.
Competition Among Properties. Because AIMCO and your partnership both
invest in apartment properties, these properties may compete with one another
for tenants. Furthermore, you should bear in mind that AIMCO may acquire
properties in general market areas where your partnership's property is located.
We believe that this concentration of properties in a general market area will
facilitate overall operations through collective advertising efforts and other
operational efficiencies. In managing AIMCO's properties, 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. Under the terms of the settlement, we are not obligated to
make another tender offer for units in your partnership. We have no current
plans to conduct future tender offers for the units in your partnership, but our
plans may change based on future circumstances, including tender offers made by
third parties. Any such future offers that we make could be at prices that are
more or less than the current offer price.
Transactions with Affiliates. An affiliate of the general partner received
fees of approximately $71,000 and $221,000 for the years ended December 31, 2002
and 2001, respectively, for construction management services. The construction
management service fees are calculated based on a percentage of current
additions to investment properties.
34
In accordance with the partnership agreement, an affiliate of the general
partner loaned the partnership $100,000 during the year ended December 31, 2002
to cover operating expenses at Quail Hollow Apartments. The entire balance was
repaid during the year ended December 31, 2002. Interest was charged at prime
plus 2% and amounted to less than $1,000. During the year ended December 31,
2001, an affiliate of the general partner loaned the partnership $87,000 to
cover operating expenses at Windsor Hills Apartments. The entire balance was
repaid during the year ended December 31, 2001. Interest was charged at the
prime rate plus 2% and amounted to less than $1,000.
The partnership agreement provides for a commission to the general partner
upon the sale of the partnership's investment properties. These commissions are
payable when certain levels of return are received by the limited partners.
During the year ended December 31, 2002, the general partner earned a commission
of approximately $71,000 for the sale of Stone Mountain West Apartments. As of
December 31, 2002, the partnership has accrued approximately $203,000 of such
commissions which are included in due to affiliates.
The partnership agreement also provides for a commission to the general
partner for its role in the refinancing of any of the partnership's investment
properties. During the year ended December 31, 2001, the partnership paid
commissions of approximately $102,000 related to the refinancing of Quail Hollow
Apartments and Stone Mountain West Apartments. The fee was capitalized and
included in other assets.
Beginning in 2001, your partnership began insuring its properties up to
certain limits through coverage provided by us. We are generally self-insured
for a portion of losses and liabilities related to workers' compensation,
property casualty and vehicle liability. Your partnership insures its properties
above our limits through insurance policies obtained by us from insurers
unaffiliated with your general partner. During the year ended December 31, 2002,
your partnership paid us and our affiliates approximately $85,000 for insurance
coverage and fees associated with policy claims administration.
14. FUTURE PLANS OF THE PURCHASER
As described above under "The Litigation Settlement Offer -- Section 11.
Background and Reasons for the Offer," your general partner is our affiliate
and, therefore, we have the ability to control the management of your
partnership. In addition, we are affiliated with the manager of your
partnership's property. 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.
Under the terms of the settlement, although we are not obligated to do so,
we may make another litigation settlement offer within 18 months of the order
finally approving the settlement. In addition, we may make future tender offers
after that time. However, we have no current plans to conduct future tender
offers for units in your partnership. 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, L.P. or other consideration. We 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.
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
35
may be secured by your partnership's property. 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. However, 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 partnership; (iii) sales of assets, individually or
as part of a complete liquidation; 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 therein. Limited partners may vote on a
liquidation, and 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.
15. CERTAIN INFORMATION CONCERNING YOUR PARTNERSHIP
General. Your partnership was organized on April 7, 1980 under the laws of
the State of California. Its primary business is real estate ownership and
related operations. Your partnership was formed for the purpose of making
investments in income-producing commercial and residential real estate. Your
partnership's investment portfolio currently consists of two residential
apartment complexes. Your partnership had approximately 326 limited partners as
of September 30, 2003.
General Partner. The general partner of your partnership is Shelter Realty
I Corporation, which is an affiliate of AIMCO. Our affiliate serves as manager
of the property owned by your partnership. The general partner of your
partnership received total approximate fees and reimbursements (excluding
property management fees) of $287,000 in 2000, $521,000 in 2001, and $347,000 in
2002. Total approximate fees and reimbursements (excluding property management
fees) for the nine months ended September 30, 2003 were $136,000 The property
manager is entitled to receive five percent of gross receipts from the
partnership's property for providing property management services. It received
approximate management fees of $276,000 in 2000, $266,000 in 2001, and $251,000
in 2002. Management fees for the nine months ended September 30, 2003 were
approximately $138,000.
Ownership and Voting. We and our affiliates own 11,938.50 units, or
79.59%, of the outstanding units of your partnership. Because we and our
affiliates own a majority of the outstanding units, we have the ability to
control most votes of the limited partners. See "The Litigation Settlement
Offer -- Section 7. Effects of the Offer" and "-- Section 16. Voting Power."
Investment Objectives and Policies; Sale or Financing of Investments. In
general, your general partner (which is our affiliate) regularly evaluates the
partnership's property by considering various factors, such as the partnership's
financial position and real estate and capital markets conditions. The general
partner monitors the property's specific locale and sub-market conditions
(including stability of the surrounding neighborhood), evaluating current
trends, competition, new construction and economic changes. It oversees the
property's operating performance and continuously evaluates the physical
improvement requirements. In addition, the financing structure for the property
(including any prepayment penalties), tax implications, availability of
attractive mortgage financing to a purchaser, and the investment
36
climate are all considered. Any of these factors, and possibly others, could
potentially contribute to any decision by the general partner to sell,
refinance, upgrade with capital improvements or hold the partnership property.
If rental market conditions improve, the level of distributions might increase
over time. It is possible that the private resale market for properties could
improve over time, making a sale of the partnership's property in a private
transaction at some point in the future a more viable option than it is
currently. After taking into account the foregoing considerations, your general
partner is not currently seeking a sale of your partnership's property primarily
because it expects the property's operating performance to improve in the long
term. In making this assessment, your general partner noted the occupancy and
rental rates at the property. In particular, the general partner noted that it
expects to spend approximately $45,000 for capital improvements at the property
for the remainder of 2003 to repair and update the property. Although there can
be no assurance as to future performance, however, these expenditures are
expected to improve the desirability of the property to tenants. Another
significant factor considered by your general partner is the likely tax
consequences of a sale of the property for cash. Such a transaction would likely
result in tax liabilities for many limited partners.
Term of Your Partnership. Under your partnership's agreement of limited
partnership, the term of the partnership will continue until December 31, 2019
unless sooner terminated as provided in the agreement or by law.
Capital Replacements. Your partnership has an ongoing program of capital
improvements, replacements and renovations, including interior and exterior
building improvements, cabinet, floor covering and appliance replacements and
other replacements and renovations in the ordinary course of business. All
capital improvements and renovation costs, which are budgeted at $155,000 for
2003, are expected to be paid from operating cash flows or cash reserves, or
from short-term or long-term borrowings.
Competition. There are other residential properties within the market area
of your partnership's property. The number and quality of competitive properties
in such an area could have a material effect on the rental market for the
apartments at your partnership's property and the rents that may be charged for
such apartments. 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 the largest
owner and manager of multifamily apartment properties in the United States.
Financial Data. The selected financial information of your partnership set
forth below for the years ended December 31, 2002, 2001 and 2000 is based on
audited financial statements. The selected financial information set forth below
for the nine months ended September 30, 2003 and 2002 is based on unaudited
financial statements. This information should be read in conjunction with such
financial statements, including the notes thereto, and "Management's Discussion
and Analysis of Financial Condition and Results of Operations of Your
Partnership" in the Annual Report on Form 10-KSB of your partnership for the
year ended December 31, 2002, and the Quarterly Report on Form 10-QSB for the
quarter ended September 30, 2003.
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
2003 2002 2002 2001 2000
-------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING DATA:
Total revenues........................... $ 2,895 $ 3,030 $ 3,947 $ 3,638 $ 7,414
Net income (loss)........................ 298 714 6,254 552 2,757
Net income (loss) per limited partnership
unit.................................. 19.67 47.13 412.80 36.40 181.93
Distributions per limited partnership
unit.................................. 132.93 18.80 18.80 369.27 406.40
</Table>
37
<Table>
<Caption>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, FOR THE YEAR ENDED DECEMBER 31,
-------------------- -------------------------------
2003 2002 2002 2001 2000
-------- --------- -------- --------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
BALANCE SHEET DATA:
Cash and cash equivalents................ 133 222 2,107 291 527
Investment property, net of accumulated
depreciation.......................... 4,354 5,616 4,658 5,431 5,580
Total assets............................. 4,956 6,518 7,427 6,385 7,175
Mortgage note payable.................... 11,349 16,484 11,582 16,789 12,690
General partners' capital (deficit)...... (115) (80) (25) (56) (47)
Limited partners' capital (deficit)...... (6,838) (10,624) (5,139) (11,049) (6,056)
Partners' capital (deficit).............. (6,953) (10,704) (5,164) (11,105) (6,103)
CASH FLOWS:
Net increase (decrease) in cash and cash
equivalents........................... (1,974) (69) 1,816 (236) (1,221)
Net cash provided by operating
activities............................ 476 869 861 1,990 1,532
</Table>
- ---------------
* Information not available.
Description of Property. The following shows the location, the date of
purchase, the nature of your partnership's ownership interest in and the use of
your partnership's property.
<Table>
<Caption>
DATE OF
PROPERTY PURCHASE TYPE OF OWNERSHIP USE
- -------- -------- ------------------------- ---------
Quail Hollow Apartments.............. 09/01/80 Fee ownership, subject to Apartment
West Columbia, South Carolina first mortgage 215 units
Windsor Hills Apartments............. 09/01/80 Fee ownership, subject to Apartment
Blacksburg, Virginia first mortgage(1) 300 units
</Table>
- ---------------
(1) Property is held by a limited partnership in which the partnership owns a
99.99% interest.
On December 27, 2002, the partnership sold Stone Mountain West Apartments
to an unaffiliated third party for net sales proceeds of approximately
$6,927,000 after payment of closing costs. The partnership realized a gain of
approximately $5,531,000 on the sale. The partnership used approximately
$4,798,000 of the net proceeds to repay the mortgage encumbering the property.
Accumulated Depreciation Schedule. The following shows the gross carrying
value and accumulated depreciation of your partnership's property as of December
31, 2002.
<Table>
<Caption>
GROSS ACCUMULATED FEDERAL
PROPERTY CARRYING VALUE DEPRECIATION RATE METHOD TAX BASIS
- -------- -------------- ------------ ---- ------ --------------
(IN THOUSANDS) (IN THOUSANDS)
Quail Hollow Apartments........ $ 6,990 $ 4,443 5-34 S/L $2,408
Windsor Hills Apartments....... 7,673 5,562 5-30 S/L 2,334
-------
------- ------
Total........................ $14,663 $10,005 $4,742
=======
======= ======
</Table>
38
Schedule of Mortgages. The following shows certain information regarding
the outstanding first mortgage encumbering your partnership's property as of
December 31, 2002.
<Table>
<Caption>
PRINCIPAL
BALANCE AT STATED
DECEMBER 31, INTEREST PERIOD MATURITY PRINCIPAL BALANCE
PROPERTY 2002 RATE AMORTIZED DATE DUE AT MATURITY(1)
- -------- ------------ -------- ----------- -------- ------------------
(IN THOUSANDS) (IN THOUSANDS)
Quail Hollow............ $ 5,056 7.48% 17.25 years 10/01/18 $1,284
Windsor Hills........... 6,526 7.22% 20 years 01/01/21 --
-------
------
Total................. $11,582 $1,284
=======
======
</Table>
- ---------------
(1) See notes to financial statements in the partnership's Annual Report on Form
10-KSB for the year ended December 31, 2002 for information with respect to
the partnership's ability to prepay these loans and other specific details
about the loans.
Average Rental Rates and Occupancy. The following shows the average rental
rates and occupancy percentages for your partnership's property during the
periods indicated.
<Table>
<Caption>
AVERAGE ANNUAL AVERAGE
RENTAL RATE ANNUAL
(PER UNIT) OCCUPANCY
--------------- -----------
PROPERTY 2002 2001 2002 2001
- -------- ------ ------ ---- ----
Quail Hollow........................................... $7,278 $7,281 90% 94%
Windsor Hills.......................................... $7,162 $6,959 91% 94%
</Table>
The general partner attributes the decrease in occupancy at Quail Hollow to
lower mortgage interest rates resulting in more home purchases and less rentals
and the fire in December 2001 that damaged eight apartment units.
The general partner attributes the decrease in occupancy at Windsor Hills
to changing market conditions and increased competition from other apartment
complexes in the Blacksburg, Virginia area.
Property Management. Your partnership's property is managed by one of our
affiliates. Pursuant to the management agreement between the property manager
and your partnership, the property manager operates your partnership's property,
establishes rental policies and rates and directs marketing activities. The
property manager also is responsible for maintenance, the purchase of equipment
and supplies, and the selection and engagement of all vendors, suppliers and
independent contractors.
Distributions. The following table shows, for each of the years indicated,
the distributions paid per unit for such years.
<Table>
<Caption>
YEAR ENDED DECEMBER 31 AMOUNT
- ---------------------- -------
2000........................................................ $406.40
2001........................................................ $369.27
2002........................................................ $ 18.80
2003 (through September 30, 2003)........................... $132.93
</Table>
Compensation Paid to the General Partner and its Affiliates. The following
table shows, for each of the years indicated, approximate amounts paid to your
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. The property manager is entitled to receive fees
for transactions involving your partnership and its property and is entitled to
receive five percent of the gross receipts from the
39
partnership's property for providing property management services. See "The
Litigation Settlement Offer -- Section 13. Conflicts of Interest and
Transactions with Affiliates."
<Table>
<Caption>
PARTNERSHIP PROPERTY
FEES AND MANAGEMENT
YEAR EXPENSES FEES
- ---- ----------- ----------
2000........................................................ $287,000 $276,000
2001........................................................ $521,000 $266,000
2002........................................................ $347,000 $251,000
2003 (through September 30, 2003)........................... $136,000 $138,000
</Table>
Legal Proceedings. From time to time, your partnership may be a party to a
variety of legal proceedings related to its ownership of properties which arise
in the ordinary course of business. See "The Litigation Settlement
Offer -- Section 9. The Lawsuit and the Settlement."
16. 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 affiliate, 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 11,938.50 units, or 79.59%, of
the outstanding units of your partnership. Because we and our affiliates own a
majority of the outstanding units, we control most voting decisions made by
limited partners. See "The Litigation Settlement Offer -- Section 7. Effects of
the Offer."
17. SOURCE OF FUNDS
We expect that approximately $589,700 will be required to purchase all of
the limited partnership units that we are seeking in this offer exclusive of
fees and expenses. For more information regarding fees and expenses, see "The
Litigation Settlement Offer -- Section 21. Fees and Expenses."
In addition to this offer, we are concurrently making offers to acquire
interests in approximately 43 other limited partnerships pursuant to the terms
of the settlement. If all such offers were fully subscribed for cash, we would
be required to pay approximately $107 million for all such units. If for some
reason we did not have such funds available we might extend these offers for a
period of time sufficient for us to obtain additional funds, or we could
terminate the offers. However, we do not expect all such offers to be fully
subscribed. Additionally, we believe that we will have sufficient cash on hand
and available sources of financing to acquire all units tendered pursuant to
such offers. As of September 30, 2003, we had $126 million of cash on hand and
$285 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.
We have a $445 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. We are the borrower and all obligations
thereunder are guaranteed by certain of AIMCO's subsidiaries. The obligations
under the credit facility are secured, among other things, by our pledge of our
stock ownership in certain subsidiaries of AIMCO, and a first priority pledge of
certain of our non-real estate assets. The annual interest rate under the credit
facility is based on either LIBOR or a base rate which is the higher of Bank of
America's reference rate or 0.5% over the federal funds rate, plus, in either
case, an applicable margin. The margin ranges between 2.15% and 2.85% in the
case of LIBOR-based loans and between 0.65% and 1.35% in the case of base rate
loans, based upon a fixed charge coverage ratio. The credit facility expires on
July 31, 2005 and can be extended at AIMCO's option for a one-year term on a
one-time basis.
40
18. 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. 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 the partnership or to
obtain counsel or, other than as required by the settlement, 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 in your partnership.
19. CONDITIONS TO 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 Litigation
Settlement Offer 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:
- any change (or any condition, event or development involving a
prospective change) shall have occurred or been threatened in the
business, properties, assets, liabilities, indebtedness, capitalization,
condition (financial or otherwise), operations, licenses or franchises,
management contract, or results of operations or prospects of your
partnership or local markets in which your partnership owns or operates
its property, including any fire, flood, natural disaster, casualty loss,
or act of God that is or could reasonably be expected to be materially
adverse to your partnership or the value of your units to us, or we shall
have become aware of any facts relating to your partnership, its
indebtedness or its operations which has had or could reasonably be
expected to have a material adverse effect on the value of your
partnership or the value of your units to us; or
- there shall have occurred (i) any general suspension of trading in, or
limitation on prices for, securities on any national securities exchange
or the over-the-counter market in the United States, (ii) a decline in
the closing share price of AIMCO's Class A Common Stock of more than
5.0%, measured from the close of business on the last trading day
preceding the date of this offer and the close of business on the last
trading day preceding 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 S&P 500 Index, the Morgan
Stanley REIT Index, or the price of the 10-year Treasury Bond or the
price of the 30-year Treasury Bond, in each case, measured from the close
of business on the last trading day preceding the date of this offer and
the close of business 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, (vi)
acts of terrorism or a commencement of a war, armed hostilities or other
national or international calamity directly or indirectly involving the
United States, (vii) any limitation (whether or not mandatory) by any
governmental authority on, or any other event which could reasonably be
expected to 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, a material acceleration or
worsening thereof; or
- 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 the acquisition by us of the units,
restrains, prohibits or delays the making or consummation of the offer,
prohibits the performance of any of the contracts or other arrangements
entered into by us
41
(or any of our affiliates) seeks to obtain any material amount of damages
as a result of the transactions contemplated by the offer, (ii) seeks to
make the purchase of, or payment for, some or all of the units pursuant
to the offer illegal or results in a delay in 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 your general partner (which is our affiliate) or to
remove such entity as the general partner of your partnership, or seeks
to impose any material limitation on our ability or any of our affiliates
to conduct your partnership's business or own such assets, (iv) seeks to
impose material limitations on our ability or any of our affiliates to
acquire or hold or to exercise full rights of ownership of the units
including, but not limited to, the right to vote the units purchased by
us on all matters properly presented to unitholders or (v) could
reasonably be expected to result 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 the offer or the
value of units to us; or
- there shall be any action taken, or any statute, rule, regulation, order
or injunction shall be sought, proposed, enacted, promulgated, entered,
enforced or deemed applicable to the offer, your partnership, any general
partner of your partnership, us or any affiliate of our or your
partnership, or any other action shall have been taken, proposed or
threatened, by any government, governmental authority or court, that,
directly or indirectly, could reasonably be expected to result in any of
the consequences referred to in clauses (i) through (v) of the
immediately preceding paragraph; or
- your partnership shall have (i) changed, or authorized a change of, its
units or your partnership's capitalization, (ii) issued, distributed,
sold or pledged, or authorized, proposed or announced the issuance,
distribution, sale or pledge of (A) any equity interests (including,
without limitation, units), or securities convertible into any such
equity interests or any rights, warrants or options to acquire any such
equity interests or convertible securities, or (B) any other securities
in respect of, in lieu of, or in substitution for units outstanding on
the date hereof, (iii) purchased or otherwise acquired, or proposed or
offered to purchase or otherwise acquire, any outstanding units or other
securities, (iv) declared or paid any dividend or distribution on any
units or issued, authorized, recommended or proposed the issuance of any
other distribution in respect of the units, whether payable in cash,
securities or other property, (v) authorized, recommended, proposed or
announced an agreement, or intention to enter into an agreement, with
respect to any merger, consolidation, liquidation or business
combination, any acquisition or disposition of a material amount of
assets or securities, or any release or relinquishment of any material
contract rights, or any comparable event, not in the ordinary course of
business, (vi) taken any action to implement such a transaction
previously authorized, recommended, proposed or publicly announced, (vii)
issued, or announced its intention to issue, any debt securities, or
securities convertible into, or rights, warrants or options to acquire,
any debt securities, or incurred, or announced its intention to incur,
any debt other than in the ordinary course of business and consistent
with past practice, (viii) authorized, recommended or proposed, or
entered into, any transaction which, has or could reasonably be expected
to have an adverse affect on the value of your partnership or the units,
(ix) proposed, adopted or authorized any amendment of its organizational
documents, (x) agreed in writing or otherwise to take any of the
foregoing actions, or (xi) been notified that any debt of your
partnership or any of its subsidiaries secured by any of its or their
assets is in default or has been accelerated (any changes to the offer
resulting from the conditions set forth in this paragraph will most
likely involve a change in the amount or terms of the consideration
offered or the termination of the offer); or
- a tender or exchange offer for any units shall have been commenced or
publicly proposed to be made by another person or "group" (as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934), or it shall
have been publicly disclosed or 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 four percent of the units, or
shall have been granted any option, warrant or right, conditional or
otherwise, to acquire beneficial ownership of more than four percent of
the units, or (ii) any person or group shall have entered into a
definitive agreement or an agreement in
42
principle or made a proposal with respect to a merger, consolidation,
purchase or lease of assets, debt refinancing or other business
combination with or involving your partnership;
- there shall have occurred any event, circumstance, change, effect or
development that, individually or in the aggregate with any other events,
circumstances, changes, effects or developments, has had or would
reasonably be expected to have a material adverse effect on our financial
condition;
- the final court approval of the settlement shall have been reversed or
vacated, the parties terminate the settlement or the settlement shall
otherwise terminate by its terms; or
- we shall not have adequate cash or financing commitments available to pay
for the units validly tendered, which is the result of events or
circumstances beyond our reasonable control.
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 in our reasonable discretion prior to the expiration of this
offer. The failure by us at any time to exercise any of the foregoing rights
shall not be deemed a waiver of any such right, the waiver of any such right
with respect to any particular facts or circumstances shall not be deemed a
waiver.
If we are unable to accept the units tendered in this Litigation Settlement
Offer due to a failure of any or all of the conditions of our offer to be
satisfied, we will conduct another offer in accordance with the terms of the
settlement (which will occur no later than six months after the date of the
commencement of this offer). We will continue this process until we have
accepted for payment all units properly tendered in an offer conducted in
accordance with the terms of the settlement.
20. CERTAIN LEGAL MATTERS
General. Except as set forth in this Section 20, we are not 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 and Rule 13e-3 Transaction 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 20.
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
43
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.
21. 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 The Altman Group, Inc. to act as Information Agent in
connection with our offer. The Information Agent may contact holders of units by
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. However, under the terms of the settlement, the offer
price has been reduced by the costs and expenses related to making this offer.
The following is an itemized statement of the aggregate estimated expenses
incurred and to be incurred in this offer by us:
<Table>
Information Agent Fees...................................... $ 7,500
Legal Fees.................................................. 5,000
Printing Fees............................................... 5,000
Other....................................................... 20,000
-------
Total.................................................. $37,500
=======
</Table>
---------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF US NOT CONTAINED HEREIN, OR IN THE LETTER OF
TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
NEITHER THE COURT NOR COUNSEL FOR THE PARTIES IN THE CLASS AND DERIVATIVE
LITIGATION MAKE ANY RECOMMENDATION REGARDING WHETHER YOU SHOULD ACCEPT THIS
LITIGATION SETTLEMENT OFFER. YOU ARE INSTEAD ENCOURAGED TO CAREFULLY REVIEW THIS
LITIGATION SETTLEMENT OFFER, THE EXECUTIVE SUMMARY OF THE INDEPENDENT
APPRAISER'S REPORT (ATTACHED AS ANNEX II) AND ANY OTHER INFORMATION AVAILABLE TO
YOU AND TO SEEK ADVICE FROM YOUR INDEPENDENT LAWYER, TAX ADVISOR AND/OR
FINANCIAL ADVISOR BEFORE DECIDING WHETHER OR NOT TO ACCEPT THIS LITIGATION
SETTLEMENT OFFER.
We have filed with the SEC a Tender Offer Statement and Rule 13e-3
Transaction Statement on Schedule TO, pursuant to Sections 13(e)(4), 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 Litigation Settlement
Offer -- Section 15. Certain Information Concerning Your Partnership."
The letter of transmittal 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.
44
THE INFORMATION AGENT FOR THE OFFER IS:
THE ALTMAN GROUP, INC.
<Table>
By Mail: By Overnight Courier: By Hand:
1275 Valley Brook Avenue 1275 Valley Brook Avenue 1275 Valley Brook Avenue
Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
</Table>
For information, please call:
TOLL FREE: (800) 467-0821
45
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 director of the general partner of your partnership is Patrick J.
Foye. The executive officers of the general partner of your partnership are
Patrick J. Foye and Paul J. McAuliffe. Unless otherwise indicated, the business
address of each executive officer and director is 4582 South Ulster Parkway,
Suite 1100, Denver, Colorado 80237. Each executive officer and director is a
citizen of the United States of America.
<Table>
<Caption>
NAME POSITION
- ---- --------
Terry Considine........................... Chairman of the Board of Directors and Chief
Executive Officer
Peter K. Kompaniez........................ Vice Chairman, President and Director
Harry G. Alcock........................... Executive Vice President and Chief Investment
Officer
Miles Cortez.............................. Executive Vice President, General Counsel and
Secretary
Joseph DeTuno............................. Executive Vice President -- Redevelopment
Patti K. Fielding......................... Executive Vice President
Patrick J. Foye........................... Executive Vice President
Lance J. Graber........................... Executive Vice President -- Acquisitions
Paul J. McAuliffe......................... Executive Vice President and Chief Financial
Officer
Ronald D. Monson.......................... Executive Vice President and Head of Property
Operations
David Robertson........................... Executive Vice President -- Affordable
Properties
Jim Purvis................................ Executive Vice President -- Human Resources
Randall J. Fein........................... Executive Vice President -- Student Housing
James N. Bailey........................... Director
Richard S. Ellwood........................ Director
J. Landis Martin.......................... Director
Thomas L. Rhodes.......................... Director
</Table>
<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. Mr. Kompaniez
has also served as Chief Operating Officer of
NHP Incorporated, which was acquired by AIMCO in
December 1997.
</Table>
I-1
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
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.
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.
</Table>
I-2
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
Patti K. Fielding......................... Ms. Fielding was appointed Executive Vice
President in February 2003. She is responsible
for securities and debt financing and treasury
department. From January 2000 to February 2003,
Ms. Fielding served as Senior Vice
President -- Securities and Debt. Ms. Fielding
joined the Company in February 1997 and served
as Vice President -- Tenders, Securities and
Debt until January 2002. Prior to joining the
Company, Ms. Fielding was a Vice President with
Hanover Capital Partners from 1996 to 1997, Vice
Chairman, Senior Vice President and Principal of
CapSource Funding Corp from 1993 to 1995, and
Group Vice President with Duff & Phelps Rating
Co. from 1987 to 1993.
Patrick J. Foye........................... Mr. Foye was appointed Executive Vice President
of AIMCO in May 1998. 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>
I-3
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
Paul J. McAuliffe......................... Mr. McAuliffe has been Executive Vice President
of AIMCO since February 1999 and was appointed
Chief Financial Officer in October 1999. 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.
Ronald D. 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 Executive Vice
President -- Affordable Properties in February
2002. He is responsible for affordable property
operations, refinancing and other value creation
within AIMCO's affordable portfolio. Prior to
joining AIMCO, 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.
Jim Purvis................................ Mr. Purvis was appointed Executive Vice
President in February 2003. He is responsible
for AIMCO's Human Resources and People
Initiatives. Mr. Purvis has over 20 years of
executive strategic human resources experience.
Prior to joining AIMCO he was Vice President, HR
at SomaLogic, a privately funded biotechnology
company. He was a principal in O3C Global
Organization Solutions, and has held executive
human resources and operations management
positions in ALCOA (Aluminum Company of
America), Texas Air/Eastern Airlines, Starwood/
WestinHotels and Resorts, and
Tele-Communications (TCI) Technology, Inc. Mr.
Purvis holds a BA in communications and modern
languages from the University of Notre Dame.
</Table>
I-4
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
Randall J. Fein........................... Mr. Fein was appointed Executive Vice President
in October 2003. He is responsible for Student
Housing. Prior to joining AIMCO, Mr. Fein was
president of the general partner of Texas First
L.P. and Income Apartment Investors L.P. Mr.
Fein is a 1977 graduate of the University of
Texas at Austin. He also received a J.D. from
the University of Texas at Austin in 1980.
James N. Bailey........................... Mr. Bailey was appointed a Director of AIMCO in
Cambridge Associates, Inc. June 2000. In 1973, Mr. Bailey co-founded
1 Winthrop Square, Cambridge Associates, Inc., which is an
Suite 500 investment consulting firm for non-profit
Boston, MA 02110 institutions and wealthy family groups. He is
also Co-Founder, Treasurer and Director of The
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
12 Auldwood Lane July 1994 and is currently Chairman of the Audit
Rumson, NJ 07660 Committee and a member of the 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.
</Table>
I-5
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
J. Landis Martin.......................... Mr. Martin was appointed a director of AIMCO in
199 Broadway July 1994 and became Chairman of the
Suite 4300 Compensation Committee on March 19, 1998. Mr.
Denver, CO 80202 Martin is a member of the Audit Committee. Mr.
Martin has served as 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
215 Lexington Avenue July 1994 and is a member of the Audit and
4th Floor Compensation Committees. Mr. Rhodes has served
New York, NY 10016 as the President and a Director of National
Review magazine 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>
I-6
ANNEX II
EXECUTIVE SUMMARY OF INDEPENDENT APPRAISER'S REPORT
THE ATTACHED EXECUTIVE SUMMARY WAS PREPARED SOLELY BY THE INDEPENDENT APPRAISER,
AND NEITHER THE COURT, THE PARTIES IN THE CLASS AND DERIVATIVE LITIGATION NOR
COUNSEL FOR SUCH PARTIES PARTICIPATED IN THE PREPARATION OF THE EXECUTIVE
SUMMARY.
II-1
AMERICAN APPRAISAL ASSOCIATES, INC.
QUAIL HOLLOW, WEST COLUMBIA, SOUTH CAROLINA
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
PROPERTY NAME: Quail Hollow
LOCATION: 2700 Feather Run Trail
West Columbia, South Carolina
INTENDED USE OF ASSIGNMENT: Court Settlement
PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee
Simple Estate
INTEREST APPRAISED: Fee simple estate
DATE OF VALUE: May 21, 2003
DATE OF REPORT: July 14, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 18.1 acres, or 788,436 square feet
Assessor Parcel No.: 003627-03-011
Floodplain: Community Panel No. 45063C0163G
(February 9, 2000)
Flood Zone X, an area outside the
floodplain.
Zoning: ID/RD (Intensive Development/
Restrictive Development)
BUILDING:
No. of Units: 215 Units
Total NRA: 259,858 Square Feet
Average Unit Size: 1,209 Square Feet
Apartment Density: 11.9 units per acre
Year Built: 1972
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
- -------------------------------------------------------------------------------------------
Market Rent
Square ---------------------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- ------------ ------- ---------- -------- ---------- ----------
1Br/1Ba - 1A10 858 $ 570 $ 0.66 $ 13,680 $ 164,160
2BR/2Ba - 2A20 1,158 $ 620 $ 0.54 $ 16,740 $ 200,880
2BR/2Ba - 2B20 1,200 $ 640 $ 0.53 $ 69,120 $ 829,440
3Br/2Ba - 3A20 1,400 $ 715 $ 0.51 $ 40,040 $ 480,480
Total $ 139,580 $1,674,960
OCCUPANCY: 91%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 25 Years
AMERICAN APPRAISAL ASSOCIATES, INC.
QUAIL HOLLOW, WEST COLUMBIA, SOUTH CAROLINA
- --------------------------------------------------------------------------------
REMAINING ECONOMIC LIFE: 20 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
(PHOTOGRAPH) (PHOTOGRAPH)
EXTERIOR - ENTRY EXTERIOR - APARTMENTS BUILDINGS
AREA MAP
(MAP)
AMERICAN APPRAISAL ASSOCIATES, INC.
QUAIL HOLLOW, WEST COLUMBIA, SOUTH CAROLINA
- --------------------------------------------------------------------------------
NEIGHBORHOOD MAP
(MAP)
HIGHEST AND BEST USE:
As Vacant: Hold for future multi-family development
As Improved: Continuation as its current use
METHOD OF VALUATION: In this instance, the Sales Comparison
and Income Approaches to value were
utilized.
AMERICAN APPRAISAL ASSOCIATES, INC.
QUAIL HOLLOW, WEST COLUMBIA, SOUTH CAROLINA
- --------------------------------------------------------------------------------
PART TWO - ECONOMIC INDICATORS
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- --------------------- ---------- -----------
Potential Rental Income $1,674,960 $7,791
Effective Gross Income $1,597,764 $7,431
Operating Expenses $714,998 $3,326 44.7% of EGI
Net Operating Income: $818,266 $3,806
Capitalization Rate 9.00%
DIRECT CAPITALIZATION VALUE $9,100,000 * $42,326 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
- ------------------------------
Holding Period 10 years
2002 Economic Vacancy 11%
Stabilized Vacancy & Collection Loss: 10%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 10.00%
Discount Rate 11.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $9,200,000 * $42,791 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $9,100,000 $42,326 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $26,136 to $36,985
Range of Sales $/Unit (Adjusted) $41,078 to $43,214
VALUE INDICATION - PRICE PER UNIT $9,100,000 * $42,326 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 3.94 to 5.79
Selected EGIM for Subject 6.00
Subject's Projected EGI $1,597,764
EGIM ANALYSIS CONCLUSION $9,600,000 * $44,651 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $8,600,000 * $40,000 / UNIT
RECONCILED SALES COMPARISON VALUE $9,100,000 $42,326 / UNIT
- --------------------
* Value indications are after adjustments for concessions, deferred maintenance,
excess land and lease-up costs, if any.
AMERICAN APPRAISAL ASSOCIATES, INC.
QUAIL HOLLOW, WEST COLUMBIA, SOUTH CAROLINA
- --------------------------------------------------------------------------------
PART THREE - SUMMARY OF VALUE CONCLUSIONS
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH:
Price Per Unit $9,100,000
NOI Per Unit $8,600,000
EGIM Multiplier $9,600,000
INDICATED VALUE BY SALES COMPARISON $9,100,000 $42,326 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $9,100,000
Discounted Cash Flow Method: $9,200,000
INDICATED VALUE BY THE INCOME APPROACH $9,100,000 $42,326 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $9,100,000 $42,326 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
- --------------------------------------------------------------------------------
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
- --------------------------------------------------------------------------------
PROPERTY NAME: Windsor Hills Apartments
LOCATION: Ascot Lane
Blacksburg, Virginia
INTENDED USE OF ASSIGNMENT: Court Settlement
PURPOSE OF APPRAISAL: "As Is" Market Value of the Fee
Simple Estate
INTEREST APPRAISED: Fee simple estate
DATE OF VALUE: May 12, 2003
DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 24.35 acres, or 1,060,686 square
feet
Assessor Parcel No.: 3035-13950
Floodplain: Community Panel No. 510100-0007 B
(May 15, 1980)
Flood Zone C, an area outside the
floodplain.
Zoning: RM-48 (Medium Density Multi-Unit
Residential)
BUILDING:
No. of Units: 300 Units
Total NRA: 270,855 Square Feet
Average Unit Size: 903 Square Feet
Apartment Density: 12.3 units per acre
Year Built: 1970
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
- --------------------------------------------------------------------------------
Market Rent
Square -------------------- Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- --------- ------ -------- ------ --------- -----------
1A10 736 $ 490 $ 0.67 $ 25,480 $ 305,760
1B10 836 $ 520 $ 0.62 $ 13,520 $ 162,240
2A10 946 $ 590 $ 0.62 $ 66,670 $ 800,040
2B10 1,046 $ 600 $ 0.57 $ 23,400 $ 280,800
3A15 1,114 $ 700 $ 0.63 $ 24,500 $ 294,000
3B15 1,214 $ 790 $ 0.65 $ 7,900 $ 94,800
EA10 481 $ 480 $ 1.00 $ 12,000 $ 144,000
Total $ 173,470 $ 2,081,640
OCCUPANCY: 95%
ECONOMIC LIFE: 45 Years
AMERICAN APPRAISAL ASSOCIATES, INC.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
- --------------------------------------------------------------------------------
EFFECTIVE AGE: 20 Years
REMAINING ECONOMIC LIFE: 25 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
(PHOTOGRAPH) (PHOTOGRAPH)
EXTERIOR - APARTMENT BUILDING EXTERIOR - LANDSCAPE, APT. BUILDING & PARKING
AREA MAP
(MAP)
AMERICAN APPRAISAL ASSOCIATES, INC.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
- --------------------------------------------------------------------------------
NEIGHBORHOOD MAP
(MAP)
HIGHEST AND BEST USE:
As Vacant: Hold for future multi-family development
As Improved: Continuation as its current use
METHOD OF VALUATION: In this instance, the Sales Comparison and Income
Approaches to value were utilized.
AMERICAN APPRAISAL ASSOCIATES, INC.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
- --------------------------------------------------------------------------------
PART TWO - ECONOMIC INDICATORS
- --------------------------------------------------------------------------------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- --------------------- ---------- ----------
Potential Rental Income $2,081,640 $6,939
Effective Gross Income $2,029,292 $6,764
Operating Expenses $836,465 $2,788 41.2% of EGI
Net Operating Income: $1,132,828 $3,776
Capitalization Rate 9.00%
DIRECT CAPITALIZATION VALUE $12,600,000 * $42,000 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
- ------------------------------
Holding Period 10 years
2002 Economic Vacancy 10%
Stabilized Vacancy & Collection Loss: 9%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 9.50%
Discount Rate 11.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $13,000,000 * $43,333 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $12,800,000 $42,667 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $31,071 to $50,000
Range of Sales $/Unit (Adjusted) $31,786 to $42,328
VALUE INDICATION - PRICE PER UNIT $11,400,000 * $38,000 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 5.27 to 6.23
Selected EGIM for Subject 5.90
Subject's Projected EGI $2,029,292
EGIM ANALYSIS CONCLUSION $12,000,000 * $40,000 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $12,600,000 * $42,000 / UNIT
RECONCILED SALES COMPARISON VALUE $12,000,000 $40,000 / UNIT
* Value indications are after adjustments for concessions, deferred maintenance,
excess land and lease-up costs, if any.
AMERICAN APPRAISAL ASSOCIATES, INC.
WINDSOR HILLS APARTMENTS, BLACKSBURG, VIRGINIA
- --------------------------------------------------------------------------------
PART THREE - SUMMARY OF VALUE CONCLUSIONS
- --------------------------------------------------------------------------------
SALES COMPARISON APPROACH:
Price Per Unit $11,400,000
NOI Per Unit $12,600,000
EGIM Multiplier $12,000,000
INDICATED VALUE BY SALES COMPARISON $12,000,000 $40,000 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $12,600,000
Discounted Cash Flow Method: $13,000,000
INDICATED VALUE BY THE INCOME APPROACH $12,800, 000 $42,667 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $12,800,000 $42,667 / UNIT
Questions and requests for assistance or for additional copies of this
Litigation Settlement Offer and the letter of transmittal may be directed to the
Information Agent at its telephone number and address listed below. You may also
contact your broker, dealer, bank, trust company or other nominee for assistance
concerning the offer.
The Information Agent for offer is:
THE ALTMAN GROUP, INC.
By Mail:
1275 Valley Brook Avenue
Lyndhurst, NJ 07071
By Overnight Courier:
1275 Valley Brook Avenue
Lyndhurst, NJ 07071
By Hand:
1275 Valley Brook Avenue
Lyndhurst, NJ 07071
For information, please call:
By Telephone:
TOLL FREE: (800) 467-0821
By Fax:
(201) 460-0050