LITIGATION SETTLEMENT OFFER
(AIMCO LOGO)
AIMCO PROPERTIES, L.P.
is offering to purchase any and all limited partnership units in
DAVIDSON DIVERSIFIED REAL ESTATE II, L.P.
FOR $4,106.18 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 $203.23, 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 July 13, 2004, 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 with respect to your particular circumstances before deciding
whether or not to accept this Litigation Settlement Offer.
SEE "RISK FACTORS" BEGINNING ON PAGE 5 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
(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.
June 14, 2004
(Continued from prior page)
enclosed letter of transmittal, moreover, you will release those claims
even if the judgment is reversed or otherwise vacated on appeal.
- 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 $9,066.27
per unit, which is higher than our offer price of $4,106.18 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 WITH
RESPECT TO YOUR PARTICULAR CIRCUMSTANCES 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.
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By Mail: By Overnight Courier: By Hand:
P.O. Box 238 1275 Valley Brook Avenue 1275 Valley Brook Avenue
Lyndhurst, NJ 07071 Lyndhurst, NJ 07071 Lyndhurst, NJ 07071
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For information, please call:
TOLL FREE: (800) 467-0821
TABLE OF CONTENTS
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PAGE
----
SUMMARY TERM SHEET.......................................... 1
RISK FACTORS................................................ 5
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, whether or not you requested
exclusion from the settlement.......................... 5
We have established the terms of our offer without
reference to the recent appraisal of your partnership's
properties............................................. 5
Our offer price may not represent fair market value....... 5
Our offer price does not reflect future prospects......... 5
The liquidation value of your partnership units exceeds
our offer price........................................ 5
Continuation of the partnership; no time frame regarding
sale of property....................................... 6
Holding your units may result in greater future value..... 6
The general partner faces conflicts of interest with
respect to this offer.................................. 6
Your general partner is not making a recommendation
regarding this offer................................... 6
Your general partner faces conflicts of interest relating
to management fees..................................... 7
If we do not acquire all of the outstanding units in this
offer, we may make a future offer at a higher price.... 7
Your tax liability resulting from a sale of your units
could exceed our offer price........................... 7
You may recognize taxable gain on the amount paid from the
settlement fund or if you did not request exclusion
from the settlement or for release and assignment of
claims if you requested exclusion from the
settlement............................................. 7
If you tender your units in this offer, you will no longer
be entitled to distributions from your partnership..... 8
You could recognize gain in the event of a future
reduction in your partnership's liabilities............ 8
You could be precluded from transferring your units for a
12-month period........................................ 8
We could delay acceptance of, and payment for, your
units.................................................. 8
There may be a possible reduction of available information
about your partnership as a result of this offer....... 9
Your partnership has balloon payments on its mortgage
debt................................................... 9
THE LITIGATION SETTLEMENT OFFER............................. 10
1. Terms of the Offer; Expiration Date................... 10
2. Acceptance for Payment and Payment for Units.......... 10
3. Procedure for Tendering Units......................... 11
4. Withdrawal Rights..................................... 14
5. Extension of Tender Period; Termination; Amendment; No
Subsequent Offering Period............................. 15
6. Material Federal Income Tax Matters................... 16
7. Effects of the Offer.................................. 19
8. Valuation of Units.................................... 21
9. The Lawsuit and the Settlement........................ 32
10. Information Concerning Us and Certain of Our
Affiliates............................................. 38
11. Background and Reasons for the Offer.................. 44
12. Position of the General Partner of Your Partnership
With Respect to the Offer.............................. 46
13. Conflicts of Interest and Transactions with
Affiliates............................................. 48
14. Future Plans of the Purchaser......................... 50
15. Certain Information Concerning Your Partnership....... 51
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<Caption>
PAGE
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16. Voting Power.......................................... 55
17. Source of Funds....................................... 55
18. Dissenters' Rights.................................... 56
19. Conditions to the Offer............................... 56
20. Certain Legal Matters................................. 58
21. Fees and Expenses..................................... 58
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. Unless otherwise indicated, references in this Litigation
Settlement Offer to "we", "our", "us" or "AIMCO Properties" refers to AIMCO
Properties, L.P.
- 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 $4,106.18 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 $203.23. 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.
- Higher Per Unit Prices. In deciding whether or not accept our offer, you
should consider the fact that, based on the recent valuation of your
partnership's property by American Appraisal Associates, Inc., we
estimate that the net liquidation proceeds per unit would be
approximately $9,066.27, which is higher than our offer price of
$4,106.18. In addition, in a prior tender offer in 2001, we offered
$4,786 per unit for units in your limited partnership. See "The
Litigation Settlement Offer -- Section 8. Valuation of Units -- Prior
Tender Offers" and "-- Prices on Secondary Market."
- Expiration Date. Our offer expires on July 13, 2004, 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 issue a press release or other public announcement no later than
9:00 a.m., New York City time, on the next business day after the
scheduled expiration date of the offer, in accordance with Rule 14e-1(d)
of the Securities Exchange Act of 1934. 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 this
Litigation Settlement Offer, other than for violations of federal or
state securities laws. 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 on or after
August 13, 2004, including any extensions. If you properly withdraw all
of the units you previously tendered in the offer, the corresponding
letter of transmittal, including your release and assignment of future
claims contained therein, will be deemed revoked and of no force or
effect. See "The Litigation Settlement Offer -- Section 4. Withdrawal
Rights."
2
- 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. Material 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."
- Conditions to the Offer. There are a number of conditions to our offer,
including the absence of competing tender offers, that there be no
material change with respect to our financial condition, 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. NHP Management Company (which is 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 WITH RESPECT TO
YOUR PARTICULAR CIRCUMSTANCES 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."
- Fairness of the Offer. Although we, Apartment Investment and Management
Company ("AIMCO") and AIMCO-GP, Inc. (collectively, the "AIMCO Entities")
and your general partner have interests that may conflict with those the
partnership's unaffiliated limited partners,
3
each of the AIMCO Entities believes that the offer price and the offer
are fair to the unaffiliated limited partners of your partnership. This
determination is based on the information and the factors set forth under
"The Litigation Settlement Offer -- Section 12. Position of Your 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 with
respect to your particular circumstances before deciding whether or not
to accept this Litigation Settlement Offer.
4
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, WHETHER OR NOT YOU REQUESTED
EXCLUSION FROM THE SETTLEMENT.
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.
We determined our offer price by valuing your partnership's properties.
Except for one property, Reflections Apartments, we used the direct
capitalization approach to value your partnership's property based on the
property income for the twelve months ended March 31, 2004. This method does not
ascribe any value to potential future improvements in the operating performance
of your partnership's property. In addition, one of your partnership's
properties, Reflections Apartments, recently completed a major rehabilitation
project and, as a result, a significant number of units were unrentable during
the rehabilitation. In determining the value for Reflections Apartments, instead
of using the direct capitalization method, which depends on property income, we
ascribed a value to this property equal to its outstanding debt. This method
does not ascribe any value to the projected future performance of the property.
In comparison, the independent appraiser determined the value of Reflections
Apartments based on pro forma net operating income. See "The Litigation
Settlement Offer -- Section 8. Valuation of Units -- Estimated Liquidation
Proceeds Based on Independent Appraisal."
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 $9,066.27 per unit, which exceeds our offer price of
$4,106.18 per unit. However, the actual proceeds obtained from a liquidation are
highly uncertain and could be more or less than our estimate.
5
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 February 25, 1983, 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 10 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 provided in the partnership agreement, the existence of the partnership would
continue until the year 2008. 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 with respect to your particular circumstances before deciding
whether or not to accept this Litigation Settlement Offer.
6
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. Also, a decision of the limited partners of your
partnership to remove, for any reason, the general partner of your partnership
or the property manager of the property owned by your partnership would result
in a decrease or elimination of the substantial fees to which they are entitled
for services provided to your partnership.
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
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 IF
YOU DID NOT REQUEST EXCLUSION FROM THE SETTLEMENT OR FOR RELEASE AND ASSIGNMENT
OF CLAIMS IF YOU REQUESTED EXCLUSION FROM THE SETTLEMENT.
Our offer price includes $203.23, 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 nevertheless be deemed a payment for your release
and assignment of claims. We intend to treat the entire offer price as
consideration paid to you for your units, regardless of whether you requested
exclusion from the settlement. 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 under current law. No
opinion or assurance can be given that the Internal Revenue Service (the "IRS")
will not
7
challenge the treatment of the $203.23 portion of the offer price as a separate
payment from the settlement fund or as a deemed payment for your release and
assignment of claims and not as additional consideration for the units, and
assert that, in either case, the $203.23 portion 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.
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 within such 12-month period.
If we acquire a significant percentage of the interest in your partnership, you
may not be able to transfer your units for a 12-month period following our
offer.
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.
8
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-K containing
annual audited financial statements, and quarterly reports on Form 10-Q
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. See "The Litigation Settlement Offer -- Section 7. Effects
of the Offer -- Effect on Trading Market; Registration Under Section 12(g) of
the Exchange Act."
YOUR PARTNERSHIP HAS BALLOON PAYMENTS ON ITS MORTGAGE DEBT.
Your partnership has a balloon payment of approximately $4,946,000 due on
its mortgage debt in September 2007 and a balloon payment of approximately
$3,010,000 due on its mortgage debt in December 2009. In addition, one of your
partnership's lenders can exercise a call option commencing in February 2009 and
every fifth anniversary thereafter until maturity in January 2029, in which
event the outstanding principal balance and any related interest expense are due
and payable on the call date. If the lender's call option is not exercised, the
mortgage is fully amortizing through January 2029. 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.
9
THE LITIGATION SETTLEMENT OFFER
1. TERMS OF THE OFFER; EXPIRATION DATE
Upon the terms and subject to the conditions to 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 July 13, 2004, 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). 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.
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 to 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.
By executing the letter of transmittal, you will agree that the transfer of
units will be deemed to take effect as of the first day of the calendar quarter
in which the offer expires. Upon expiration of the offer, the books and records
of the partnership will reflect the change in ownership as having occurred as of
this date. For tax, accounting and financial reporting purposes, the transfer of
tendered units will be deemed to take effect on the first day of the calendar
quarter. Accordingly, all profits and losses relating to any tendered units will
be allocated to us from and after this date. If we waive any material conditions
to our offer, we will notify you and, if necessary, we will extend the offer
period so that you will have at least five business days from the date of our
notice to withdraw your units.
This offer is being mailed on or about June 14, 2004 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 to the offer, we will
purchase, by accepting for payment, and will pay for, any and all units validly
tendered promptly following the expiration date. A tendering beneficial owner of
units whose units are owned of record by an Individual Retirement Account or
other
10
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.
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 August 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.
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.
11
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 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.
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,
12
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, 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 (i) 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) or
(ii) any claim based upon violations of federal or state securities laws in
connection with this offer.
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
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.
13
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 this Litigation Settlement Offer, other than for violations of federal
or state securities laws.
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, is unlawful. We also reserve the
absolute right to waive or amend any of the conditions to 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. If we waive any of the conditions to the offer
with respect to the tender of a particular unit or with respect to a particular
limited partner, we will waive such condition with respect to all other tenders
of units or all other limited partners in this offer as well. Our interpretation
of the terms and conditions to 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 must provide us with your correct taxpayer identification number. See
the instructions to the letter of transmittal and "The Litigation Settlement
Offer -- Section 6. Material 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. Material 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 August 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
14
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
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, (iii) upon the occurrence of any of the conditions specified in "The
Litigation Settlement Offer -- Section 19. Conditions to the Offer" relating to
necessary governmental approvals 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). We will not assert any of the conditions to the offer (other
than those relating to necessary governmental approvals) subsequent to the
expiration of the offer. 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-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 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
15
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. MATERIAL FEDERAL INCOME TAX MATTERS
The following summary is a discussion of the material 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 partnership. This summary 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 are held by the limited partners for investment purposes
(commonly referred to as "capital assets"), and are not held by the limited
partners for sale to customers as dealer property under the Code. 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
16
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.
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
17
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 $203.23, 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 nevertheless be
deemed a payment for your release and assignment of claims. We intend to treat
the entire offer price as consideration paid to you for your units, regardless
of whether you requested exclusion from the settlement. 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 under
current law. No opinion or assurance can be given that the IRS will not
challenge the treatment of the $203.23 portion of the offer price as a separate
payment from the settlement fund or as a deemed payment for your release and
assignment of claims and not as additional consideration for the units, and
assert that, in either case, the $203.23 portion 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.
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.
Tax Consequences to Your Partnership of Our Offer. Section 708 of the Code
provides that if there is a sale or exchange of 50% or more of the total
interest in capital and profits of a partnership within any 12-month period,
such partnership terminates for United States federal income tax purposes. It is
possible that our acquisition of units pursuant to the offer alone or in
combination with other transfers of interests
18
in your partnership could result in such a termination of your partnership. If
your partnership is not deemed to terminate for tax purposes, there will be no
tax effect to your partnership. If your partnership is deemed to terminate for
tax purposes, however, the following federal income tax events will be deemed to
occur: the terminated partnership will be deemed to have contributed all of its
assets (subject to its liabilities) to a new partnership in exchange for an
interest in the new partnership and, immediately thereafter, the old partnership
will be deemed to have distributed interests in the new partnership to the
remaining limited partners in proportion to their respective interests in the
old partnership in liquidation of the old partnership.
A termination of your partnership for federal income tax purposes may also
subject the assets of your partnership to longer depreciable lives than those
currently applicable to the assets of your partnership. This would generally
decrease the annual average depreciation deductions following our offer, but
would have no effect on the total depreciation deductions available over the
useful lives of the assets of your partnership. Additionally, upon a termination
of your partnership, the taxable year of your partnership will close for federal
income tax purposes. Elections as to tax matters previously made by the old
partnership will not be applicable to the new partnership unless the new
partnership chooses to make the same elections.
Tax Consequences to Non-Tendering and Partially-Tendering Limited
Partners. As described above, if 50% or more of such interests are sold or
exchanged within a 12 month period, including as a result of our acquisition of
units, a deemed tax termination of your partnership will occur for tax purposes.
If less than 50% of the total interest in capital and profits of your
partnership are sold or exchanged within any 12 month period, there will be no
tax effect to you from the offer.
You will not recognize any gain or loss upon a deemed tax termination of
your partnership, and your capital account in your partnership will carry over
to the new partnership. A termination of your partnership for federal income tax
purposes may change (and possibly shorten) your holding period with respect to
interests in your partnership that you choose to retain. Gain recognized by you
on the disposition of retained units with a holding period of 12 months or less
may be classified as short-term capital gain and subject to taxation at ordinary
income tax rates.
A deemed tax termination will also decrease the annual depreciation
deductions (as a result of the longer partnership depreciation lives described
above) allocable to you (thereby possibly increasing the taxable income
allocable to your interests in the partnership each year).
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, together with
Cooper River Properties, L.L.C., Davidson Diversified Properties, Inc. and AIMCO
IPLP, L.P. (which are our affiliates), own 620.25 units, or 50.66%, 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.
If we acquire all of the units that we are seeking in the offer, our
interest in your partnership's net earnings ($(241,000) for the three months
ended March 31, 2004) and net book value ($(3,821,000) as of March 31, 2004)
will increase to 100%. AIMCO-GP owns a 1% interest in AIMCO Properties, L.P. and
AIMCO, through its subsidiaries, owns an 89% interest in AIMCO Properties.
19
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.
Effect on Trading Market; Registration Under Section 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 783 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. In
particular, you will continue to receive a Schedule K-1 each year as well as
audited financial statements with respect to your partnership. A Schedule K-1 is
an information statement that contains tax information for the fiscal year of
your partnership, such as your allocation of income, deductions, credits, gains
and losses of your partnership for federal income tax purposes. In comparison,
the periodic reports filed by your partnership under the Exchange Act contain
your partnership's annual and quarterly financial statements prepared in
accordance with generally accepted accounting principles. These periodic reports
filed under the Exchange Act also include information regarding your
partnership's business and property and a discussion regarding your
partnership's financial condition and results of operations. Additionally, your
partnership will not be required to provide current reports on Form 8-K,
describing certain material events. 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.
20
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. Except for Reflections Apartments,
we used the direct capitalization method to value your partnership's properties.
The direct capitalization 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
relied on the direct capitalization method because we believe this is the
valuation methodology most often used by the real estate industry to value
income producing property. The court appointed independent appraiser also
utilized the direct capitalization method as one of its valuation methodologies.
However, in comparison to our methodology, the independent appraiser relied on
pro forma net operating income as opposed to the current property income of your
partnership. Currently, multifamily net operating income has been in decline
making use of higher pro forma net operating income result in increased values
compared to use of current property income. Accordingly, we believe that it is
more appropriate to rely on current property income in our valuation
methodology. Reflections Apartments completed a major rehabilitation project
during the year ended December 31, 2003 and, as a result, a significant number
of units were unrentable during the rehabilitation. Accordingly, until the
property returns to historic occupancy levels, it would not be meaningful to
value the property using the direct capitalization method based on property
income during this period. For purposes of determining our offer price, we have
ascribed a value to this property equal to its outstanding indebtedness.
We determined your partnership's value as follows:
- First, we estimated the gross value of your partnership's properties. In
the case of Reflections Apartments, we valued the property equal to its
outstanding indebtedness. In the case of Big Walnut and Trails, we used
the direct capitalization method. We determined property income for
21
each of your partnership's properties for the twelve months ended March 31,
2004, 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
- -------- --------------- -------------- --------------
Big Walnut.................................. $584,247 8.5% $ 6,873,496
Reflections (Debt Value Only)............... N/A N/A 21,854,162
Trails...................................... 770,835 8.75% 8,809,538
-----------
Estimated Total Gross Property Value........ $37,537,196
===========
</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 99% 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......... $ 37,537,196
Plus: Cash and cash equivalents............................. 411,179
Plus: Other partnership assets (net of tenant security
deposits)................................................. 627,461
Less: Mortgage debt, including accrued interest............. (23,722,123)
Less: Loans owed to general partners and affiliates......... (8,358,576)
Less: Accounts payable and accrued expenses................. (95,293)
Less: Other liabilities..................................... (658,029)
Less: Distributions to general partners and special limited
partners.................................................. (4,350)
------------
Partnership valuation before taxes and certain costs........ $ 5,737,465
Less: Estimated state entity taxes and state nonresident
withholding............................................... (911,015)
------------
Estimated net equity value of your partnership.............. $ 4,826,449
Percentage of estimated net equity value allocable to
holders of units based on the partnership agreement....... 99%
------------
Estimated net equity value of units......................... $ 4,778,185
Total number of units..................................... 1,224.25
------------
Estimated net equity value per unit......................... $ 3,902.95
============
Plus: Payment from the settlement fund...................... $ 203.23
============
Cash consideration per unit................................. $ 4,106.18
============
</Table>
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
22
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............................................ $4,106.18
Alternatives
Highest prior cash tender offer price..................... $4,786.00(1)
Highest price on secondary market......................... $5,000.00
Estimated liquidation proceeds (based on appraised
value)................................................. $9,066.27
</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 8,
2002. We acquired 9.75 units in that offer at a price of $2,393.00 per unit. In
that case, we used the same valuation methodology that we have used for the
current offer.
2001. On March 12, 2001, we completed a tender offer commenced on February
9, 2001. We acquired 17.50 units in that offer at a price of $4,786.00 per unit.
In that case, we used the same valuation methodology that we have used for the
current offer.
2000. On September 28, 2000, we completed a tender offer commenced on July
24, 2000. We acquired 41.75 units in that offer at a price of $4,228.00 per
unit. In that case, we determined the offer price using the 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, 2004, 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, 2004 (through April 30): N/A N/A
Year Ended December 31, 2003: N/A N/A
Year Ended December 31, 2002: $5,000.00 $3,393.00
</Table>
Set forth in the table below are the high and low sales prices of units
during the years ended December 31, 2004, 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
23
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, 2004 (through May 31): N/A N/A
Year Ended December 31, 2003: N/A N/A
Year Ended December 31, 2002: N/A N/A
</Table>
ESTIMATED LIQUIDATION PROCEEDS BASED ON INDEPENDENT APPRAISAL
Selection and Qualifications of Independent Appraiser. Under the terms of
the settlement, your partnership's property was appraised by American Appraisal
Associates, Inc. ("AAA"), an independent appraiser appointed by the court. The
information set forth below was provided to us by AAA with respect to its
appraisals.
AAA is an experienced independent valuation consulting firm with more than
50 offices on four continents. AAA provides valuation and consulting services
for the real estate industry through its specialized industry focus and operates
through a team of professionals with different economical, financial,
statistical, legal, architectural, urban and engineering knowledge and
expertise.
Factors Considered. AAA performed complete appraisals of all of your
partnership's properties. AAA has 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. We furnished the appraiser with all of the necessary
information requested by AAA in connection with the appraisal. The information
furnished to the appraiser was true, correct and complete in all material
respects. No limitations were imposed on AAA by us or any of our affiliates. In
preparing its valuation of your partnership property, AAA:
- inspected and analyzed the exterior of all buildings and site
improvements and a representative sample of units;
- conducted neighborhood and area research, including major employers,
demographics (population trends, number of households, and income
trends), housing trends, surrounding uses, and general economic outlook
of the area;
- conducted market research of rental inventory, historical vacancy rates,
historical average rental rates, occupancy trends, concessions, and
marketing strategies in the submarket, and occupancy rates at competing
properties;
- reviewed leasing policy, concessions and history of recent occupancy;
- reviewed the historical operating statements for your partnership's
property and an operating budget forecast for 2003;
- prepared an estimate of stabilized income and expense (for capitalization
purposes);
- conducted market inquiries into recent sales of similar properties to
ascertain sales price per unit, effective gross income multipliers and
capitalization rates; and
- prepared sales comparison and income capitalization approaches to value.
24
AAA was provided by us with the following management budgets for your
partnership's property:
<Table>
<Caption>
BIG WALNUT TRAILS REFLECTIONS
---------------------- ---------------------- ----------------------
FISCAL YEAR 2003 FISCAL YEAR 2003 FISCAL YEAR 2003
MANAGEMENT BUDGET MANAGEMENT BUDGET MANAGEMENT BUDGET
---------------------- ---------------------- ----------------------
DESCRIPTION TOTAL PER UNIT TOTAL PER UNIT TOTAL PER UNIT
- ----------- ----------- -------- ----------- -------- ----------- --------
Revenues
Rental Income............... $1,791,420 $7,137 $1,775,764 $7,160 $4,051,853 $6,962
Vacancy..................... 74,000 295 84,000 339 2,291,284 3,937
Credit Loss/Concessions..... 41,650 166 14,540 59 173,052 297
Subtotal................. $ 115,650 $ 461 $ 98,540 $ 397 $2,464,337 $4,234
Laundry Income.............. $ 0 $ 0 $ 6,384 $ 26 $ 0 $ 0
Garage Revenue.............. 0 0 0 0 0 0
Other Misc. Revenue......... 131,863 525 132,080 533 120,442 207
Subtotal Other........... $ 131,863 $ 525 $ 138,464 $ 558 $ 120,442 $ 207
Income
Effective Gross Income........ $1,807,633 $7,202 $1,815,688 $7,321 $1,707,958 $2,935
Operating Expenses
Taxes....................... $ 153,096 $ 610 $ 131,650 $ 531 $ 270,113 $ 464
Insurance................... 55,680 222 42,753 172 86,051 148
Utilities................... 84,788 338 140,160 565 303,887 522
Repair & Maintenance........ 30,238 120 58,465 236 130,330 224
Cleaning.................... 57,990 231 0 0 99,794 171
Landscaping................. 0 0 48,636 196 76,274 131
Security.................... 0 0 0 0 28 0
Marketing & Leasing......... 29,328 117 16,240 65 92,182 158
General..................... 24,828 99 204,108 823 539,664 927
Administrative
Management.................. 90,882 362 90,059 363 86,304 148
Miscellaneous............... 241,157 961 0 0 (609,855) (1,048)
Total Operating Expenses...... $ 767,987 $3,060 $ 732,071 $2,952 $1,074,772 $1,847
Reserves.................... 0 0 0 0 0 0
Net Income.................... $1,039,646 $4,142 $1,083,617 $4,369 $ 633,186 $1,088
</Table>
THE ABOVE MANAGEMENT BUDGETS ARE INTERNALLY PREPARED OPERATING PROJECTIONS
FOR THE PARTNERSHIP'S PROPERTIES. A MANAGEMENT BUDGET DOES NOT REFLECT A
PROPERTY'S ACTUAL PERFORMANCE, OR CHANGES IN THE CONDITION OF A PROPERTY, IN THE
LOCAL AREA SURROUNDING A PROPERTY OR IN THE ECONOMY IN GENERAL.
Summary of Approaches and Methodologies Employed. The following summary
describes the material approaches and analyses employed by AAA in preparing the
appraisals. The partnership imposed no conditions or limitations on the scope of
AAA's investigation or the methods and procedures to be followed in preparing
the appraisal. AAA principally relied on two approaches to valuation: (1) the
sales comparison approach and (2) the income capitalization approach.
The sales comparison approach uses analysis techniques and sales of
comparable improved properties in surrounding or competing areas to derive units
of comparison that are then used to indicate a value for the subject property.
Under this approach, the primary methods of analysis used by the appraiser were:
(1) sales price per unit analysis; (2) net operating income analysis; and (3)
effective gross income analysis.
25
The purpose of the income capitalization approach is to value an
income-producing property by analyzing likely future income and expenses of the
property over a reasonable holding period. Under the income capitalization
approach, AAA performed: (1) a direct capitalization analysis and (2) a
discounted cash flow analysis to derive property value. The direct
capitalization 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 direct capitalization method is normally more appropriate for
properties with relatively stable operating histories and expectations. 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 discounted cash flow method is more appropriate for
the analysis of investment properties with multiple or long-term leases,
particularly leases with cancellation clauses or renewal options. It is
especially useful for multi-tenant properties in volatile markets.
AAA 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 property, the income
capitalization approach is the primary approach used for valuing income
producing property, such as your partnership's property.
Summary of independent appraisals of your partnership's property. AAA
performed complete appraisals of all of your partnership's properties. The
summary set forth below describes the material conclusions reached by AAA based
on the values determined under the valuation approaches and subject to the
assumptions and limitations described below. The estimated total "as is" market
value of the fee simple estate of your partnership's property is $44,900,000,
which was determined by adding the estimated values determined by AAA for each
of your partnership's properties and which is higher than our estimated total
gross valuation of $37,537,196.
BIG WALNUT
Valuation Under Sales Comparison Approach. AAA compared four apartment
complexes with Big Walnut that were sold between September 2001 and November
2002 and located in the property's real estate market area. Based on its
qualitative analysis, AAA rated the locations of all four comparable properties
as comparable to the location of Big Walnut. AAA rated the quality/appeal of all
four comparable properties as comparable to the quality/appeal of Big Walnut.
AAA rated the amenities of all four comparable properties as comparable to the
amenities of Big Walnut.
AAA made adjustments to the sales price per unit of each comparable
property to reflect differences from Big Walnut in location, number of units,
quality/appeal, age/condition, occupancy at sale, amenities and average unit
size. Based on the available data, AAA concluded a value range of $34,678 to
$43,142 per unit with a mean or average adjusted price of $38,737 per unit and a
median adjusted price of $38,565 per unit. Thus, the estimated value based on a
$39,000 sales price per unit for the 251 units was approximately $9,600,000
after adjustment for deferred maintenance and present value of concessions.
As part of the sales comparison approach, AAA also conducted a net
operating income ("NOI") analysis. NOI effectively takes into account the
various physical, location and operating aspects of the sale. AAA compared Big
Walnut's NOI to the NOI of the four comparable properties and arrived at a
percentage adjustment. After applying the percentage adjustment to the sales
price per unit of each comparable property, the range of value was between
$35,931 and $42,728 per unit, with an average of $38,010 per unit. The appraiser
concluded a value of $39,000 per unit for the 251 units of the property,
resulting in an estimated "as is" market value of $9,600,000 using the NOI
analysis after adjustment for deferred maintenance and present value of
concessions.
AAA also performed an effective gross income multiplier ("EGIM") analysis.
The EGIM measures the relationship between the sales price of a property and its
effective gross income, which is the total annual income that a property would
produce after an allowance for vacancy and credit loss. AAA estimated the
operating expense ratio ("OER") of Big Walnut to be 43.16% before reserves, with
the
26
expense ratios of the four comparable properties ranging from 39.93% to 42.66%,
resulting in EGIMs ranging from 5.39 to 6.37. Thus, AAA concluded an EGIM of
5.50 for Big Walnut, and applied the EGIM to the stabilized effective gross
income for the property (see Income Approach section below), resulting in a
value conclusion of approximately $9,800,000 after adjustment for deferred
maintenance and present value of concessions.
AAA estimated the value using the price per unit analysis at $9,600,000,
the value using the NOI analysis at $9,600,000 and the value using the EGIM
analysis at $9,800,000. Based on these three valuation methods, AAA concluded
that the reconciled value for Big Walnut under the sales comparison approach was
$9,700,000. AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the income
capitalization approach, AAA performed: (1) a direct capitalization analysis and
(2) a discounted cash flow analysis to derive a value for Big Walnut.
AAA first utilized a discounted cash flow method to analyze the value of
the property. Under this method, anticipated future cash flow and a reversionary
value are discounted at an appropriate rate of return to arrive at an estimate
of present value. AAA also employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate. AAA performed a market rent analysis for the
property to derive a projected rental income. The analysis included both a
review of the subject's current asking and actual rent rates as well as a
comparison with comparable apartment properties. AAA calculated Big Walnut's
effective gross income ("EGI") by adding apartment rental collections to other
income and then making an adjustment for vacancy and collection loss. Under this
analysis, AAA arrived at an EGI of $1,808,647. Once the EGI was established,
operating expenses were deducted from the EGI in order to arrive at an NOI for
Big Walnut of approximately $965,215. AAA performed a pro forma analysis of
revenue and expenses for the property to derive the subject's stabilized NOI.
AAA relied on the subject's historical and budgeted income and expenses for this
estimate. AAA derived appropriate investment criteria, including an overall
capitalization rate, terminal capitalization rate and a discount rate based upon
analysis of comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of Big Walnut under
the income approach included:
(1) stabilized vacancy and collection loss rate of 8%;
(2) replacement reserve of $250 per unit;
(3) overall capitalization rate of 10.00%;
(4) terminal capitalization rate of 10.50%;
(5) discount rate of 11.75%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was near or at a
stabilized condition. An adjustment was made for concessions due to soft market
conditions, and AAA estimated the present value of concessions to be $116,000.
An adjustment of $50,000 was made for deferred maintenance. Based on these
assumptions, AAA's estimate of cash flows for a 10-year period resulted in an
indicated value of $9,900,000 through the discounted cash flow method. The
reversion value contributed approximately 38% of the value.
Under the direct capitalization method, utilizing a capitalization rate of
10.00%, the projected NOI resulted in a value (after rounding) of $9,500,000
after adjustments for deferred maintenance and present value of concessions.
27
Using the income capitalization approach, AAA determined on an as-is basis
that the direct capitalization method and the discounted cash flow method
indicated the value for Big Walnut was $9,800,000.
Reconciliation of Values and Conclusions of Appraisal. The final step in
the appraisal process was to reconcile the sales comparison approach and the
income capitalization approach values to arrive at a final value conclusion. The
reconciliation of the two approaches involved weighing the valuation techniques
in relation to their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type, and the
purpose of the valuation. AAA concluded that the estimated market value under
the sales comparison approach was $9,700,000 and the estimated market value
under the income capitalization approach was $9,800,000. After reconciling the
various factors, AAA determined a final "as is" market value for Big Walnut of
$9,800,000 as of April 30, 2003.
TRAILS
Valuation Under Sales Comparison Approach. AAA compared five apartment
complexes with Trails that were sold between January 1999 and June 2002 and
located in the property's real estate market area. Based on its qualitative
analysis, AAA rated the locations of four comparable properties as comparable
and one comparable property as inferior to the location of Trails. AAA rated the
quality/appeal of three comparable properties as superior and two comparable
properties as inferior to the quality/appeal of Trails. AAA rated the amenities
of three comparable properties as comparable and two comparable properties as
inferior to the amenities of Trails.
AAA made adjustments to the sales price per unit of each comparable
property to reflect differences from Trails in location, number of units,
quality/appeal, age/condition, occupancy at sale, amenities and average unit
size. Based on the available data, AAA concluded a value range of $36,507 to
$41,236 per unit with a mean or average adjusted price of $38,564 per unit and a
median adjusted price of $38,804 per unit. Thus, the estimated value based on a
$38,500 sales price per unit for the 248 units was approximately $9,500,000.
AAA also performed an effective gross income multiplier ("EGIM") analysis.
The EGIM measures the relationship between the sales price of a property and its
effective gross income, which is the total annual income that a property would
produce after an allowance for vacancy and credit loss. AAA estimated the
operating expense ratio ("OER") of Trails to be 46.72% before reserves, with the
expense ratios of the five comparable properties ranging from 40.79% to 54.52%,
resulting in EGIMs ranging from 4.64 to 6.66. Thus, AAA concluded an EGIM of
5.40 for Trails, and applied the EGIM to the stabilized effective gross income
for the property (see Income Approach section below), resulting in a value
conclusion of approximately $9,500,000.
AAA estimated the value using the price per unit analysis at $9,500,000,
the value using the NOI analysis at $9,400,000 and the value using the EGIM
analysis at $9,500,000. Based on these three valuation methods, AAA concluded
that the reconciled value for Trails under the sales comparison approach was
$9,500,000. AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the income
capitalization approach, AAA performed: (1) a direct capitalization analysis and
(2) a discounted cash flow analysis to derive a value for Trails.
AAA first utilized a discounted cash flow method to analyze the value of
the property. Under this method, anticipated future cash flow and a reversionary
value are discounted at an appropriate rate of return to arrive at an estimate
of present value. AAA also employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate. AAA performed a market rent analysis for the
property to derive a projected rental income. The analysis included both a
review of the subject's current asking and actual rent rates as well as a
comparison with comparable apartment properties. AAA calculated Trails'
effective gross income ("EGI") by adding apartment rental collections to other
income and then making an adjustment for vacancy and collection
28
loss. Under this analysis, AAA arrived at an EGI of $1,759,362. Once the EGI was
established, operating expenses were deducted from the EGI in order to arrive at
an NOI for Trails of approximately $875,314. AAA performed a pro forma analysis
of revenue and expenses for the property to derive the subject's stabilized NOI.
AAA relied on the subject's historical and budgeted income and expenses for this
estimate. AAA derived appropriate investment criteria, including an overall
capitalization rate, terminal capitalization rate and a discount rate based upon
analysis of comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of Trails under the
income approach included:
(1) stabilized vacancy and collection loss rate of 7%;
(2) replacement reserve of $250 per unit;
(3) overall capitalization rate of 9.50%;
(4) terminal capitalization rate of 10.50%;
(5) discount rate of 12.00%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
No adjustment was made for lease-up costs because the property was near or at a
stabilized condition. No adjustment was made for concessions. Based on these
assumptions, AAA's estimate of cash flows for a 10-year period resulted in an
indicated value of $9,400,000 through the discounted cash flow method. The
reversion value contributed approximately 38% of the value.
Under the direct capitalization method, utilizing a capitalization rate of
9.50%, the projected NOI resulted in a value (after rounding) of $9,200,000.
Using the income capitalization approach, AAA determined on an as-is basis
that the direct capitalization method and the discounted cash flow method
indicated the value for Trails was $9,400,000.
Reconciliation of Values and Conclusions of Appraisal. The final step in
the appraisal process was to reconcile the sales comparison approach and the
income capitalization approach values to arrive at a final value conclusion. The
reconciliation of the two approaches involved weighing the valuation techniques
in relation to their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type, and the
purpose of the valuation. AAA concluded that the estimated market value under
the sales comparison approach was $9,500,000 and the estimated market value
under the income capitalization approach was $9,400,000. After reconciling the
various factors, AAA determined a final "as is" market value for Trails of
$9,400,000 as of May 5, 2003.
REFLECTIONS
Valuation Under Sales Comparison Approach. AAA compared five apartment
complexes with Reflections that were sold between December 2000 and September
2002 and located in the property's real estate market area. Based on its
qualitative analysis, AAA rated the locations of all five comparable properties
as comparable to the location of Reflections. AAA rated the quality/appeal of
all five comparable properties as inferior to the quality/appeal of Reflections.
AAA rated the amenities of four comparable properties as comparable and one
comparable property as inferior to the amenities of Reflections.
AAA made adjustments to the sales price per unit of each comparable
property to reflect differences from Reflections in location, number of units,
quality/appeal, age/condition, occupancy at sale, amenities and average unit
size. Based on the available data, AAA concluded a value range of $41,122 to
$48,678 per unit with a mean or average adjusted price of $45,849 per unit and a
median adjusted price of
29
$48,350 per unit. Thus, the estimated value based on a $47,000 sales price per
unit for the 582 units was approximately $26,500,000 after adjustment for
lease-up costs and present value of concessions.
As part of the sales comparison approach, AAA also conducted a net
operating income ("NOI") analysis. NOI effectively takes into account the
various physical, location and operating aspects of the sale. AAA compared
Reflections' NOI to the NOI of the five comparable properties and arrived at a
percentage adjustment. After applying the percentage adjustment to the sales
price per unit of each comparable property, the range of value was between
$41,035 and $54,374 per unit, with an average of $47,295 per unit. The appraiser
concluded a value of $46,000 per unit for the 582 units of the property,
resulting in an estimated "as is" market value of $26,000,000 using the NOI
analysis after adjustment for lease up costs and present value of concessions.
AAA also performed an effective gross income multiplier ("EGIM") analysis.
The EGIM measures the relationship between the sales price of a property and its
effective gross income, which is the total annual income that a property would
produce after an allowance for vacancy and credit loss. AAA estimated the
operating expense ratio ("OER") of Reflections to be 45.93% before reserves,
with the five comparable properties indicating an expense ratio of 55.00%,
resulting in EGIMs ranging from 5.31 to 7.04. Thus, AAA concluded an EGIM of
6.25 for Reflections, and applied the EGIM to the stabilized effective gross
income for the property (see Income Approach section below), resulting in a
value conclusion of approximately $23,600,000 after adjustment for lease-up
costs and present value of concessions.
AAA estimated the value using the price per unit analysis at $26,500,000,
the value using the NOI analysis at $26,000,000 and the value using the EGIM
analysis at $23,600,000. Based on these three valuation methods, AAA concluded
that the reconciled value for Reflections under the sales comparison approach
was $25,800,000. AAA assumed a marketing and exposure period of 6 to 12 months.
Valuation Under Income Capitalization Approach. Under the income
capitalization approach, AAA performed: (1) a direct capitalization analysis and
(2) a discounted cash flow analysis to derive a value for Reflections.
AAA first utilized a discounted cash flow method to analyze the value of
the property. Under this method, anticipated future cash flow and a reversionary
value are discounted at an appropriate rate of return to arrive at an estimate
of present value. AAA also employed a direct capitalization analysis on the
property by dividing a forecast of net operating income ("NOI") by an
appropriate capitalization rate. AAA performed a market rent analysis for the
property to derive a projected rental income. The analysis included both a
review of the subject's current asking and actual rent rates as well as a
comparison with comparable apartment properties. AAA calculated Reflections'
effective gross income ("EGI") by adding apartment rental collections to other
income and then making an adjustment for vacancy and collection loss. Under this
analysis, AAA arrived at an EGI of $3,904,798. Once the EGI was established,
operating expenses were deducted from the EGI in order to arrive at an NOI for
Reflections of approximately $2,023,963. AAA performed a pro forma analysis of
revenue and expenses for the property to derive the subject's stabilized NOI.
AAA relied on the subject's historical and budgeted income and expenses for this
estimate. AAA derived appropriate investment criteria, including an overall
capitalization rate, terminal capitalization rate and a discount rate based upon
analysis of comparable sales and a survey of real estate investors.
The assumptions employed by AAA to determine the value of Reflections under
the income approach included:
(1) stabilized vacancy and collection loss rate of 7%;
(2) replacement reserve of $150 per unit;
(3) overall capitalization rate of 7.75%;
(4) terminal capitalization rate of 8.25%;
30
(5) discount rate of 10.50%;
(6) 2.00% cost of sale at reversion; and
(7) holding period of 10 years.
An adjustment was made for lease-up costs because Reflections' occupancy level
was below a stabilized occupancy projection. Thus, AAA assumed an 18-month lease
up period. An adjustment was made for concessions due to soft market conditions,
and AAA estimated the present value of concessions to be $57,000. Based on these
assumptions, AAA's estimate of cash flows for a 10-year period resulted in an
indicated value of $25,600,000 through the discounted cash flow method. The
reversion value contributed approximately 47% of the value.
Under the direct capitalization method, utilizing a capitalization rate of
7.75%, the projected NOI resulted in a value (after rounding) of $25,300,000
after adjustments for lease-up costs and present value of concessions.
Using the income capitalization approach, AAA determined on an as-is basis
that the direct capitalization method and the discounted cash flow method
indicated the value for Reflections was $25,600,000.
Reconciliation of Values and Conclusions of Appraisal. The final step in
the appraisal process was to reconcile the sales comparison approach and the
income capitalization approach values to arrive at a final value conclusion. The
reconciliation of the two approaches involved weighing the valuation techniques
in relation to their substantiation by market and other sources of data, the
relativity and applicability of the approaches to the property type, and the
purpose of the valuation. AAA concluded that the estimated market value under
the sales comparison approach was $25,800,000 and the estimated market value
under the income capitalization approach was $25,600,000. After reconciling the
various factors, AAA determined a final "as is" market value for Reflections of
$25,700,000 as of May 7, 2003.
Assumptions, Limitations and Qualifications of AAA's Valuation. In
preparing the appraisal, AAA relied, without independent verification, on the
accuracy and completeness of all information supplied or otherwise made
available to it by or on behalf of the partnership. In arriving at the
appraisal, AAA assumed:
- good and marketable title to the property;
- validity of owner's claim to the property;
- no encumbrances which could not be cleared through normal processes,
unless otherwise stated;
- accuracy of land areas and descriptions obtained from public records;
- no subsurface mineral and use rights or conditions;
- no substances such as asbestos, urea-formaldehyde foam insulation, other
chemicals, toxic wastes, or other potentially hazardous materials in
existence or present on or in the property;
- full compliance with applicable federal, state and local environmental
regulations and laws, unless otherwise stated, defined and considered;
- possession of all required licenses, consents, or other legislative or
administrative authority from any local, state, or national government or
private entity organization and that the renewal of these items is
possible;
- compliance with all applicable zoning and use regulations and
restrictions, unless a nonconformity has been stated, defined, and
considered;
- utilization of the land and improvements within property boundaries and
no encroachment or trespass of the improvements, unless otherwise stated;
31
- the structural integrity of the property including its conformity to
specific governmental code requirements, such as fire, building and
safety, earthquake, and occupancy, or any physical defects not readily
apparent during inspection; and
- compliance with the Americans with Disabilities Act of 1992.
Compensation of Appraiser. AAA was appointed by the court to perform all
the real estate appraisals in connection with the settlement and this Litigation
Settlement Offer. AAA was paid a fee of $619,100 for the appraisals. We have
agreed to pay 50% of the costs of the appraisals, with the other 50% to be paid
from the settlement fund. AAA has conducted other appraisals of property in
connection with the other offers being made pursuant to the settlement
agreement. Other than the appraisals performed in connection with the settlement
agreement, during the prior two years, no material relationship has existed
between AAA and your partnership or any of its affiliates, including the AIMCO
Entities.
Availability of Appraisal Reports. You may obtain a full copy of AAA's
appraisals upon request, without charge, by contacting the Information Agent at
one of the addresses or the telephone number on the back cover of this
Litigation Settlement Offer. Copies of the appraisal for the property are also
available for inspection and copying at the principal executive offices of the
partnership during regular business hours by any interested unitholder or his or
her designated representative at his or her cost. In addition, a copy of the
appraisals has been filed with the SEC as an exhibit to the Tender Offer
Statement and Rule 13e-3 Transaction Statement on Schedule TO.
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 $9,066.27, which is higher than our offer
price of $4,106.18.
<Table>
Appraised value of partnership properties................... $ 44,900,000
Plus: Cash and cash equivalents............................. 411,179
Plus: Other partnership assets (net of tenant security
deposits)................................................. 627,461
Less: Mortgage debt, including accrued interest............. (24,422,123)
Less: Loans owed to general partner and affiliates.......... (8,358,576)
Less: Accounts payable and accrued expenses................. (95,293)
Less: Other liabilities..................................... (658,029)
Less: Distributions to general partner and special limited
partners.................................................. (11,160)
------------
Partnership valuation before taxes and certain costs........ $ 12,393,459
Less: Estimated state entity taxes and state nonresident
withholding............................................... (1,181,961)
------------
Estimated net liquidation proceeds of your partnership...... $ 11,211,498
Percentage of estimated net liquidation proceeds allocable
to holders of units based on the partnership agreement.... 99%
------------
Estimated net liquidation proceeds of units................. $ 11,099,383
Total number of units..................................... 1,224.25
------------
Estimated net liquidation proceeds per unit................. $ 9,066,27
============
</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.
32
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, 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
33
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 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. The parties initially met with Judge Cahill on two occasions in
the fall of 2000, but were ultimately unsuccessful in reaching a definitive
settlement agreement. At the Court's direction, they renewed formal settlement
discussions before Judge Kemp. The parties first attended a settlement
conference before Judge Kemp in September or October 2002 and then subsequently
met with her on October 28, 2002, November 26, 2002 and December 2, 2002. The
parties reached final agreement on the material terms of the settlement at the
last settlement conference with Judge Kemp on December 2, 2002 and put the terms
of that agreement on the record in open court.
34
In each of the conferences described above, counsel from Lieff Cabraser
Heimann & Bernstein LLP, Farella Braun & Martel LLP & Berman Devalerio Pease &
Tobacco attended on behalf of the named plaintiffs and the putative settlement
class; counsel from Skadden Arps Slate Meagher & Flom LLP attended on behalf of
AIMCO and its affiliated entities, including your general partner, and Orrick
Herrington & Sutcliffe attended on behalf of the remaining defendants. Former
AIMCO Executive Vice President Patrick Foye also attended each of these
meetings. Mr. Vincent Gresham of the Law Offices of Vincent Gresham also
participated on behalf of plaintiffs and the putative settlement class in those
settlement discussions before the Hon. Cahill, Retired. At these meetings,
discussions included possible transactions that could provide liquidity to
investors and form the basis of a settlement, the use of a settlement fund and
the amount of such fund, the timing and distribution of any settlement fund,
selection and use of an appraiser and disclosures that would accompany any
contemplated transaction(s). The participants considered but ultimately rejected
a merger or roll-up of the various partnerships as possible alternatives to cash
tender offers. The parties ultimately concluded, however, that a merger or
roll-up could be potentially complicated and time consuming and that a cash
tender offer would be a less coercive form of providing liquidity to those
investors who desired it.
The Settlement Agreement requires each tender offer to attach executive
summaries of partnership property appraisals commissioned specifically for the
settlement tender offers and to provide an explanation of how the appraised
values of the properties compare to the per Unit price(s) being offered. It also
requires the payment of an allocable portion of the settlement fund for each
unit tendered pursuant to the settlement fund, details the scope of the release
and covenants not to sue which will bind class members, requires that tender
offers be made no more than one year after final approval of the settlement and
imposes certain restrictions on the length of time in which the tender offers
can remain open, as well as with regard to other disclosures made therein. 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. On November 24, 2003, the objector appealing the settlement
and judgment entered thereto filed an application requesting the Court order
AIMCO to withdraw the settlement tender offers, refrain from making further
offers pending the appeal and auction any units tendered to third parties. The
objector contends that this offer does not conform with the terms of the
Settlement. Alternatively, counsel for the objector has requested the Court on
behalf of a settlement class member order AIMCO to pay all non-tendering
settlement class members their pro rata share of the Settlement Fund whether or
not the settlement and judgment entered thereto is vacated on appeal and to
notify settlement class members that the releases and covenant not to sue are
not binding unless the settlement and judgment entered thereto is affirmed on
appeal. On December 18, 2003, the Court heard oral argument on the applications
brought on behalf of the objector and denied them in their entirety.
On February 3, 2004, the objector filed his brief in support of his appeal
from the underlying judgment. On March 18, 2004, class plaintiffs filed a
respondent's brief in support of the judgment. AIMCO is currently scheduled to
file a respondent's brief no later than April 23, 2004. The objector has twenty
days from filing of the respondent's briefs to file replies, if any. On February
23, 2004, appeals were also taken from the Court's December 2003 orders denying
injunctive relief in connection with the settlement offers.
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
35
the extent if 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.
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%
</Table>
36
<Table>
<Caption>
(C)
OWNERSHIP ALLOCATED
PERCENTAGE OF (D) PORTION OF
(A) (B) SETTLEMENT ADJUSTED SETTLEMENT
PARTNERSHIP REVENUE(1) CLASS(2) REVENUE(3) FUND(4)
- ----------- ------------ ------------- -------------- ----------
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%
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
37
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 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 March 31, 2004, we owned or managed 283,030 apartment units
in 1,605 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 March 31, 2004,
we:
- owned or controlled (consolidated) 174,793 units in 698 apartment
properties;
- held an equity interest in (unconsolidated) 58,569 units in 406 apartment
properties; and
- provided services or managed, for third party owner, 49,668 units in 501
apartment properties, primarily pursuant to long term, non-cancelable
agreements (including 39,164 units in 411 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.
38
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
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. 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 Report on Form 10-K for the year ended December
31, 2003, Quarterly Report on Form 10-Q for the quarter ended March 31, 2004 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
selected historical financial data set forth below for AIMCO Properties for the
three months ended March 31, 2004 and 2003 is based on our unaudited financial
statements. The historical financial data set forth below for AIMCO Properties,
L.P. for the years ended December 31, 2003, 2002 and 2001 is based on our
audited financial statements. This information should be read in conjunction
with such financial statements, including the notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included in AIMCO Properties' Annual Report on Form 10-K for the year ended
December 31, 2003 and in our Quarterly Report on Form 10-Q for the quarter ended
March 31, 2004.
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
2003 2002(1) 2001(1)
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING DATA:
Total revenues........................................... $1,516,283 $1,387,831 $1,273,037
Total expenses........................................... 1,059,350 889,372 878,734
Operating income......................................... 456,933 498,459 394,303
Income from continuing operations........................ 78,490 186,924 107,117
Income from discontinued operations, net................. 99,378 19,278 13,947
Net income............................................... 177,868 206,202 121,064
</Table>
39
<Table>
<Caption>
FOR THE YEAR ENDED DECEMBER 31,
---------------------------------------------
2003 2002(1) 2001(1)
------------- ------------- -------------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
PER SHARE DATA:
Earnings (loss) per common unit -- basic:
Income (loss) from continuing operations (net of
preferred distributions)............................ $ (0.24) $ 0.81 $ 0.80
Net income attributable to common unitholders.......... 0.71 1.00 0.25
Earnings (loss) per common unit -- diluted:
Income (loss) from continuing operations (net of
preferred distributions)............................ (0.24) 0.80 0.08
Net income attributable to common unitholders.......... 0.71 0.99 0.25
Dividends declared per common unit....................... 2.84 3.28 3.16
BALANCE SHEET DATA (END OF PERIOD):
Real estate, net of accumulated depreciation............. 8,753,771 8,615,287 6,330,521
Total assets............................................. 10,124,617 10,355,329 8,200,526
Total indebtedness....................................... 6,197,907 6,021,990 4,420,399
Unitholders' equity...................................... 3,174,815 3,576,083 3,080,071
CASH FLOW DATA:
Cash provided by operating activities.................... 430,258 496,670 491,846
Cash provided by (used in) investing activities.......... 313,164 (873,832) (140,638)
Cash provided by (used in) financing activities.......... (728,543) 398,637 (430,245)
OTHER DATA:
Funds from operations available to common unitholders --
diluted(2)............................................. 349,108 498,589 528,655
Weighted average number of common units, common unit
equivalents and dilutive preferred securities
outstanding............................................ 108,151 109,538 102,147
</Table>
- ---------------
(1) Certain reclassifications have been made to the 2002 and 2001 amounts to
conform to the 2003 presentation. These reclassifications primarily
represent presentation changes related to discontinued operations resulting
from the 2002 adoption of Statement of Financial Accounting Standards No.
144.
(2) Funds From Operations, or FFO, is a financial measure not calculated in
accordance with generally accepted accounting principles, or GAAP, that we
believe, when considered with the financial data determined in accordance
with GAAP, is helpful to investors in understanding our performance because
it captures features particular to real estate performance by recognizing
that real estate generally appreciates over time or maintains residual value
to a much greater extent than do other depreciable assets such as machinery,
computers or other personal property. The Board of Governors of the National
Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net
income (loss), computed in accordance with GAAP, excluding gains and losses
from extraordinary items, gains on dispositions of depreciable real estate,
gains on dispositions of real estate from discontinued operations, net of
related income taxes, plus real estate related depreciation and amortization
(excluding amortization of financing costs), including depreciation for
unconsolidated real estate partnerships, joint ventures and discontinued
operations. We calculate FFO based on the NAREIT definition, as further
adjusted for amortization of intangibles and deficit distributions to
minority partners. We calculate FFO (diluted) by subtracting redemption
related preferred OP unit issuance costs and dividends on preferred OP
units, adding back dividends/distributions on dilutive preferred securities
and adding back the interest expense on dilutive mandatorily redeemable
convertible preferred securities. FFO should not be considered an
alternative to net income or net cash flows from operating activities, as
calculated in accordance with GAAP, as an indication of our performance or
as a measure of liquidity. FFO is not necessarily indicative of cash
available to fund
40
future cash needs. In addition, although FFO is a measure used for
comparability in assessing the performance of real estate investment trusts,
there can be no assurance that our basis for computing FFO is comparable
with that of other real estate investment trusts.
For the years ended December 31, 2003, 2002 and 2001, our FFO is calculated
as follows:
<Table>
<Caption>
2003 2002 2001
--------- --------- ---------
(IN THOUSANDS)
NET INCOME ATTRIBUTABLE TO UNITHOLDERS(A)......... $ 74,242 $ 98,556 $ 20,930
Adjustments:
Depreciation on rental property, net of minority
partners' interest(B)........................ 298,255 241,325 295,113
Depreciation on rental property related to
unconsolidated entities...................... 25,817 33,549 57,506
(Gain) loss on dispositions of real estate...... (3,178) 22,362 (18,848)
Deficit distributions to minority partners...... 22,672 26,979 46,359
Amortization of intangibles..................... 6,702 4,026 18,729
Income tax arising from disposals............... -- -- 3,202
Gain on disposition of land..................... -- -- 3,843
Discontinued operations:........................
Depreciation on rental property, net of
minority partners' interest................ 14,906 29,192 34,552
(Gain) loss on dispositions of real estate,
net of minority partners' interest......... (101,849) (4,374) --
Deficit distributions to minority partners... (10,718) 1,401 1,342
Income tax arising from disposals............ 12,134 2,507 --
Preferred OP Unit distributions................... 95,981 107,646 100,134
Redemption related preferred OP Unit costs........ 7,645 -- --
--------- --------- ---------
FUNDS FROM OPERATIONS:............................ $ 442,609 $ 563,169 $ 562,832
Preferred OP Unit distributions................... (95,981) (107,646) (100,134)
Redemption related preferred OP Unit issuance
costs........................................... (7,645) -- --
Distributions on dilutive preferred securities.... 9,138 41,905 64,389
Interest expense on mandatorily redeemable
convertible preferred securities................ 987 1,161 1,568
--------- --------- ---------
Funds from Operations attributable to common
unitholders -- diluted.......................... $ 349,108 $ 498,589 $ 528,655
========= ========= =========
WEIGHTED AVERAGE NUMBER OF COMMON UNITS, COMMON
UNIT EQUIVALENTS AND DILUTIVE PREFERRED
SECURITIES OUTSTANDING:
Common unit and equivalents(C).................. 104,861 99,168 84,960
Dilutive preferred securities................... 3,290 10,370 17,187
--------- --------- ---------
Total...................................... 108,151 109,538 102,147
========= ========= =========
</Table>
- ---------------
(A) Represents our numerator for earnings per common share calculated in
accordance with GAAP.
(B) "Minority partners' interest," as referenced on this line item and others
in this presentation means minority interest in AIMCO's consolidated real
estate partnerships.
(C) Represents our denominator for earnings per common share -- diluted,
calculated in accordance with GAAP.
41
Beginning with the first quarter of 2004, AIMCO Properties modified the
presentation of its consolidated statements of income. The presentation of the
income statements for the first quarter of 2003 has also been modified to
conform with this new format. These presentation changes do not affect the
accounting treatment of amounts reported, only their classification within the
income statement.
<Table>
<Caption>
FOR THE THREE MONTHS ENDED
MARCH 31,
---------------------------
2004 2003
------------ ------------
(DOLLARS IN THOUSANDS,
EXCEPT PER UNIT DATA)
(UNAUDITED)
OPERATING DATA:
Total revenues.............................................. $ 376,426 $ 366,425
Total expenses.............................................. 278,767 247,815
Operating income............................................ 97,659 118,610
Income from continuing operations........................... 6,184 25,737
Income from discontinued operations, net.................... 13,426 (606)
Net income.................................................. 15,653 25,131
PER SHARE DATA:
Earnings (loss) per common unit -- basic:
Income (loss) from continuing operations (net of preferred
distributions)......................................... $ (0.15) $ 0
Net income attributable to common unitholders............. (0.06) 0
Earnings (loss) per common unit -- diluted:
Income (loss) from continuing operations (net of preferred
distributions)......................................... (0.15) 0
Net income attributable to common unitholders............. (0.06) 0
Distributions declared per common unit...................... 0.60 0.82
BALANCE SHEET DATA (END OF PERIOD):
Real estate, net of accumulated depreciation................ 8,955,902 9,020,991
Total assets................................................ 10,354,820 10,409,464
Total indebtedness.......................................... 6,279,957 6,280,784
Unitholders' equity......................................... 3,289,720 3,494,799
CASH FLOW DATA:
Cash provided by operating activities....................... 41,582 122,707
Cash provided by (used in) investing activities............. (77,828) 19,605
Cash provided by (used in) financing activities............. 14,986 (134,948)
OTHER DATA:
Funds from operations available to common
unitholders -- diluted(1)................................. 70,626 92,436
Weighted average number of common units, common unit
equivalents and dilutive preferred securities
outstanding............................................... 106,164 109,481
</Table>
- ---------------
(1) Funds From Operations, or FFO, is a financial measure not calculated in
accordance with generally accepted accounting principles, or GAAP, that we
believe, when considered with the financial data determined in accordance
with GAAP, is helpful to investors in understanding our performance because
it captures features particular to real estate performance by recognizing
that real estate generally appreciates over time or maintains residual value
to a much greater extent than do other depreciable assets such as machinery,
computers or other personal property. The Board of Governors of the National
Association of Real Estate Investment Trusts, or NAREIT, defines FFO as net
income (loss), computed in accordance with GAAP, excluding gains and losses
from extraordinary items, gains on dispositions of depreciable real estate,
gains on dispositions of real estate from discontinued operations, net of
related income taxes, plus real estate related depreciation and amortization
(excluding amortization of financing costs), including depreciation for
unconsolidated real estate partnerships, joint ventures and discontinued
operations. We calculate FFO based on the
42
NAREIT definition, as further adjusted for amortization of intangibles and
deficit distributions to minority partners. We calculate FFO (diluted) by
subtracting redemption related preferred OP unit issuance costs and
dividends on preferred OP units, adding back dividends/distributions on
dilutive preferred securities and adding back the interest expense on
dilutive mandatorily redeemable convertible preferred securities. FFO should
not be considered an alternative to net income or net cash flows from
operating activities, as calculated in accordance with GAAP, as an
indication of our performance or as a measure of liquidity. FFO is not
necessarily indicative of cash available to fund future cash needs. In
addition, although FFO is a measure used for comparability in assessing the
performance of real estate investment trusts, there can be no assurance that
our basis for computing FFO is comparable with that of other real estate
investment trusts.
For the three months ended March 31, 2004 and 2003, our FFO is calculated
as follows:
<Table>
<Caption>
THREE MONTHS ENDED
MARCH 31,
--------------------
2004 2003
-------- ---------
(IN THOUSANDS)
NET LOSS ATTRIBUTABLE TO COMMON UNITHOLDERS(A).............. $ (6,444) $ (193)
Adjustments:
Depreciation and amortization............................. 90,870 85,467
Depreciation and amortization related to non-real estate
assets................................................. (4,920) (5,286)
Depreciation of rental property related to minority
partners' interest(B).................................. (10,788) (7,273)
Depreciation of rental property related to unconsolidated
entities............................................... 6,070 6,503
Loss on dispositions of real estate related to
unconsolidated entities................................ 17 79
Deficit distributions to minority partners................ 4,438 5,468
Cumulative effect of change in accounting principle....... 3,957 --
Discontinued operations:
Depreciation of rental property, net of minority
partners' interest(B)................................. 512 6,632
Gain on dispositions of real estate, net of minority
partners' interest(B)................................. (11,360) (3,488)
Recovery of deficit distributions to minority
partners.............................................. (3,313) (225)
Income tax arising from disposals...................... 697 1,328
Preferred OP Unit distributions............................. 22,097 25,324
-------- ---------
FUNDS FROM OPERATIONS....................................... $ 91,833 $ 114,336
Preferred OP Unit distributions............................. (22,097) (25,324)
Distributions on dilutive preferred securities.............. 890 3,177
Interest expense on mandatorily redeemable convertible
preferred securities...................................... -- 247
-------- ---------
FUNDS FROM OPERATIONS ATTRIBUTABLE TO COMMON
UNITHOLDERS -- DILUTED.................................... $ 70,626 $ 92,436
======== =========
WEIGHTED AVERAGE NUMBER OF COMMON OP UNITS, COMMON OP UNIT
EQUIVALENTS AND DILUTIVE PREFERRED SECURITIES OUTSTANDING:
Common OP Units and equivalents(C)........................ 104,391 104,809
Dilutive preferred securities............................. 1,773 4,672
-------- ---------
Total.................................................. 106,164 109,481
======== =========
Cash flow provided by operating activities.................. $ 41,582 $ 122,707
Cash flow (used in) provided by investing activities........ (77,828) 19,605
Cash flow provided by (used in) financing activities........ 14,986 (134,948)
</Table>
- ---------------
(A) Represents our numerator for earnings per common unit calculated in
accordance with GAAP
43
(B) "Minority partners' interest," as referenced on this line item and others in
this presentation means minority interest in our consolidated real estate
partnerships
(C) Represents our denominator for earnings per common unit -- diluted
calculated in accordance with GAAP
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 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 with respect to your
particular circumstances 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 $9,066.27 per unit. See
"The Litigation Settlement Offer -- Section 8. Valuation of Units." However, a
liquidating sale of all of your partnership's property would be a taxable event
for all partners, including your general partner. Furthermore, all partners,
including those who wish to retain their units, and your general partner would
be forced to participate in the liquidation. Lastly, although the future
operating results of your partnership and future sales prices of the property
owned by your partnership are uncertain, the operating performance of your
partnership's property may improve in the future, which, in turn, may result in
higher property values, making a sale of your partnership's properties a more
attractive option in the future. Such values are also a function of
capitalization rates in the market and the interest
44
rate environment at the time. However, because your general partner and property
manager (which are our affiliates) receive fees for managing your partnership
and its property, a conflict of interest exists between continuing the
partnership and receiving such fees, on the one hand, and the liquidation of the
partnership and the termination of such fees, on the other. See "The Litigation
Settlement Offer -- Section 15. Certain Information Concerning Your
Partnership -- Investment Objectives and Policies; Sale or Financing of
Investments" and "-- Section 13. Conflicts of Interest and Transactions with
Affiliates." The term of the partnership will continue until December 31, 2008,
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.
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 when
we have offered limited partners an opportunity to receive cash or limited
partnership interests in AIMCO Properties, L.P., the limited partners who tender
usually prefer the cash option.
45
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:
Factors in Favor of Fairness Determination. The general partner of your
partnership believes the offer price and the structure of the transaction are
fair to the unaffiliated limited partners whether or not they tender units in
the offer. In support of such determination, the general partner considered the
factors and information set forth below, but did not quantify or otherwise
attach particular weight to any such factors or information:
The general partner considered the following factors in support of the
fairness of the offer to unaffiliated limited partners who do not tender units
in the offer:
- the Court's approval of the settlement pursuant to which the offer is
being made;
- the fact that the interests of the unaffiliated limited partners were
represented by counsel in the negotiation of the settlement agreement;
- the fact that the offer does not require the approval of a majority of
unaffiliated limited partners and, as a result, each limited partner has
an opportunity to make an individual decision on whether to tender his or
her units (and how many to tender) or to continue to hold them;
- the fact that no unaffiliated limited partners would be able to
participate in the future performance of the partnership or its
properties following an alternative transaction such as a property sale
or a liquidation of the partnership.
The general partner considered following factors in support of the fairness
of the offer to unaffiliated limited partners who tender units in the offer:
- the Court's approval of the settlement pursuant to which the offer is
being made;
- the fact that the interests of the unaffiliated limited partners were
represented by counsel in the negotiation of the settlement agreement;
- the fact that the offer does not require the approval of a majority of
unaffiliated limited partners and, as a result, each limited partner has
an opportunity to make an individual decision on whether to tender his or
her units (and how many to tender) or to continue to hold them;
- the method we used to determine our offer price is a method commonly
relied upon by investors to value income producing property;
- there is no established trading market for the limited partnership units,
and the offer would provide immediate liquidity for tendering limited
partners;
- the offer price exceeds the book value per unit of $(2,962.63) at March
31, 2004;
- the uncertainty of the resulting proceeds from the possible alternative
transactions, particularly a property sale or a liquidation of the
partnership,
- the fact that our offer price does not reflect any discount for minority
interests; and
- the absence of any other firm offers by third parties for all or
substantially all of the partnership's assets, a merger or other
extraordinary transaction during the past two years with which to compare
the Litigation Settlement Offer.
Factors Not in Favor of Fairness Determination. In addition to the
foregoing factors, the general partner considered the following countervailing
factors:
- the recent valuation of your partnership's property by American Appraisal
Associates, Inc., an independent appraiser appointed by the Court, which
results in an estimate of net liquidation proceeds per unit of $9,066.27,
which is higher than our offer price of $4,106.18;
46
- the fact that an unaffiliated representative was not retained to act
solely on behalf of unaffiliated limited partners for purposes of
negotiating the terms of the offer;
- the fact that the general partner's board of directors is comprised
solely of an employee of AIMCO Properties, L.P., and, as a result, the
terms of the offer were not approved by a majority of independent
directors;
- the fact that offer prices in our prior tender offers were higher than
our current offer price; and
- prices at which the units have recently sold were higher than our current
offer price.
The general partner does not believe that going concern value of your
partnership is relevant to the fairness of the offer because the partnership is
not an operating business in the typical sense. Its only assets are its
properties; the partnership has no other operations. Going concern value
typically reflects independent value for the goodwill of a business as a going
concern, over and above its asset value, however, those facts are not present
here. Accordingly, the general partner did not consider a separate going concern
value of the partnership in determining the fairness of the offer. In this case,
the liquidation value was determined based on appraised values of the
partnership's properties. These appraised values reflect the value of the
properties as a going concern.
The general partner believes that consideration of the offer was
procedurally fair because, among other things, (1) the Court approved the
settlement agreement pursuant to which the offer is being made, (2) each limited
partner has an opportunity to make an individual decision on whether to tender
his or her units (and how many to tender) or to continue to hold them, (3) the
unaffiliated limited partners were represented by counsel in the negotiation of
the settlement agreement, and (4) limited partners can evaluate our offer price
by comparing it to the net liquidation proceeds per unit derived from the
independent appraiser's property valuation. In making this determination, the
general partner took into account the absence of the following procedural
safeguards: (1) the requirement of approval of the offer by a majority of the
unaffiliated limited partners, (2) an unaffiliated representative to act solely
on behalf of unaffiliated limited partners for purposes of negotiating the terms
of the offer, and (3) the approval of the offer by a majority of non-employee
directors of your general partner's board of directors.
The sale of your units pursuant to this offer will not be a taxable
transaction for the general partner of your partnership or its affiliates.
Consequently, the general partner of your partnership and its affiliates will
not recognize gain or loss in connection with this offer. We intend to treat the
entire offer price as consideration paid to you for your units, regardless of
whether you requested exclusion from the settlement. The general partner makes
no recommendation as to whether or not you should tender or refrain from
tendering your units in this offer. While the general partner believes that the
terms of our offer are fair, the general partner also believes that you must
make your own decision whether or not to participate in any offer. The general
partner is unable to make a recommendation because each limited partner's
circumstances may differ from those of other limited partners. These
circumstances, which would impact the desirability of tendering units in the
offer, include a limited partner's financial position, his need or desire for
liquidity, other financial opportunities available to him, and his tax position
and the tax consequences to him of selling his 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 WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES 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 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
47
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. However, the partnership did receive the
appraisals prepared by AAA, as described above.
Although the AIMCO Entities have interests that may be in conflict with
those of the partnership's unaffiliated limited partners, each of the AIMCO
Entities believes that the offer price and the structure of the transaction are
fair to the unaffiliated limited partners based on the information and factors
considered by the general partner of your partnership. Each of AIMCO Entities
expressly adopts the analysis, and the factors underlying such analysis, of the
general partner of your partnership.
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. We and the general partner of your
partnership received total approximate fees and reimbursements (excluding
property management fees) of approximately $581,000 in 2001, $1,027,000 in 2002
and $271,000 in 2003. Total approximate fees and reimbursements (excluding
property management fees) for the three months ended March 31, 2004 were
$45,000. The property manager is entitled to receive five percent of gross
receipts from the partnership's property for providing property management
services. It received management fees of approximately $341,000 in 2001,
$359,000 in 2002 and $317,000 in 2003. Management fees for the three months
ended March 31, 2004 were approximately $81,000. 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. Your partnership has no employees and is
dependent on the general partner and us for the management and administration of
all partnership activities. The partnership
48
agreement provides for (i) certain payments to us for services and (ii)
reimbursement of certain expenses incurred by us on behalf of the partnership.
We and the general partner of your partnership received total fees and
reimbursements (excluding property management fees) of approximately $581,000 in
2001, $1,027,000 in 2002 and $271,000 in 2003. Total approximate fees and
reimbursements (excluding property management fees) for the three months ended
March 31, 2004 were $45,000. We received reimbursement of accountable
administrative expenses amounting to approximately $465,000, $815,000 and
$207,000 for the years ended December 2001, 2002 and 2003, respectively, and
$45,000 for the three months ended March 31, 2004. Included in these amounts are
fees related to construction management services provided by NHP Management
Company (which is our affiliate), of approximately $192,000, $576,000 and $8,000
for the years ended December 31, 2001, 2002 and 2003, respectively, with none
for the three months ended March 31, 2004. The construction management fees are
calculated based on a percentage of current year additions to investment
properties. The property manager is entitled to receive 5% of gross receipts
from all of the partnership's properties as compensation for providing property
management services. It received management fees of approximately $341,000,
$359,000 and $317,000 for the years ended December 31, 2001, 2002 and 2003
respectively. Management fees for the three months ended March 31, 2004 were
approximately $81,000. In addition to reimbursement for services of affiliates,
the partnership paid us approximately $10,000 and $57,000 for loan costs related
to the refinancing of Big Walnut Apartments during the years ended December 31,
2003 and 2002, respectively.
In accordance with the partnership agreement, we advanced the partnership
funds to cover operational expenses and to assist in the closing of the
refinancing required at Reflections Apartments of approximately $3,778,000,
$2,783,000 and $7,243,000 during the years ended December 31, 2001, 2002 and
2003, respectively, and $145,000 during the three months ended March 31, 2004.
The partnership repaid approximately $0, $1,015,000, $5,577,000 and $648,000
during the same periods. At March 31, 2004, the amount of the outstanding loans
and accrued interest was approximately $8,103,000. Interest on advances is
charged at prime plus 1% or 5.00% at March 31, 2004. Interest expense was
approximately $416,000, $402,000 and $436,000 for the years ended December 31,
2001, 2002 and 2003, respectively, and $110,000 for the three months ended March
31, 2004. The partnership paid approximately $0, $316,000 and $599,000 in
interest during the years ended December 31, 2001, 2002 and 2003, respectively.
The general partner is considering the remedies it can pursue including
accelerating repayment of the outstanding loans it has made to the partnership
to cover operational expenses and to assist in the refinancing of Reflections
Apartments. Subsequent to December 31, 2003, the partnership received an advance
from us of approximately $145,000 to cover operating expenses. In addition, the
partnership repaid approximately $272,000 of such advances. Subsequent to March
31, 2004, the partnership received an advance from us of approximately $195,000
to pay franchise and nonresident withholding taxes.
The partnership accrued a real estate commission due to the general partner
of $48,000 upon the sale of Shoppes at River Rock during the year ended December
31, 1999. During 2002, the partnership paid $30,000 of this amount to an
unaffiliated third party as part of a settlement regarding brokerage services.
Approximately $18,000 is accrued at March 31, 2004. Payment of this commission
is subordinate to the limited partners receiving their original invested capital
plus a cumulative non-compounded annual return of 8% on their adjusted invested
capital.
The partnership insures its properties up to certain limits through
coverage provided by AIMCO which is generally self-insured for a portion of
losses and liabilities related to workers compensation, property casualty and
vehicle liability. The partnership insures its properties above the AIMCO limits
through insurance policies obtained by AIMCO from insurers unaffiliated with the
general partner. During the years ended December 31, 2003 and 2002, the
partnership was charged by AIMCO and its affiliates approximately $54,000 and
$155,000, respectively, for insurance coverage and fees associated with policy
claims administration. During 2004, the partnership anticipates its costs for
insurance coverage and fees associated with policy claims administration
provided by AIMCO and its affiliates will be approximately $32,000.
49
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 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 general partner does not currently expect to
consider, on behalf of your partnership any of the following transactions: (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. As discussed under "The
Litigation Settlement Offer -- Section 15. Certain Information Concerning Your
Partnership -- Investment Objectives and Policies; Sale or Financing of
Investments," the general partner regularly evaluates the real estate and
capital markets. The general partner may consider refinancing the partnership's
existing indebtedness to the extent that the general partner is able to obtain a
lower interest rate or if such indebtedness is approaching maturity.
Furthermore, in the event that the general partner receives an attractive offer
for any of your partnership's properties, the general partner would give due
consideration to such an offer.
If any of the transactions referred to above occur, and financial benefits
accrue to the 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
50
specifically permitted therein. Limited partners may vote on a liquidation, and
we 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 June 29, 1984, under the laws
of the State of Delaware. 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 three residential
apartment complexes. Your partnership had approximately 783 limited partners as
of June 10, 2004.
General Partner. The general partner of your partnership is Davidson
Diversified Properties, Inc., which is an affiliate of AIMCO. Our affiliate
serves as manager of the property owned by your partnership. We and the general
partner of your partnership received total fees and reimbursements (excluding
property management fees) of approximately $581,000 in 2001, $1,027,000 in 2002
and $271,000 in 2003. Total approximate fees and reimbursements (excluding
property management fees) for the three months ended March 31, 2004 were
$45,000. The property manager is entitled to receive five percent of gross
receipts from the partnership's property for providing property management
services. It received management fees of approximately $341,000 in 2001,
$359,000 in 2002 and $317,000 in 2003. Management fees for the three months
ended March 31, 2004 were approximately $81,000.
Ownership and Voting. We, together with Cooper River Properties, L.L.C.,
Davidson Diversified Properties, Inc. and AIMCO IPLP, L.P. (which are our
affiliates), own 620.25 units, or 50.66%, 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 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. Although the future operating
results of your partnership and future sales prices of the property owned by
your partnership are uncertain, the operating performance of your partnership's
property may improve in the future, which, in turn, may result in higher
property values, making a sale of your partnership's properties a more
attractive option in the future. Such values, however, are also a function of
capitalization rates in the market and the interest rate environment at the
time. Furthermore, the general partner spent approximately $86,000 for capital
improvements at the property in the three months ended March 31, 2004 to repair
and update the property. Although there can be no assurance as to effect of
these expenditures on the future performance of your partnership's property,
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.
51
Term of Your Partnership. Under your partnership's agreement of limited
partnership, the term of the partnership will continue until December 31, 2008,
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 $594,000 for
2004, 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 three months ended March 31, 2004 and 2003 is based on
unaudited financial statements. The selected financial information of your
partnership set forth below for the years ended December 31, 2003, 2002 and 2001
is based on audited financial statements. This information should be read in
conjunction with such financial statements, including the notes thereto, and
Management's Discussion and Analysis of Financial Condition and Results of
Operations of Your Partnership" in the Annual Report on Form 10-KSB of your
partnership for the year ended December 31, 2003 and the Quarterly Report on
Form 10-QSB for the quarter ended March 31, 2004. This report 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.
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.
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------
2004 2003 2003 2002 2001
--------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
OPERATING DATA:
Total revenues............ $ 1,617 $ 1,476 $ 6,014 $ 5,516 $ 4,800
Net income (loss)......... (241) 5,220 4,029 (166) (1,448)
Net income (loss) per
limited partnership
unit................... (192.77) 3,923.22 2,965.90 (133.14) (1,159.08)
Income (loss) per unit
from continuing
operations............. (192.77) (36.75) (1,047.17) (12.25) (1,141.92)
Distributions per limited
partnership unit....... -- -- -- -- --
Ratio of earnings to fixed
charges (deficit)...... 32.3% 9.4% 5.8% 82.9% (22.4)%
</Table>
52
<Table>
<Caption>
FOR THE THREE MONTHS
ENDED FOR THE YEAR ENDED DECEMBER 31,
--------------------- -------------------------------------
2004 2003 2003 2002 2001
--------- --------- ---------- --------- ----------
(DOLLARS IN THOUSANDS, EXCEPT PER UNIT DATA)
BALANCE SHEET DATA:
Cash and cash
equivalents............ 200 512 746 591 743
Investment property, net
of accumulated
depreciation........... 26,917 24,261 27,355 27,174 22,961
Total assets.............. 28,117 25,883 29,219 28,758 24,738
Mortgage note payable..... 22,850 20,353 22,986 20,435 24,349
General partners' capital
(deficit).............. (194) (167) (189) (587) (584)
Limited partners' capital
(deficit).............. (3,627) (2,044) (3,391) (7,022) (6,859)
Partners' capital
(deficit).............. (3,821) (2,211) (3,580) (7,609) (7,443)
Book value per limited
partnership unit....... 2,962.63 1,669.59 2,769.86 5,735.76 5,602.61
CASH FLOWS:
Net increase (decrease) in
cash and cash
equivalents............ (546) (79) 155 (152) (387)
Net cash provided by
operating activities... 183 226 522 1,427 1,396
</Table>
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 as of December 31, 2003.
<Table>
<Caption>
DATE OF
PROPERTY PURCHASE TYPE OF OWNERSHIP USE
- -------- -------- ----------------- ---
Big Walnut Apartments.............. 03/28/85 Fee ownership subject to Apartment
Columbus, Ohio first mortgage(1) 251 units
The Trails Apartments.............. 08/30/85 Fee ownership subject to Apartment
Nashville, Tennessee first mortgage(1) 248 units
Reflections Apartments............. 09/30/85 Fee ownership subject to Apartment
(formerly Greensprings Manor first mortgage(2) 582 units
Apartments) Indianapolis, Indiana
</Table>
- ---------------
(1) The property is held by a limited partnership in which the partnership owns
a 99.90% interest.
(2) The property is held by a limited partnership wholly owned by the
partnership.
On January 30, 2003, the partnership sold Lafontenay I and II Apartments to
an unaffiliated third party for $9,700,000. After payment of closing costs of
approximately $254,000, and the assumption of the mortgage debt of approximately
$6,899,000 by the purchaser, the net proceeds received by the partnership were
approximately $2,547,000.
53
Accumulated Depreciation Schedule. The following shows the gross carrying
value and accumulated depreciation of your partnership's property as of December
31, 2003.
<Table>
<Caption>
GROSS CARRYING ACCUMULATED FEDERAL TAX
PROPERTY VALUE DEPRECIATION RATE METHOD BASIS
- -------- -------------- ------------ -------- ------ --------------
(IN THOUSANDS) (IN THOUSANDS)
Big Walnut Apartments....... $10,088 $ 6,619 5-25 yrs S/L $ 2,004
The Trails Apartments....... 9,859 6,341 5-25 yrs S/L 1,706
Reflections Apartments...... 30,077 9,709 5-25 yrs S/L 20,399
------- ------- --------
Total.................. $50,024 $22,669 $ 24,109
======= ======= ========
</Table>
Schedule of Mortgages. The following shows certain information regarding
the outstanding first mortgage encumbering your partnership's property as of
December 31, 2003.
<Table>
<Caption>
PRINCIPAL
BALANCE AT STATED
DECEMBER 31, INTEREST PERIOD MATURITY PRINCIPAL BALANCE
PROPERTY 2003 RATE AMORTIZED DATE DUE AT MATURITY
- -------- ------------ -------- ---------- -------- -----------------
(IN THOUSANDS) (IN THOUSANDS)
Big Walnut Apartments....... $ 5,594 (1) 360 months 09/01/07 $ 4,946
The Trails Apartments....... 4,713 (2) 240 months 12/01/09 3,010
Reflections Apartments...... 13,500 4.17% 300 months 01/01/29 --
------- -------
Totals................. $23,807 $ 7,956
=======
Less unamortized
discounts................. (821)
-------
Total.................. $22,986
=======
</Table>
- ---------------
(1) Adjustable interest rate is based on the Fannie Mae discounted
mortgage-backed security index plus 85 basis points. The rate at December
31, 2003 was 1.92%.
(2) Adjustable rate based on 75% of the interest rate on new-issue long-term
A-rated utility bonds as determined on the first day of each calendar
quarter. The rate at December 31, 2003 was 4.43%.
On December 11, 2003, the partnership refinanced the construction loan
mortgage encumbering Reflections Apartments. The refinancing replaced mortgage
indebtedness of approximately $10,379,000 with a new mortgage of approximately
$13,500,000. The new mortgage carries a stated interest rate of 4.17% compared
to a variable interest rate on the prior mortgage. Payments of principal and
interest of approximately $73,000 are due on the first day of each month
commencing in February 2004 until January 2029 at which time the mortgage is
scheduled to be fully amortized. However, the lender can exercise a call option
on the mortgage on February 1, 2009 and every fifth anniversary thereafter until
maturity on January 1, 2029. If the lender exercises the call option, the
outstanding principal balance and any related interest expense are due and
payable on the call date. Capitalized loan costs, which are included in other
assets, incurred with the refinancing were approximately $119,000, and are being
amortized over the life of the mortgage note payable.
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 ANNUAL RENTAL RATE OCCUPANCY
--------------------------- -----------
PROPERTY 2003 2002 2003 2002
- -------- ------------ ------------ ---- ----
(PER UNIT)
Big Walnut Apartments........................ $6,928 $6,948 92% 96%
The Trails Apartments........................ $6,996 $7,296 95% 94%
Reflections Apartments....................... $6,661 $6,480 66% 45%
</Table>
54
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 AMOUNT
- ---- -------
2001........................................................ $ 0.00
2002........................................................ $ 0.00
2003........................................................ $ 0.00
2004 (through March 31, 2004)............................... $ 0.00
</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 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
- ---- ----------- ----------
2001........................................................ $ 581,000 $341,000
2002........................................................ $1,027,000 $359,000
2003........................................................ $ 271,000 $317,000
2004 (through March 31, 2004)............................... $ 45,000 $ 81,000
</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, together with Cooper River Properties, L.L.C.,
Davidson Diversified Properties, Inc. and AIMCO IPLP, L.P. (which are our
affiliates), own 620.25 units, or 50.66%, 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 $2,480,100 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
55
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 March 31, 2004, we had $92.7 million of
cash on hand and $294.5 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 AIMCO and certain of its 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 is 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.
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
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:
- any 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 materially adverse to your partnership or the value of your units
to us, which change would, individually or in the aggregate, result in an
adverse effect on net operating income of your partnership of more than
$10,000 per year, or a decrease in value of an asset of your partnership,
or the incurrence of a liability with respect to your partnership, in an
amount in excess of $100,000 (a "Material Adverse Effect"); 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
56
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) a declaration of a banking moratorium or any suspension of payments
in respect of banks in the United States, (v) acts of terrorism or a
commencement of a war, armed hostilities or other national or
international calamity directly or indirectly involving the United
States, (vi) any limitation (whether or not mandatory) by any
governmental authority on, or any other material event which, in either
case, could reasonably be expected to affect the extension of credit by
banks or other lending institutions, or (vii) 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 (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) in the case of any of the foregoing relating to the
litigation settlement and existing at the time of the commencement of the
offer, a material worsening thereof; 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, results in any of the consequences referred to in
clauses (i) through (v) of the immediately preceding paragraph; 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 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 an adverse
effect on our financial condition in an amount in excess of $10,000,000,
which does not result from actions or inactions by us or our affiliates;
or
- 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.
57
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, and the waiver of any such right
with respect to any particular facts or circumstances shall not be deemed a
waiver with respect to any other facts or circumstances. If we waive any of the
conditions to the offer with respect to the tender of a particular unit, we will
waive such condition with respect to all other tenders of units in this offer as
well. All conditions to our offer will be satisfied or waived on or before the
expiration of our offer. We will not waive a material condition to the offer on
the expiration date. If we waive any material conditions to our offer, we will
notify you and, if necessary, we will extend the offer period so that you will
have at least five business days from the date of our notice to withdraw your
units.
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
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
58
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 partnership will not be responsible for paying any of the fees
or expenses incurred by us in connection with 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.................................................. 11,000
Printing Fees............................................... 7,600
Tax and Accounting Fees..................................... 1,500
Postage..................................................... 500
Appraiser................................................... 6,675
Depositary.................................................. 500
-------
Total..................................................... $35,275
=======
</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 WITH RESPECT TO YOUR PARTICULAR CIRCUMSTANCES 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."
59
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.
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
60
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 ConCap
Equities, Inc., the general partner of your partnership (the "General Partner")
are set forth below. All of the executive officers of AIMCO also serve as
executive officers of AIMCO-GP. The directors of AIMCO are also set forth below.
The two directors of AIMCO-GP are Terry Considine and Peter K. Kompaniez. The
directors of the General Partner of your partnership are Peter K. Kompaniez and
Martha L. Long. The executive officers of the General Partner of your
partnership are Harry Alcock, Miles Cortez, Patti K. Fielding, Paul J.
McAuliffe, Thomas M. Herzog and Martha L. Long. 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, Chief Executive Officer
and President of AIMCO
Peter K. Kompaniez........................ Vice Chairman of the Board of AIMCO and Director
of the General Partner
Jeffrey W. Adler.......................... Executive Vice President -- Conventional
Property Operations of AIMCO
Harry G. Alcock........................... Executive Vice President and Chief Investment
Officer of AIMCO and Executive Vice President of
the General Partner
Miles Cortez.............................. Executive Vice President, General Counsel and
Secretary of AIMCO and the General Partner
Joseph DeTuno............................. Executive Vice President -- Redevelopment of
AIMCO
Randall J. Fein........................... Executive Vice President -- University Housing
of AIMCO
Patti K. Fielding......................... Executive Vice President -- Securities and Debt
of AIMCO and Executive Vice President of the
General Partner
Lance J. Graber........................... Executive Vice President -- AIMCO Capital
Paul J. McAuliffe......................... Executive Vice President and Chief Financial
Officer of AIMCO and the General Partner
Ronald D. Monson.......................... Executive Vice President of AIMCO
James G. Purvis........................... Executive Vice President -- Human Resources of
AIMCO
David Robertson........................... Executive Vice President of AIMCO; President and
Chief Executive Officer of AIMCO Capital
Thomas M. Herzog.......................... Senior Vice President and Chief Accounting
Officer of AIMCO and the General Partner
Martha L. Long............................ Director and Senior Vice President of the
General Partner
James N. Bailey........................... Director of AIMCO
Richard S. Ellwood........................ Director of AIMCO
J. Landis Martin.......................... Director of AIMCO
Thomas L. Rhodes.......................... Director of AIMCO
</Table>
I-1
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
Terry Considine........................... Mr. Considine has been Chairman of the Board and
Chief Executive Officer of AIMCO and AIMCO-GP
since July 1994. Upon the effectiveness of Mr.
Kompaniez's resignation as President and pending
the appointment of a chief operating officer,
Mr. Considine will serve as President. 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 devotes his time
to his responsibilities at AIMCO and AIMCO-GP on
a full-time basis, and the balance to American
Land Lease, Inc.
Peter K. Kompaniez........................ Mr. Kompaniez has been Vice Chairman of the
Board 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. Effective April 1,
2004, Mr. Kompaniez resigned as President of
AIMCO. Mr. Kompaniez will continue in his role
as Director of the General Partner and Vice
Chairman of AIMCO's Board and will serve AIMCO
on a variety of special and ongoing projects in
an operating role.
Jeffery W. Adler.......................... Mr. Adler was appointed Executive Vice
President, Conventional Property Operations in
February 2004. Previously he served as Senior
Vice President of Risk Management of AIMCO from
January 2002 until November 2002, when he added
the responsibility of Senior Vice President,
Marketing. Prior to joining AIMCO, from 2000 to
2002, Mr. Adler was Vice President,
Property/Casualty for Channelpoint, a software
company. From 1990 to 2000 Mr. Adler held
several positions at Progressive Insurance
including Colorado General Manager from 1996 to
2000, Product Manager for Progressive Insurance
Mountain Division from 1992 to 1996, and
Director of Corporate Marketing from 1990 to
1992.
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.
</Table>
I-2
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
Miles Cortez.............................. Mr. Cortez was appointed Executive Vice
President, General Counsel and Secretary of the
General Partner in February 2004 and of AIMCO in
August 2001. Prior to joining AIMCO, Mr. Cortez
was the senior partner of Cortez Macaulay
Bernhardt & Schuetze LLC, a Denver Law firm,
from December 1997 through September 2001. From
August 1993 through November 1997, Mr. Cortez
was a partner in the law firm of McKenna &
Cuneo, LLP in Denver. Mr. Cortez was the
President of the Colorado Bar Association from
1996 to 1997 and President of the Denver Bar
Association from 1982 to 1983.
Joseph DeTuno............................. Mr. DeTuno was appointed Executive Vice
President -- Redevelopment of AIMCO in February
2001 and previously served as Senior Vice
President -- Property Redevelopment of AIMCO
from August 1997 to February 2001. Prior to
joining AIMCO, Mr. DeTuno was President and
founder of JD Associates, his own full service
real estate consulting, advisory and project
management company that he founded in 1990.
Randall J. Fein........................... Mr. Fein was appointed Executive Vice
President -- University Housing of AIMCO in
October 2003. He is responsible For the
operation of AIMCO's student housing related
Portfolio, including its joint venture
activities. From 1989 through 2003, Mr. Fein
served as general partner of Income Apartment
Investors L.P., and Texas First Properties L.P.,
which operated student and non-student housing.
Prior to entering the apartment industry, Mr.
Fein was engaged in the securities industry as a
Director of Jefferies and as a Vice President of
Salomon Brothers Inc. Mr. Fein is a member of
the State Bar of Texas.
Patti K. Fielding......................... Ms. Fielding was appointed Executive Vice
President -- Securities and Debt of the General
Partner in February 2004 and of AIMCO in
February 2003. She is responsible for securities
and debt financing and the treasury department.
From January 2000 to February 2003, Ms. Fielding
served as Senior Vice President -- Securities
and Debt. Ms. Fielding joined AIMCO in February
1997 and served as Vice President -- Tenders,
Securities and Debt until January 2002. Prior to
joining AIMCO, 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 RatingCo. from 1987 to 1993.
</Table>
I-3
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
Lance J. Graber........................... Mr. Graber was appointed Executive Vice
President -- Acquisitions in October 1999. His
principal business function is overseeing
dispositions, refinancings, redevelopments and
other transactions within AIMCO Capital's
portfolio of affordable properties. 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.
Paul J. McAuliffe......................... Mr. McAuliffe has been Executive Vice President
and Chief Financial Officer of the General
Partner since April 2002. 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 of AIMCO in February 2001. Beginning
February 2004, Mr. Monson assumed oversight of
four of AIMCO's regional operating centers. From
February 2001 to February 2004, Mr. Monson
served as the head of AIMCO's conventional
property operations. 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.
</Table>
I-4
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
James G. 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 O(3)C 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.
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.
Thomas M. Herzog.......................... Mr. Herzog was appointed Senior Vice President
and Chief Accounting Officer of the General
Partner in February 2004 and of AIMCO in January
2004. Prior to joining AIMCO, Mr. Herzog was at
GE Real Estate, serving as Chief Accounting
Officer & Global Controller from April 2002 to
January 2004 and as Chief Technical Advisor from
March 2000 to April 2002. Prior to joining GE
Real Estate, Mr. Herzog was at Deloitte & Touche
LLP from 1990 until 2000, including a two-year
assignment in the real estate national office.
Martha L. Long............................ Martha L. Long has been with AIMCO since October
1998 and served in various capacities. From 1998
to 2001, she served as Senior Vice President and
Controller. During 2002 and 2003, she served as
Senior Vice President of Continuous Improvement.
Most recently, she has been named Chief
Executive Officer and General Partner of AIMCO's
affiliated partnerships.
</Table>
I-5
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
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.
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.
</Table>
I-6
<Table>
<Caption>
NAME PRINCIPAL OCCUPATIONS FOR THE LAST FIVE YEARS
- ---- ---------------------------------------------
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-7
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. EXECUTIVE SUMMARY PAGE 4
BIG WALNUT, COLUMBUS, OHIO
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Big Walnut
LOCATION: 5280 Gatehouse Drive
Columbus, Ohio
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: April 30, 2003
DATE OF REPORT: June 30, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 19.497 acres, or 849,289 square feet
Assessor Parcel No.: 090-005526-00
Floodplain: Community Panel No. 390180-278G (August 2, 1995)
Flood Zone X, an area outside the floodplain.
Zoning: A2 (Apartment District)
BUILDING:
No. of Units: 251 Units
Total NRA: 303,703 Square Feet
Average Unit Size: 1,210 Square Feet
Apartment Density: 12.9 units per acre
Year Built: 1968
UNIT MIX AND MARKET RENT:
GROSS RENTAL INCOME PROJECTION
Market Rent
Square ------------------ Monthly Annual
Unit Type Feet Per Unit Per SF Income Income
- ------------ ------ -------- ------ --------- ---------
1B/1B-1A10 694 $ 519 $ 0.75 $ 12,456 $ 149,472
1B/1B-1B10 705 $ 469 $ 0.67 $ 11,256 $ 135,072
1B/1B-1C10 975 $ 549 $ 0.56 $ 11,529 $ 138,348
1B/1.5B-1A15 733 $ 519 $ 0.71 $ 12,456 $ 149,472
2B/1.5B-2A15 1,282 $ 649 $ 0.51 $ 27,258 $ 327,096
2B/1.5B-2B15 1,395 $ 649 $ 0.47 $ 19,470 $ 233,640
2B/1.5B-2C15 1,649 $ 679 $ 0.41 $ 50,246 $ 602,952
2B/2B-2A20 1,195 $ 649 $ 0.54 $ 7,788 $ 93,456
Total $ 152,459 $1,829,508
OCCUPANCY: 94%
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
BIG WALNUT, COLUMBUS, OHIO
ECONOMIC LIFE: 45 YEARS
EFFECTIVE AGE: 20 YEARS
REMAINING ECONOMIC LIFE: 25 YEARS
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[EXTERIOR - ENTRANCE PICTURE] [EXTERIOR - RESIDENTIAL UNITS PICTURE]
AREA MAP
[AREA MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
BIG WALNUT, COLUMBUS, OHIO
NEIGHBORHOOD MAP
[NEIGHBORHOOD 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. EXECUTIVE SUMMARY PAGE 7
BIG WALNUT, COLUMBUS, OHIO
PART TWO - ECONOMIC INDICATORS
Amount $/Unit
------ ------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION
Potential Rental Income $1,829,508 $ 7,289
Effective Gross Income $1,808,647 $ 7,206
Operating Expenses $ 780,682 $ 3,110 43.2% of EGI
Net Operating Income: $ 965,215 $ 3,845
Capitalization Rate 10.00%
DIRECT CAPITALIZATION VALUE $9,500,000 * $37,849 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 7%
Stabilized Vacancy & Collection Loss: 8%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 10.50%
Discount Rate 11.75%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $9,900,000 * $39,442 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $9,800,000 $39,044 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $29,377 to $35,814
Range of Sales $/Unit (Adjusted) $34,678 to $43,142
VALUE INDICATION - PRICE PER UNIT $9,600,000 * $38,247 / UNIT
EGIM ANALYSIS
Range of EGIMS from Improved Sales 5.39 to 6.37
Selected EGIM for Subject 5.50
Subject's Projected EGI $1,808,647
EGIM ANALYSIS CONCLUSION $9,800,000 * $39,044 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $9,600,000 * $38,247 / UNIT
RECONCILED SALES COMPARISON VALUE $9,700,000 $38,645 / UNIT
- ------------------
* Value indications are after adjustments for concessions, deferred maintenance,
excess land and lease-up costs, if any.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8
BIG WALNUT, COLUMBUS, OHIO
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $9,600,000
NOI Per Unit $9,600,000
EGIM Multiplier $9,800,000
INDICATED VALUE BY SALES COMPARISON $9,700,000 $38,645 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $9,500,000
Discounted Cash Flow Method: $9,900,000
INDICATED VALUE BY THE INCOME APPROACH $9,800,000 $39,044 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $9,800,000 $39,044 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Reflections (Greenspring Manor)
LOCATION: 7999 Silverleaf Drive
Indianapolis, Indiana
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 7, 2003
DATE OF REPORT: July 9, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 37.749 acres, or 1,644,346 square feet
Assessor Parcel No.: 000651
Floodplain: Community Panel No. 18097C0039E (January 5, 2001)
Flood Zone X, an area outside the floodplain.
Zoning: D-6II (Low Density Multifamily District)
BUILDING:
No. of Units: 582 Units
Total NRA: 459,080 Square Feet
Average Unit Size: 789 Square Feet
Apartment Density: 15.4 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
- ------------------------------------------------ ---------- ----------- ---------- ---------- ----------
Eff/1Ba - EA10 450 $ 420 $ 0.93 $ 100,800 $1,209,600
1Br/1Ba - 1A10 770 $ 580 $ 0.75 $ 60,320 $ 723,840
1Br/1Ba - 2A15 950 $ 660 $ 0.69 $ 66,000 $ 792,000
2Br/2Ba - 2A25 1,200 $ 770 $ 0.64 $ 66,220 $ 794,640
2Br/2Ba - 3A25 1,400 $ 880 $ 0.63 $ 45,760 $ 549,120
----- ---------- ---------- ---------- ----------
Total $ 339,100 $4,069,200
========== ==========
OCCUPANCY: 61%
ECONOMIC LIFE: 45 Years
EFFECTIVE AGE: 15 Years
REMAINING ECONOMIC LIFE: 30 Years
\
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
EXTERIOR - APARTMENT BUILDING EXTERIOR - APARTMENT BUILDING
AREA MAP
[AREA MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
NEIGHBORHOOD MAP
[NEIGHBORHOOD 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. EXECUTIVE SUMMARY PAGE 7
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PART TWO - ECONOMIC INDICATORS
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION Amount $/Unit
- -------------------------------------- ----------- -------
Potential Rental Income $ 4,069,200 $ 6,992
Effective Gross Income $ 3,904,798 $ 6,709
Operating Expenses $ 1,793,535 $ 3,082 45.9% of EGI
Net Operating Income: $ 2,023,963 $ 3,478
Capitalization Rate 7.75%
DIRECT CAPITALIZATION VALUE $25,300,000 * $43,471 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 61%
Stabilized Vacancy & Collection Loss: 7%
Lease-up / Stabilization Period 18 months
Terminal Capitalization Rate 8.25%
Discount Rate 10.50%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $25,600,000 * $43,986 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $25,600,000 $43,986 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $34,268 to $61,397
Range of Sales $/Unit (Adjusted) $41,122 to $48,678
VALUE INDICATION - PRICE PER UNIT $ 26,500,000 * $45,533 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 5.31 to 7.04
Selected EGIM for Subject 6.25
Subject's Projected EGI $ 3,904,798
EGIM ANALYSIS CONCLUSION $ 23,600,000 * $40,550 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 26,000,000 * $44,674 / UNIT
RECONCILED SALES COMPARISON VALUE $ 25,800,000 $44,330 / UNIT
- -------------------------
* Value indications are after adjustments for concessions, deferred
maintenance, excess land and lease-up costs, if any.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8
REFLECTIONS (GREENSPRING MANOR), INDIANAPOLIS, INDIANA
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $26,500,000
NOI Per Unit $26,000,000
EGIM Multiplier $23,600,000
INDICATED VALUE BY SALES COMPARISON $25,800,000 $44,330 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $25,300,000
Discounted Cash Flow Method: $25,600,000
INDICATED VALUE BY THE INCOME APPROACH $25,600,000 $43,986 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $25,700,000 $44,158 / UNIT
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 4
TRAILS, NASHVILLE, TENNESSEE
EXECUTIVE SUMMARY
PART ONE - PROPERTY DESCRIPTION
PROPERTY NAME: Trails
LOCATION: 100 Trails Circle
Nashville, Tennessee
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 5, 2003
DATE OF REPORT: July 2, 2003
PHYSICAL DESCRIPTION - SITE & IMPROVEMENTS:
SITE:
Size: 19.16 acres, or 834,610 square feet
Assessor Parcel No.: 109-000-196
Floodplain: Community Panel No. 47037C0308F (April 20, 2001)
Flood Zone X, an area outside the floodplain.
Zoning: RM-15 (Medium to High Density Apartment
District)
BUILDING:
No. of Units: 248 Units
Total NRA: 198,560 Square Feet
Average Unit Size: 801 Square Feet
Apartment Density: 12.9 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 521 $500 $0.96 $ 12,000 $ 144,000
1Br/1Ba-1B10 631 $530 $0.84 $ 33,920 $ 407,040
1Br/1Ba-1C10 767 $545 $0.71 $ 17,440 $ 209,280
1Br/1Ba-1D10 806 $580 $0.72 $ 18,560 $ 222,720
2Br/1Ba-2A10 933 $640 $0.69 $ 25,600 $ 307,200
2Br/2Ba-2B20 1,036 $665 $0.64 $ 37,240 $ 446,880
- ------------ ----- ---- ----- -------- ----------
Total $144,760 $1,737,120
===== ======== ==========
OCCUPANCY: 95%
ECONOMIC LIFE: 45 Years
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 5
TRAILS, NASHVILLE, TENNESSEE
EFFECTIVE AGE: 25 Years
REMAINING ECONOMIC LIFE: 20 Years
SUBJECT PHOTOGRAPHS AND LOCATION MAP:
SUBJECT PHOTOGRAPHS
[PICTURE] [PICTURE]
UNIT TYPE FACADE UNIT TYPE
AREA MAP
[MAP]
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 6
TRAILS, NASHVILLE, TENNESSEE
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. EXECUTIVE SUMMARY PAGE 7
TRAILS, NASHVILLE, TENNESSEE
PART TWO - ECONOMIC INDICATORS
Amount $/Unit
------ ------
INCOME CAPITALIZATION APPROACH
DIRECT CAPITALIZATION
Potential Rental Income $1,737,120 $ 7,005
Effective Gross Income $1,759,362 $ 7,094
Operating Expenses $ 822,048 $ 3,315 46.7% of EGI
Net Operating Income: $ 875,314 $ 3,529
Capitalization Rate 9.50%
DIRECT CAPITALIZATION VALUE $9,200,000 * $37,097 / UNIT
DISCOUNTED CASH FLOW ANALYSIS:
Holding Period 10 years
2002 Economic Vacancy 6%
Stabilized Vacancy & Collection Loss: 7%
Lease-up / Stabilization Period N/A
Terminal Capitalization Rate 10.50%
Discount Rate 12.00%
Selling Costs 2.00%
Growth Rates:
Income 3.00%
Expenses: 3.00%
DISCOUNTED CASH FLOW VALUE $9,400,000 * $37,903 / UNIT
RECONCILED INCOME CAPITALIZATION VALUE $9,400,000 $37,903 / UNIT
SALES COMPARISON APPROACH
PRICE PER UNIT:
Range of Sales $/Unit (Unadjusted) $17,808 to $82,471
Range of Sales $/Unit (Adjusted) $36,507 to $41,236
VALUE INDICATION - PRICE PER UNIT $9,500,000 * $38,306 / UNIT
EGIM ANALYSIS
Range of EGIMs from Improved Sales 4.64 to 6.66
Selected EGIM for Subject 5.40
Subject's Projected EGI $ 1,759,362
EGIM ANALYSIS CONCLUSION $ 9,500,000 * $38,306 / UNIT
NOI PER UNIT ANALYSIS CONCLUSION $ 9,400,000 * $37,903 / UNIT
RECONCILED SALES COMPARISON VALUE $ 9,500,000 $38,306 / UNIT
- --------------
* Value indications are after adjustments for concessions, deferred
maintenance, excess land and lease-up costs, if any.
AMERICAN APPRAISAL ASSOCIATES, INC. EXECUTIVE SUMMARY PAGE 8
TRAILS, NASHVILLE, TENNESSEE
PART THREE - SUMMARY OF VALUE CONCLUSIONS
SALES COMPARISON APPROACH:
Price Per Unit $9,500,000
NOI Per Unit $9,400,000
EGIM Multiplier $9,500,000
INDICATED VALUE BY SALES COMPARISON $9,500,000 $38,306 / UNIT
INCOME APPROACH:
Direct Capitalization Method: $9,200,000
Discounted Cash Flow Method: $9,400,000
INDICATED VALUE BY THE INCOME APPROACH $9,400,000 $37,903 / UNIT
RECONCILED OVERALL VALUE CONCLUSION: $9,400,000 $37,903 / 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:
P.O. Box 238
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