<PAGE>
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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
AG SPANOS RESIDENTIAL PARTNERS.
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
<PAGE>
A.G. SPANOS RESIDENTIAL PARTNERS-86,
A CALIFORNIA LIMITED PARTNERSHIP
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
May 15, 1998
Dear Unitholders:
As you know, Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I
(the "Partnership") was formed in 1987 to acquire, operate and then ultimately
dispose of a portfolio of thirteen apartment properties located in seven
states. It was originally anticipated that the Partnership would operate for
seven to ten years and then sell the properties, although there is no
mandatory time frame in which the property sales must occur. As of the date
hereof, the Partnership has sold four of its properties, and now owns nine
properties in six states.
The Partnership is now in its eleventh year of operations, and for some time
now, A.G. Spanos Residential Partners-86, A California Limited Partnership
("Spanos") and Prudential-Bache Properties, Inc. ("P-B Properties"), the
General Partners of the Partnership, have been considering when and how to
effect the disposition of the properties in the best interests of the
Partnership. In addition, Spanos and certain of its affiliates have been
involved in discussions to resolve the claims against them in certain class
action litigation currently pending in federal district court. Although the
Partnership is not named as a defendant in this litigation, it is included
among numerous limited partnerships which are at issue in the litigation.
These discussions have culminated in a proposed settlement by Spanos and its
affiliates (the "Settlement") of the class action litigation, providing for an
integrated plan of action (the "Plan") to sell the nine remaining properties
and distribute the net sale proceeds in liquidation of the Partnership. The
United States District Court for the Southern District of New York (the
"Court") has preliminarily approved the Settlement. Accompanying this letter
is a copy of the Notice to Equitable Class of Pendency of Class Action,
Proposed Partial Settlement of Class Action by the Spanos Defendants,
Requirement for Majority Consent to the Auction of the Properties of Certain
Partnerships as Part of the Spanos Settlement, Settlement Fairness Hearing,
Right to Appear at Hearing and Right to Object to the Settlement (the "Class
Notice"). Unitholders should review carefully the Class Notice, in conjunction
with this letter and the enclosed Notice of Consent Solicitation and Statement
Furnished in Connection with the Solicitation of Consents (the "Solicitation
Statement"). A copy of the agreement regarding the Settlement will be sent
without charge to any Unitholder who so requests.
----------------
IMPLEMENTATION OF CERTAIN ELEMENTS OF THE PLAN REQUIRES THE CONSENT OF
HOLDERS OF A MAJORITY OF THE UNITS, AND YOUR APPROVAL IS VERY IMPORTANT.
Please return your Consent card as soon as possible, because a failure to
return a Consent card has the same effect as a "No" vote.
----------------
Under the Plan, the properties will be sold at a public auction (the
"Auction") to be conducted by Ernst & Young LLP, an independent national
public accounting and consulting firm, through its E&Y Kenneth Leventhal Real
Estate Group ("Leventhal"). Pursuant to the demands of the plaintiffs in the
negotiations, under the proposed Settlement Spanos has agreed that it or one
of its affiliates will open the Auction by submitting an initial minimum bid
so as to guarantee the Partnership a gross aggregate sales price for all the
properties of at least $20,560,000 in excess of the mortgage debt outstanding.
Leventhal will then seek to obtain competing bids from other qualified
bidders. After an initial bidding period, Leventhal will review the bids
received with P-B Properties and the lead lawyers representing the plaintiffs
in the class action ("Lead Class Counsel"). (Since an affiliate of Spanos will
be a bidder, Spanos will not take any part in reviewing the bids or selecting
the winner.) Leventhal will thereafter re-solicit higher bids from the
bidders, other than Spanos or its affiliate. Following the re-bid period,
Leventhal will report the final bid results to P-B Properties and Lead Class
Counsel, who will jointly determine the successful bid or bids. Leventhal and
P-B Properties will then work toward consummating the sales with the
successful bidder or bidders.
<PAGE>
If the Plan is approved, it is anticipated that the property sales will be
consummated by late 1998. As soon thereafter as practicable, the Partnership
will pay cash distributions to the Partners from the net sales proceeds after
payment of all expenses and liabilities of the Partnership and certain
attorneys' fees, and the establishment of a reserve account to cover
unexpected claims. Any amount remaining in the reserve account will be
distributed to the Partners within twelve months from the date of the final
property closing, whereupon the Partnership will be dissolved. Overall, the
Plan is anticipated to result in minimum liquidating distributions of
approximately $14,766,000, or approximately $228 per Unit, and would produce
higher distributions if the Auction results in sale prices higher than the
Spanos initial minimum bid. For further information, see the discussion under
"THE PLAN -- Anticipated Results of Auction, Use of Proceeds and Cash
Distributions" in the enclosed Solicitation Statement.
Spanos believes that the sale of the properties at this time would be in the
best interests of the Unitholders and recommends that you complete and return
the Consent card. Spanos bases its recommendation on, among other things, the
following factors:
. The Plan permits the properties to be sold shortly after the end of the
originally anticipated seven-to ten-year holding period and under market
conditions which, considering current mortgage interest rates and the
availability of investor capital, Spanos believes are favorable for the
sale of multi-family properties.
. The properties generally have shown a trend of improved occupancies,
revenues and net operating income over the past few years, which Spanos
believes enhances their salability.
. The court-approved Auction process provides a mechanism which Spanos
believes will enable the Partnership to sell the properties for the best
aggregate sale price obtainable at the date of sale under current market
conditions. Spanos has guaranteed that the Auction will generate an
aggregate gross sales price of at least $20,560,000 in excess of the
Partnership's aggregate mortgage balance, which after payment of expenses
and certain attorneys' fees will be distributed to the Unitholders, Special
Limited Partners and General Partners as provided in the Partnership
Agreement.
. By selling the properties now, the Partnership will eliminate the risks
inherent in the ownership of real property, including, among other things,
the decline in value that can occur as a result of rising interest rates,
increasing real estate investor expectations and changing competition
factors in local rental markets.
. The sale of the properties will provide liquidity to the Unitholders.
At present, there is no established public trading market for the
Partnership's Units, and liquidity has been limited to sporadic sales which
occur within an informal secondary market and three recent tender offers,
each for a limited number of Units, as described in the enclosed
Solicitation Statement.
. Spanos believes that older apartment buildings, even though well
maintained, can over time suffer a competitive disadvantage in attracting
and retaining tenants, as compared to new apartments with more modern
amenities in newer, attractive neighborhoods. For example, the two-bedroom,
one-bath configurations of many of the apartments in the properties is not
as attractive to prospective tenants as two-bedroom, two-bath
configurations often found in newer competing projects. The properties,
therefore, may not be able to sustain current revenue levels. Further, new
apartment project construction has occurred in several of the properties'
market areas, including recent construction in some areas, as a result of
recent price increases for apartment projects and readily available
financing for such construction.
. In the opinion of Spanos, the properties are presently in good repair,
and it is advantageous to sell them before further aging and wear in the
ordinary course of business occurs, thereby requiring substantial cash
expenditures for costly repairs and refurbishments.
. The Partnership's liquidation will eliminate the annual Schedule K-1
income tax reporting for the Partnership, which is often burdensome to
Unitholders.
2
<PAGE>
Among the disadvantages which would result to Unitholders from the approval
of the Plan are the following:
. The Partnership will not benefit from possible future improvements in
economic and market conditions, which possibly could produce increased cash
flow and enhance the sales price of the properties.
. It is not anticipated that, upon receipt of the final liquidating
distributions, the Unitholders will have received aggregate distributions
from the Partnership which will equal the amounts originally invested in
the Partnership.
. No current independent appraisals of the Partnership's properties have
been obtained.
. No independent opinion or evaluation of the fairness of the Plan has
been obtained from any third party.
It should be noted that sale of the properties will eliminate any future
liability of the General Partners for Partnership liabilities and risks to the
Partnership which could arise from continued operation of the Partnership.
Moreover, the Plan is part of a Settlement by Spanos and its affiliates of
certain class action litigation brought against the General Partners and
others. P-B Properties previously settled the claims against it and its
affiliates. The current Settlement has been preliminarily approved by the
Court, and the Plan will not be implemented unless the Court issues a final
order finding that the Settlement is fair, reasonable, adequate and in the
best interests of the Unitholders. Neither of the General Partners will
receive any fees in connection with the sale of the properties or the
termination and liquidation of the Partnership. However, as provided in the
Partnership Agreement, the General Partners will be entitled to receive
distributions of approximately $50,000 each, and the Special Limited Partners,
who are affiliates of Spanos, will receive distributions of approximately
$6,862,000. The sale of the properties will result in elimination of the
management fees and special distributions which the General Partners presently
receive.
The Plan will result in the sale of all of the properties within a 12-month
period and the subsequent termination and liquidation of the Partnership,
which is an action that must be approved by the Unitholders. Furthermore,
since it is possible that an affiliate of Spanos will be the successful bidder
for one or more of the properties in the Auction, the Plan requires an
amendment to the Partnership Agreement to permit such an affiliate to purchase
the properties from the Partnership. Accordingly, Spanos is soliciting the
written consent of each Unitholder to these elements of the Plan, which are
more fully described in the enclosed Solicitation Statement. Under the
Partnership Agreement and Delaware law, Unitholders do not have rights of
appraisal or similar rights if the Plan is approved.
P-B Properties, having previously settled the claims against it, is not a
party to the Settlement of the litigation described above, but it has
acknowledged the Settlement and agreed to be bound by certain provisions of
the Settlement which require that P-B Properties take, or forbear from taking,
certain actions in connection with the Plan. HOWEVER, P-B PROPERTIES IS MAKING
NO RECOMMENDATION TO UNITHOLDERS AS TO WHETHER THEY SHOULD APPROVE OR
DISAPPROVE THE PLAN. THE ENCLOSED SOLICITATION STATEMENT IS BEING FURNISHED TO
YOU SOLELY BY SPANOS.
3
<PAGE>
YOU ARE URGED TO READ CAREFULLY THE SOLICITATION STATEMENT IN ITS ENTIRETY
FOR A COMPLETE DESCRIPTION OF THE PLAN. If you have any questions, please feel
free to contact Robert Felton of Spanos at 1-800-985-6090.
Very truly yours,
A. G. SPANOS RESIDENTIAL PARTNERS-
86, A California Limited
Partnership, General Partner
By AGS Financial Corporation,
General Partner
By: /s/ Arthur J. Cole
----------------------------------
Arthur J. Cole
President
By A.G. Spanos Realty, Inc., General
Partner
By: /s/ Arthur J. Cole
----------------------------------
Arthur J. Cole
Vice President
4
<PAGE>
A.G. SPANOS RESIDENTIAL PARTNERS-86,
A CALIFORNIA LIMITED PARTNERSHIP
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
NOTICE OF CONSENT SOLICITATION
To the Unitholders of Prudential-Bache/A.G. Spanos Genesis Income Partners
L.P., I:
NOTICE IS HEREBY GIVEN to the holders (the "Unitholders") of the units of
limited partnership interest (the "Units") in Prudential-Bache/A.G. Spanos
Genesis Income Partners L.P., I, a Delaware limited partnership (the
"Partnership"), that A.G. Spanos Residential Partners-86, A California Limited
Partnership ("Spanos") is soliciting written consents (the "Consents") to
approve a plan of action (the "Plan") which includes (i) the sale of
substantially all of the assets of the Partnership in a public auction, (ii)
the amendment of the Amended and Restated Agreement of Limited Partnership of
the Partnership to permit an affiliate of Spanos to bid for, and if successful
to purchase, one or more of the Partnership's real properties and (iii) the
complete termination and liquidation of the Partnership, resulting in cash
distributions to the Unitholders, Special Limited Partners and General
Partners, all as more fully described in the accompanying Solicitation
Statement. Although the Plan is a single proposal which must be approved by
Unitholders holding a majority of the Units, Unitholders may indicate
approval, disapproval or abstention with respect to each of the three elements
of the Plan. However, the Plan will not be implemented unless Unitholders
holding a majority of the Units approve all three elements.
Only Unitholders of record at the close of business on April 1, 1998 are
entitled to notice of the solicitation of Consents and to give their consent
to the Plan. In order to be valid, all Consents must be received before the
earlier of (a) the date (not prior to June 10, 1998) upon which Spanos has
received Consents from Unitholders owning a majority of the outstanding Units
or (b) 10:00 a.m. California time on June 30, 1998 (unless such date or time
is extended, in the sole discretion of Spanos, by notice to all Unitholders).
The approval will be obtained through the solicitation of written Consents,
and no meeting of Unitholders will be held. Skinner & Co. has been retained as
a soliciting agent, to assist Spanos in soliciting Consents. A Consent may be
revoked by written notice of revocation or by a later dated action containing
different instructions received by Skinner & Co. at any time on or before the
expiration of the time by which the Consent card must be received.
YOUR APPROVAL IS IMPORTANT. PLEASE READ THE SOLICITATION STATEMENT CAREFULLY
AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN IT IN
THE SELF-ADDRESSED PREPAID ENVELOPE. Any Consent card which is signed and does
not specifically disapprove the Plan will be treated as approving the Plan.
Your prompt response will be appreciated.
A. G. SPANOS RESIDENTIAL PARTNERS-
Dated: May 15 , 1998 86,
A California Limited Partnership,
General Partner
By AGS Financial Corporation,
General Partner
By: /s/ Arthur J. Cole
----------------------------------
Arthur J. Cole
President
By A.G. Spanos Realty, Inc., General
Partner
By: /s/ Arthur J. Cole
----------------------------------
Arthur J. Cole
Vice President
<PAGE>
A.G. SPANOS RESIDENTIAL PARTNERS-86,
A CALIFORNIA LIMITED PARTNERSHIP
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS
INTRODUCTION
This Statement Furnished in Connection with the Solicitation of Consents
("Solicitation Statement") is furnished to the holders ("Unitholders") of
units of limited partnership interest (the "Units") in Prudential-Bache/A.G.
Spanos Genesis Income Partners L.P., I, a Delaware limited partnership (the
"Partnership"), in connection with the solicitation of written consents
("Consents") by A.G. Spanos Residential Partners-86, A California Limited
Partnership ("Spanos"), one of the general partners of the Partnership, to
approve (i) the auction and sale of substantially all of the assets of the
Partnership (the "Auction") pursuant to paragraphs 15.4.19 and 19.1.4 of the
Amended and Restated Agreement of Limited Partnership of the Partnership (the
"Partnership Agreement"), (ii) an amendment to the Partnership Agreement to
permit an affiliate of Spanos to bid for and, if the successful bidder, to
purchase one or more of the Partnership's real properties (the "Amendment")
and (iii) the subsequent termination and liquidation of the Partnership
pursuant to paragraph 19.2 of the Partnership Agreement (the "Plan of
Liquidation"), as more fully described under "THE PLAN." Approval by
Unitholders of each of the Auction, the Amendment and the Plan of Liquidation
(collectively, the "Plan") is required to implement the Plan. If approved and
consummated, the Plan will result in the sale of substantially all of the
Partnership's assets, the termination of the Partnership's business and the
distribution of the net sales proceeds and any other remaining Partnership
assets to the Unitholders, Special Limited Partners and General Partners of
the Partnership, after payment of all liabilities and expenses and certain
attorneys' fees. Under the Partnership Agreement and Delaware law, Unitholders
do not have appraisal or similar rights if the Plan is approved. See "NO
APPRAISAL RIGHTS."
The Plan is being proposed by Spanos in connection with, and pursuant to the
terms of, a proposed settlement by Spanos and its affiliates (the
"Settlement") of certain class action litigation (the "Litigation") now
pending in the United States District Court for the Southern District of New
York (the "Court"). The Settlement is set forth in a Stipulation of Settlement
with Spanos Defendants (the "Settlement Agreement"), executed by plaintiffs in
the Litigation and by Spanos and certain of its affiliates (the "Spanos
Defendants")./1/ The Court has preliminarily approved the Settlement. After
approval by the Unitholders of the Plan, but prior to implementation thereof,
the Court must enter an order finding that the Settlement is fair, reasonable,
adequate and in the best interests of the Unitholders, and such order must
have become final and nonappealable. See "SPECIAL FACTORS--Background of the
Plan" and "CERTAIN PENDING LITIGATION."
Prudential-Bache Properties, Inc. ("P-B Properties"), the co-general partner
of the Partnership, has previously settled with the plaintiffs in the
Litigation and is not a party to the Settlement Agreement. P-B Properties has
advised Spanos that, in view of the unique circumstances under which the Plan
arose, including the fact that P-B Properties and its affiliates have settled
with the plaintiff class in the litigation and did not take part in the
negotiations for the Settlement by Spanos and its affiliates with the Court-
approved counsel and representatives of the plaintiff class, it makes no
recommendation as to whether Unitholders should approve or disapprove the
Plan. However, because the Settlement Agreement contemplates certain action by
P-B Properties in connection with the Auction and the Liquidation, P-B
Properties has executed a separate agreement with the plaintiffs and the
Spanos Defendants whereunder it has acknowledged the Settlement and agreed,
subject to final approval of the Settlement by the Court, to be bound by all
of the provisions of the Settlement Agreement which
- --------
/1/The Spanos Defendants are: Alex G. Spanos, AGS Financial Corporation, A. G.
Spanos Realty Partners, L.P., A. G. Spanos Residential Partners-86, A. G.
Spanos Realty Capital, Inc., A. G. Spanos Realty, Inc., A. G. Spanos
Construction, Inc. and AGS Securities Corporation, together with their
respective officers, directors, employees, parent and subsidiary
corporations, successors, heirs, representatives and executors.
1
<PAGE>
require that P-B Properties take, or forbear from taking, certain actions in
connection with the Plan (see "THE PLAN -- Description of the Auction"). This
Solicitation Statement has been prepared and is being furnished solely by
Spanos.
Neither Spanos nor P-B Properties (collectively, the "General Partners")
intends to call a meeting of the Unitholders in connection with this
solicitation of Consents. Approval or disapproval by a Unitholder of the Plan
is to be indicated by marking and signing the enclosed form of Unitholder
consent (a "Consent") and returning it to Skinner & Co., which has been
engaged by Spanos on behalf of the Partnership to act as soliciting agent (the
"Soliciting Agent"), in the enclosed self-addressed envelope, which requires
no postage if mailed in the United States. The enclosed form of Consent
permits a Unitholder to indicate approval, disapproval or abstention with
respect to each element of the Plan. However, the Plan will not be implemented
unless Unitholders holding a majority of the outstanding Units approve all
three elements. Moreover, implementation of the Plan is subject to the
issuance by the Court of a final, nonappealable order and judgment approving
the Settlement.
Consents of the Unitholders to the Plan will be solicited until the earlier
of: (a) the date (not prior to June 10, 1998) upon which Spanos has received
Consents from Unitholders owning a majority of the outstanding Units or (b)
June 30, 1998 (subject to extension to a date not later than August 31, 1998,
in Spanos' sole discretion, by notice to all Unitholders).
The close of business on April 1, 1998 (the "Record Date") has been fixed by
Spanos for determining the Unitholders entitled to notice of the solicitation
of Consents and to consent to the Plan. On the Record Date, there were 64,660
outstanding Units entitled to vote on the Plan held by approximately 3,000
Unitholders. This Solicitation Statement and the enclosed form of Consent are
first being mailed to Unitholders on or about May 18, 1998.
Pursuant to the Court's preliminary approval order, Unitholders are enjoined
from selling or otherwise transferring their Units without Court approval,
unless both the Unitholder and his or her buyer or transferee agree in writing
to be bound by the Settlement Agreement if finally approved by the Court.
Accordingly, no transfer of Units will be accepted by the General Partners
unless accompanied by such an agreement signed by both the transferring
Unitholder and the transferee, and otherwise meeting the requirements of the
Partnership Agreement. Unitholders will be notified as soon as possible as to
the results of this solicitation.
Pursuant to the Partnership Agreement, the consent of Unitholders holding a
majority of the outstanding Units is required to approve the sale of
properties representing 66 2/3% or more of the aggregate net book value of the
Partnership's assets within a 12-month period and the termination of the
Partnership. Under Delaware law and the Partnership Agreement, any matter upon
which the Unitholders are entitled to act may be submitted for a vote by
written consent without a meeting. Any Consent given pursuant to this
solicitation may be revoked by the person giving it at any time before the
earlier of (a) the date (not prior to June 10, 1998) upon which Spanos has
received Consents from Unitholders owning a majority of the outstanding Units
or (b) 10:00 a.m. California time on June 30, 1998 (unless such date or time
is extended), by sending a written notice of revocation or a later dated
Consent containing different instructions to the Soliciting Agent before such
date. Any written notice of revocation or subsequent Consent should be sent to
the Soliciting Agent, Skinner & Co., at 660 Market Street, Suite 204, San
Francisco, CA 94104 (Telephone 415-981-0970).
In addition to solicitation by use of the mails, officers, directors and
employees of Spanos and its affiliates may solicit Consents in person or by
telephone, facsimile or other means of communication. Such directors, officers
and employees will not receive additional compensation for such services but
may be reimbursed for reasonable out-of-pocket expenses in connection with
such solicitation. In addition, Skinner & Co. has been retained as Soliciting
Agent to assist Spanos in the solicitation of Consents for a base fee of
$1,750, plus additional fees for time spent by Skinner personnel in
communication with Unitholders and tabulations of Consents, as well as
reimbursement of expenses such as postage, copying, courier and messenger
services and telephone and facsimile costs. The estimated aggregate of
Skinner's fees is $4,750, and its expenses are estimated
2
<PAGE>
at approximately $3,000. Arrangements have been made with custodians, nominees
and fiduciaries for the forwarding of Consent solicitation materials to
beneficial owners of Units held of record by such custodians, nominees and
fiduciaries, and the Partnership will reimburse such custodians, nominees and
fiduciaries for reasonable expenses incurred in connection therewith. All
costs and expenses of this solicitation of Consents, including the costs of
preparing and mailing this Solicitation Statement, will be advanced by Spanos
or its affiliates, subject to reimbursement from the Partnership unless the
consent of Unitholders holding a majority of the outstanding Units is not
obtained on or before 5:00 p.m. California time on the third business day
before the hearing at which the parties to the Settlement Agreement will
request the Court to enter its order and judgment finally approving the
Settlement. That hearing is currently expected to take place on July 21, 1998.
The aggregate expenses to be incurred relating to this solicitation are
estimated to be approximately $259,000.
Spanos recommends that Unitholders consent to the Plan. See "SPECIAL FACTORS
- -- Fairness of the Plan; Recommendation of Spanos."
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS
OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION
CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
3
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INTRODUCTION............................................................... 1
SUMMARY.................................................................... 6
SPECIAL FACTORS ........................................................... 9
Background of the Plan................................................... 9
Effects of the Plan...................................................... 11
Fairness of the Plan; Recommendation of Spanos........................... 11
Disadvantages of the Plan................................................ 12
Advantages of the Plan................................................... 12
Vote Required to Approve the Plan........................................ 13
No Other Offers.......................................................... 13
Failure to Approve the Plan.............................................. 14
SELECTED HISTORICAL FINANCIAL DATA......................................... 15
THE PLAN................................................................... 16
General.................................................................. 16
Description of the Auction............................................... 17
Description of Properties................................................ 20
Anticipated Results of Auction, Use of Proceeds and Cash Distributions... 22
Amendment to Partnership Agreement....................................... 23
Liquidation.............................................................. 23
Distributions and Fees................................................... 23
PRO FORMA FINANCIAL INFORMATION............................................ 25
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS........................... 25
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS.................... 25
Market Prices............................................................ 25
Distributions to Unitholders............................................. 26
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN................................ 28
General.................................................................. 28
Partnership Taxation..................................................... 28
Sale of Properties....................................................... 28
Tax Allocations and Distributions........................................ 29
Capital Gains Tax........................................................ 30
Passive Loss Limitation.................................................. 31
Final Partnership Returns and Future Tax Issues.......................... 31
Certain State Income Tax Considerations.................................. 31
NO APPRAISAL RIGHTS........................................................ 32
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF............................ 32
CERTAIN PENDING LITIGATION................................................. 32
AVAILABLE INFORMATION...................................................... 35
</TABLE>
4
<PAGE>
<TABLE>
<CAPTION>
SECTION PAGE
- ------- ----
<S> <C>
INDEX TO FINANCIAL STATEMENTS............................................. F-1
EXHIBIT A: Proposed Amendment to Amended and Restated Agreement of Limited
Partnership of Prudential-Bache/A.G. Spanos Genesis Income
Partners L.P., I............................................... A-1
EXHIBIT B: Annual Report of Partnership on SEC Form 10-K for the year
ended December 31, 1997 as amended............................. B-1
</TABLE>
5
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in this
Solicitation Statement. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Solicitation Statement and the exhibits hereto. Unless otherwise specifically
provided, terms used in this Summary have the respective meanings ascribed to
them elsewhere in this Solicitation Statement or, if not defined herein, in the
Partnership Agreement. Unitholders are urged to read this Solicitation
Statement and the exhibits in their entirety.
THE PARTNERSHIP
Prudential-Bache/A.G.
Spanos Genesis Income
Partners L.P., I............ The Partnership is a Delaware limited partnership
which owns nine real properties (the
"Properties") consisting of seven apartment
complexes and the land underlying two other
complexes, with a total of 2,780 apartment units
in six states. P-B Properties and Spanos are the
General Partners of the Partnership. The offices
of the Partnership are located at One Seaport
Plaza, New York, New York 10292 and its telephone
number is (212) 214-1016.
ACTION BY WRITTEN CONSENT
Purpose of the
Solicitation................ Consents are being solicited by Spanos to approve
(i) the sale of the Properties, which comprise
substantially all of the assets of the
Partnership, and which will be sold at public
auction (the "Auction"); (ii) amendment of the
Partnership Agreement to permit an affiliate of
Spanos to bid for, and if the successful bidder
to purchase, one or more of the Properties from
the Partnership (the "Amendment"); and (iii) the
subsequent termination and liquidation of the
Partnership and the distribution to the
Unitholders, Special Limited Partners and the
General Partners of the net sales proceeds and
other cash held by the Partnership at the time of
distribution, other than certain amounts set
aside to provide for the payment of all expenses
and other liabilities of the Partnership and
payment of certain attorneys' fees in the
Litigation (the "Plan of Liquidation").
Record Date; Units Entitled
to Consent.................. Unitholders of record at the close of business on
April 1, 1998 are entitled to vote by written
Consent. At such date, there were outstanding
64,660 Units, each of which will entitle the
record owner thereof to one vote.
Vote Required............... The Plan will not be implemented unless written
Consents approving each element of the Plan are
received from Unitholders of record holding a
majority of all outstanding Units. See "VOTING
SECURITIES AND PRINCIPAL HOLDERS THEREOF" for
information regarding Unit ownership by
Prudential Securities Incorporated ("Prudential
Securities"), an affiliate of P-B Properties.
Termination of Consent
Solicitation................ Consents must be received by the earlier of (a)
the date (not prior to June 10, 1998) on which
Spanos has received Consents from Unitholders
owning a majority of the outstanding Units or (b)
10:00 a.m. California time on June 30, 1998
(unless such date or time is extended, in the
sole discretion of Spanos, by notice to all
Unitholders, to permit further solicitation of
Consents if majority approval has not been
obtained).
6
<PAGE>
THE PLAN
General..................... The Plan is a single proposal consisting of the
Auction, the Amendment and the Plan of
Liquidation.
Background of the Plan...... See "SPECIAL FACTORS -- Background of the Plan."
Recommendation of Spanos.... Spanos recommends the approval of the Plan.
Spanos has been advised by P-B Properties that it
is making no recommendation regarding the Plan,
because the Plan was developed in the course of
negotiations (in which P-B Properties did not
participate) for the settlement of class action
litigation (to which P-B Properties is no longer
a party, having entered into a separate
settlement with the plaintiff class), which
negotiations were undertaken with Spanos and its
affiliates by Lead Class Counsel approved by the
Court on behalf of the plaintiff class, the
representatives of which were also approved by
the Court. See "SPECIAL FACTORS -- Fairness of
the Plan; Recommendation of Spanos."
Security Ownership and
Voting of the General
Partners.................... As of the Record Date, neither of the General
Partners, nor any executive officer or director
of a General Partner, owned directly or
beneficially any Units. Prudential Securities
beneficially owned approximately 3.0% of the
outstanding Units as of the Record Date.
Prudential Securities intends to vote its Units
to consent or withhold consent to the Plan in the
same proportions as do the other Unitholders.
Consummation of the Plan of
Sale........................ The Auction will be held as promptly as
practicable after obtaining the requisite
approval of the Unitholders to the Plan and after
the Court has entered a final nonappealable order
and judgment approving the Settlement. It is
anticipated that property sales pursuant to the
Auction will be consummated by late 1998.
No Appraisal Rights......... Unitholders have no appraisal rights in
connection with the Plan. See "NO APPRAISAL
RIGHTS."
Federal Income Tax
Consequences................ The Partnership will have taxable gain or loss
upon its sale of each Property. Such gain or loss
will be allocated to the Unitholders in
accordance with the Partnership Agreement, and
generally will constitute Section 1231 gain or
Section 1231 loss. Any Section 1231 gains would
be eligible for a reduced tax rate. See "FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN -- Capital
Gains Tax." For most tax-exempt Unitholders, only
a portion of the gain from the sale of the
Properties would be treated as unrelated business
income. See "FEDERAL INCOME TAX CONSEQUENCES OF
THE PLAN -- Sale of Properties."
Distributions to a Unitholder generally will not
be taxable to the extent the distributions do not
exceed the Unitholder's adjusted tax basis in the
Units. The tax basis in the Units will be reduced
by the
7
<PAGE>
distributions, and those in excess of the tax
basis generally will be treated as capital gain,
which will be long-term if the applicable Units
have been held for more than one year.
Unitholders who have remaining tax basis in their
Units after termination of the Partnership
generally will have a capital loss. See "FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN -- Tax
Allocations and Distributions."
Final Distributions and
Liquidation................. As promptly as practicable following the sale of
the last Property, after payment or reserving for
payment of all costs of the Auction and this
Consent solicitation, the General Partners will
determine the amount of funds which they believe
will be sufficient to provide for the
Partnership's remaining expenses and liabilities,
including the costs of liquidation of the
Partnership and any contingent liabilities. Such
liabilities would include potential liabilities
under contracts of sale of the Properties. The
Settlement Agreement provides that the amount of
the contingency reserve shall not exceed
$1,000,000, and that such reserve will be held
for a period of one year or less. The Settlement
Agreement further provides that Lead Class
Counsel representing the Unitholders may apply to
the Court for an award of attorneys' fees payable
out of the amount of property sales proceeds
which would otherwise be distributable to the
Unitholders. After establishment of the
contingency reserve and payment of the Court-
approved attorneys' fees, the balance of the
Partnership's funds will be distributed to the
Unitholders, Special Limited Partners and General
Partners in accordance with the Partnership
Agreement. Once all known liabilities have been
satisfied, the Partnership will distribute its
remaining net assets and terminate. Any remainder
of the $1,000,000 reserve will be distributed to
the Unitholders in accordance with the
Partnership Agreement, and the General Partners
will remain obligated with respect to any
unsatisfied obligations of the Partnership.
8
<PAGE>
SPECIAL FACTORS
Before consenting to the Plan, Unitholders should carefully consider certain
factors regarding the Plan:
BACKGROUND OF THE PLAN
The Partnership was formed in January 1987 with the primary purpose of
acquiring from affiliates of Spanos, investing in, holding, managing, selling,
disposing of and otherwise acting with respect to multifamily residential
rental properties. The Partnership's investment objectives at formation were
to preserve and protect Partnership capital by investing in properties in
diverse locations, to provide partially tax-sheltered cash distributions from
operations and to provide long-term capital appreciation. Between June of 1987
and August of 1988, the Partnership purchased from affiliates of Spanos eight
garden apartment complexes and five parcels of land on which garden apartment
complexes had been constructed, with a total of 4,246 apartment units in seven
states, for an aggregate purchase price of $128,335,000. See "THE PLAN --
Description of Properties." As of the date hereof, the Partnership has sold
one apartment complex and the land underlying three other complexes, so that
the Partnership's properties (the "Properties") now consist of seven apartment
complexes and the land underlying two other complexes, with a total of 2,780
apartment units in six states.
Although the Partnership Agreement provides that the term of the Partnership
will, unless previously terminated, continue until December 31, 2021, the
prospectus of the Partnership for its original public offering of Units stated
that the Partnership intended that it would dispose of its Properties within
seven to 10 years after acquisition.
Spanos and P-B Properties have, in the ordinary course of administration of
the Partnership's affairs, been considering when and how to effect the
disposition of the Properties in the best interests of the Partnership.
Affiliates of Spanos which have acted as general partners of real estate
limited partnerships have periodically evaluated the desirability of sale of
individual properties held by those partnerships, after the minimum
anticipated holding periods had ended. Similarly, Spanos has from time to time
evaluated the Properties and those of Prudential-Bache/A.G. Spanos Realty
Partners L.P., I (the "Realty Partnership"), a public Delaware limited
partnership of which P-B Properties and A.G. Spanos Realty Partners, L.P., an
affiliate of Spanos ("Spanos Realty") are the general partners. While the
Realty Partnership has sold no properties since its inception, the Partnership
has sold four properties since its inception in 1987. The ability to sell
properties generally has been enhanced by improvements in the national real
estate investment market. Pension funds, real estate investment trusts
("REITs") and other institutional buyers are now actively seeking new
investment properties, as compared to the early 1990's, when these same
institutional buyers were fewer and less active. The emergence of securitized
mortgage financing and lower mortgage interest rates have also contributed to
an improved market for real estate such as the Properties, as entrepreneurial
buyers who require debt financing to purchase properties are able to borrow
funds at attractive rates.
More specifically, with respect to the Partnership's Properties,
improvements in the real estate capital markets and in the operating
performance of the Properties have enhanced the prospects for selling these
Properties at attractive prices. During the early 1990's, the Partnership's
Properties experienced devaluation due to a nationwide slump in real estate
values. Moreover, the Partnership reduced cash distributions to its Partners
in 1991, because cash flow after debt service would not support the level of
distributions paid in prior years. As a result of improved net operating
income and general improvement in the real estate capital markets in these
areas, Spanos believes that the Properties are now readily salable.
Although future economic conditions are difficult to predict, Spanos
believes that it is unlikely that continuing to hold the Properties would
significantly enhance the Partnership's ultimate realization on sale of the
Properties, or that the relative economic benefits of continued ownership
would justify the risks of such continued ownership.
9
<PAGE>
The sale of all or substantially all of the assets of the Partnership in a
single sale or in multiple sales in the same 12-month period requires the
approval of Unitholders holding a majority of the Units. The Partnership
Agreement defines "Substantially All of the Assets" to mean Properties
representing 66-2/3% or more of the net book value of all Partnership assets
as of the end of the most recently completed calendar quarter. Neither the
Partnership Agreement nor Delaware law requires that Unitholders vote on the
sale of each Property or on the actual terms of specific sales. Advance
approval of the Plan will allow the General Partners to consummate a sale or
sales of the Properties upon completion of the Auction, without risking loss
of the buyer or buyers due to delays in obtaining the necessary consents of
Unitholders.
The Plan is being proposed by Spanos in connection with the Settlement of
the Litigation. The Litigation was commenced as a class action against P-B
Properties and its affiliates, and was expanded to include Spanos and its
affiliates in 1993. See "CERTAIN PENDING LITIGATION." In early 1994, counsel
for Spanos and its affiliates met with the lead lawyers representing the
plaintiffs in the litigation ("Lead Class Counsel") to explore the prospects
for settlement of the Litigation as to Spanos and its affiliates. From the
beginning of the settlement negotiations, Lead Class Counsel and the
representatives of the class of plaintiffs (the "Class Representatives")
demanded the sale of the properties of the Partnership and the Realty
Partnership and liquidation of such partnerships, and that Spanos or its
affiliates provide "floor bids," to ensure a bargained-for specified minimum
amount of proceeds to be distributed to Unitholders. Lead Class Counsel,
Spanos and Spanos Realty agreed that the expense of appraisals of each of the
properties was not warranted, because a public auction after dissemination of
full information to prospective bidders, together with a guaranteed minimum
bid, would provide a superior measure of the values of the various properties
than would opinions of non-bidding appraisers. In the initial meeting, Lead
Class Counsel, Spanos and its affiliates began negotiations concerning the
amount of a floor bid for the properties of both the Partnership and the
Realty Partnership. Spanos initially offered a floor bid for all of the
properties aggregating $31,900,000 over the existing mortgage debt on the
properties. Lead Class Counsel thereafter engaged a financial and evaluation
consultant who requested additional information regarding the Properties,
which was provided by Spanos and reviewed by the consultant. In determining
the amount of its proposed floor bid, Spanos did not undertake a formal
valuation of the properties, but rather relied on its own familiarity with the
properties and its expertise generally with respect to multi-family
residential properties, and took into account the market conditions for such
properties and the desirability of settling the Litigation.
Throughout 1994, negotiations continued with Lead Class Counsel and its
consultant, primarily relating to the floor bids. In addition, Spanos' counsel
met twice with members of the executive committee formed by counsel to
plaintiffs in the Litigation, Lead Class Counsel and its consultant, and in
late 1994 Spanos agreed to negotiate further its floor bids. Ultimately,
Spanos agreed to increase its minimum bid for the properties of both
partnerships to $41,000,000 over existing mortgage debt. However, no agreement
regarding a settlement was reached, and negotiations continued during 1995. In
June of 1995, Spanos increased its aggregate floor bid offer to $41,360,000,
but still no definitive agreement was reached. Throughout the remainder of
1995 and 1996, settlement negotiations were carried on, and various proposed
forms of a settlement agreement were exchanged between the parties. In May,
1997, after further negotiations, Spanos increased its aggregate floor bid
offer to $43,000,000, allocated $20,560,000 to the Partnership and $22,440,000
to the Realty Partnership, in each case over existing mortgage debt. Lead
Class Counsel, its consultant and the executive committee of plaintiffs'
counsel agreed to this offered amount, and on May 12, 1997, the Settlement
Agreement was executed. The increases in the amount of floor bid which Spanos
offered resulted from the negotiation process, although the fact that the
markets for the properties had improved further also influenced its decisions.
On May 19, 1997, the Court entered its preliminary order which, among other
things, approved the appointment of representatives of the plaintiff class,
approved the appointment of Lead Class Counsel, preliminarily approved the
Settlement and approved the form of Notice to the Unitholders which
accompanies this Solicitation Statement.
If the Plan is approved by the Unitholders, and if the Court enters a final
nonappealable order and judgment approving the Settlement, the Auction will
take place as promptly as is practicable, consistent with meeting the terms of
the Plan, as described under "THE PLAN -- Description of the Auction."
10
<PAGE>
EFFECTS OF THE PLAN
If the Plan is approved and implemented as proposed, the effects of the Plan
will be the sale of substantially all of the Partnership's assets, the
termination of the Partnership's business, the winding up of the Partnership's
affairs and the distribution to the General Partners, the Special Limited
Partners and the Unitholders of the net proceeds of the Auction and the
Partnership's other assets, after payment of liabilities, liquidation expenses
and certain attorneys' fees. Spanos estimates that, assuming the Properties
are sold for the amount of its Minimum Overall Bid (as defined under "THE PLAN
- -- Description of the Auction"), the Unitholders will receive an initial cash
distribution of approximately $212.89 per Unit upon completion of the Sale of
the Properties, and may receive a distribution of up to an additional $15.47
approximately one year later. See "THE PLAN--Anticipated Results of Auction,
Use of Proceeds and Cash Distributions." The amount distributed to each
Unitholder generally will not be taxable to the extent the distributions do
not exceed the Unitholder's adjusted tax basis in the Units. See "FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN--Tax Allocations and Distributions."
FAIRNESS OF THE PLAN; RECOMMENDATION OF SPANOS
Spanos reasonably believes that the Plan is fair to the Unitholders and
recommends approval of the Plan. No appraisals of the Properties were
obtained, and no independent evaluation of the fairness of the Plan to
Unitholders has been made. However, the Settlement has been preliminarily
approved by the Court, and the Plan will not be implemented unless the Court,
after approval of the Plan by the Unitholders, issues an order finding that
the Settlement is fair, reasonable, adequate and in the best interests of the
Unitholders. Further, the auction process is designed to secure the highest
prices available for the Properties on the date of the Auction.
In reaching its conclusion to recommend approval of the Plan, Spanos
considered the following factors:
(1) the fact that the Properties have now been held for longer than their
originally intended holding periods, which militates in favor of a sale
of the Properties at this time;
(2) increased availability of investor capital and the increased purchasing
activity and favorable interest rate environment, which also militates
in favor of sale;
(3) improved occupancies and revenues in recent years, which enhance the
prospects for realization of an adequate sale price for the Properties;
(4) the potential for future operating performance increases and a possible
increase in the value of the Properties, which might militate in favor
of holding the Properties, but which also might enhance their
salability;
(5) the satisfactory physical condition of the Properties and the need for
expenditures for repairs, replacements and improvements to be incurred
in the future, which militates in favor of a sale now;
(6) the presence of competition and the possibility of increased future
competition, which suggest that a sale now may be advisable;
(7) the relative illiquidity of the Units, which militates in favor of
sale;
(8) the historic levels of cash distributions to the Unitholders and the
reduction of cash distributions in 1991, which suggest that Unitholders
would benefit from recovering their investment now; and
(9) the potential for an increase in the amounts of distributions, which
might militate in favor of holding the Properties, if such future
distributions would represent a rate of return equivalent to that
available in other investments.
11
<PAGE>
In addition, Spanos took into account the pendency of the Litigation,
including (i) the extensive negotiations with Lead Class Counsel leading to
the Settlement Agreement and the Court's approval of the Settlement; (ii) the
fact that included in the relief sought by the plaintiffs is rescission of the
original issuance of the Units; (iii) the costs expended to date and expected
to be expended by Spanos and its affiliates in continuing defense against such
Litigation; and (iv) the effects of participation in the defense of such
Litigation upon certain of the key personnel of Spanos, each of which was
considered from Spanos' standpoint to weigh in favor of offering a floor bid
and selling the Properties to settle the Litigation. See "CERTAIN PENDING
LITIGATION."
Spanos does not believe that it is feasible to attempt to quantify any of
the foregoing factors, nor did Spanos accord any particular weight to any of
those factors, although it believes that the fact that the Properties have now
been held for longer than their originally anticipated holding periods and the
fact that the representatives of the class action plaintiffs, which include
all of the Unitholders, demanded sale of the Properties weighed more heavily
in favor of the Plan than did other factors. After reviewing all of the above,
Spanos concluded that these factors weighed in favor of agreeing to the floor
bids and selling the Properties now, rather than sometime in the future,
because it believes that the risks of continuing to own the Properties
outweigh the benefits of continued ownership.
DISADVANTAGES OF THE PLAN
The primary disadvantage of disposing of the Properties at this time is that
the Partnership will not benefit from possible further improvements in
economic and market conditions which might produce increased cash flow and
possibly enhance the sales prices of the Properties. Further, it is not
anticipated that the Unitholders will receive aggregate distributions from the
Partnership, including distributions from sales of the Properties and any
remaining contingency reserve, which will equal the amounts originally
invested in the Partnership. In addition, no current independent appraisals of
the Properties were obtained, because Spanos believes that a public auction
after dissemination of full information to prospective bidders, together with
its affiliate's minimum bids, will provide a superior measure of the values of
the Properties than would opinions of non-bidding appraisers. No independent
opinion or evaluation of the fairness of the Plan to Unitholders has been
made. However, the Plan will not be implemented unless the Court issues an
order finding that the Settlement is fair, reasonable, adequate and in the
best interests of the Unitholders.
ADVANTAGES OF THE PLAN
In addition to the factors regarding the Settlement discussed under
"Background of the Plan" above, Spanos based its recommendation on the
following factors:
(i) SPANOS' BELIEF THAT THE CURRENT LEVEL OF MORTGAGE INTEREST RATES AND
INCREASED AVAILABILITY OF INVESTOR CAPITAL ARE FAVORABLE FOR THE SALE
OF THE PROPERTIES. In particular, Spanos has considered as favorable
factors the availability of potential purchasers with sufficient equity
to purchase properties; the availability of financing for the
acquisition of real estate from the capital markets and traditional
lending sources; and continued favorable interest rates which make it
less expensive for potential purchasers to borrow funds.
(ii) GENERAL IMPROVEMENT IN THE OCCUPANCIES, REVENUES AND NET OPERATING
INCOME OF THE PARTNERSHIP'S PROPERTIES, which Spanos believes enhances
their salability.
(iii) REALIZATION OF HIGHEST OBTAINABLE PRICES THROUGH THE AUCTION. The
Court-approved Auction process provides a mechanism which Spanos
believes will enable the Partnership to sell the Properties for the
best aggregate sale price obtainable at the time of sale, under
current market conditions. Moreover, the guaranteed minimum bids from
an affiliate of Spanos provide assurance that the Properties will be
sold at prices exceeding existing mortgage debt and sufficient to
assure at least $20,560,000 of gross sale proceeds.
12
<PAGE>
(iv) RISKS OF CONTINUED OWNERSHIP. Retaining the Properties will continue
to subject the Partnership to the risks inherent in the ownership of
rental property, such as fluctuations in occupancy rates, operating
expenses and rental rates (which in turn may be affected by general
and local economic conditions), the supply and demand for apartment
properties of the type owned by the Partnership, increased competition
(particularly from newer apartment projects with more desirable
configurations and greater amenities) and federal and local laws and
regulations affecting the ownership and operation of real estate.
(v) LIQUIDITY. The sales will provide liquidity to the Unitholders. At
present, there is no established public trading market for the
Partnership's Units, and liquidity has been limited to sporadic sales
which occur within an informal secondary market, and three recent
tender offers, each for a limited number of Units. See "MARKET PRICES
OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS--Market Prices."
(vi) INCREASED COMPETITION. Spanos believes that older apartment buildings
such as those on the Properties, even though well maintained and in
good condition, can over time suffer a competitive disadvantage in
attracting and retaining tenants, as compared to new apartments with
more modern amenities in newer, attractive neighborhoods. Further, the
two-bedroom, one-bath configurations of many of the apartments in the
Properties are not as attractive for prospective tenants as two-
bedroom, two-bath configurations often found in newer competing
projects. In addition, new apartment construction has commenced
recently in several of the Properties' market areas, as a result of
recent price increases for apartment projects and readily available
financing for such construction. The Properties, therefore, may not be
able to sustain current levels of revenue.
(vii) THE CONDITION OF THE PROPERTIES. The Partnership has maintained the
Properties in good condition during the past few years. Spanos
believes that it would be advantageous to sell the Properties now
before further aging and wear in the ordinary course occurs, thereby
requiring substantially increased expenditures for repairs and
refurbishment.
(viii) THE PARTNERSHIP'S ORIGINAL OBJECTIVES AND POLICIES. Sales of the
Properties at this time are compatible with the Partnership's
originally anticipated holding periods.
(ix) ELIMINATION OF SCHEDULE K-1 REPORTS. The Partnership's liquidation
will eliminate the requirement for annual Schedule K-1 income tax
reporting for the Partnership, which Spanos believes is often
burdensome for Unitholders.
VOTE REQUIRED TO APPROVE THE PLAN
Implementation of the Plan requires that Spanos receive Consents approving
each element of the Plan from Unitholders of record holding a majority of all
outstanding Units.
NO OTHER OFFERS
During the 18 months preceding the date of this Solicitation Statement,
neither Spanos nor the Partnership has received any firm offers from
unaffiliated persons for the merger or consolidation of the Partnership with
another entity or the sale of all or any substantial part of its assets to any
third party, nor is Spanos aware of any firm offer for Units which would
enable the holder of such Units to exercise control over the Partnership.
However, immediately prior to execution of the Settlement Agreement, Spanos
received from an unaffiliated entity a tentative offer for the purchase of all
of the Properties of the Partnership for a price which would have yielded less
net proceeds to the Partnership than would result from Spanos' Minimum Overall
Bid. Because of the lower price offered, the lack of assurance that such a
sale would result in termination of the Litigation and the fact that
negotiations for the definitive Settlement Agreement were substantially
complete, Spanos determined that it was in the best interests of the
Partnership to proceed with the Settlement Agreement, and Spanos so advised
the entity making the tentative offer, and suggested that it submit a bid for
the Properties in the Auction.
13
<PAGE>
Moreover, certain limited tender offers for Units have been made during such
period. See "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS--Market
Prices."
FAILURE TO APPROVE THE PLAN
If the Unitholders fail to approve the Plan, the Partnership will continue
to own the Properties. In such event, Spanos expects that the Partnership will
operate the Properties for an indefinite period, which over time would likely
entail substantial expenditures for repairs and refurbishment. Consistent with
the Partnership Agreement, the General Partners may receive or solicit offers
for the sale of one or more of the Properties as opportunities arise. In any
such sale, the Partnership would benefit from any increase in value of the
affected property over the value at the time of the Auction, and would suffer
a detriment to the extent of decrease in such value. Failure by the
Unitholders to approve the Plan will not affect their rights under the
Partnership Agreement.
14
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected financial data of the Partnership
for each of the five years in the period ended December 31, 1997. This data
should be read in conjunction with the financial statements, related notes and
other financial information included in the Partnership's Annual Report on
Form 10-K for the year ended December 31, 1997, as amended, a copy of which is
attached hereto as Exhibit B.
<TABLE>
<CAPTION>
FOR YEARS ENDED DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER UNIT AND PER
SPECIAL INTEREST AMOUNTS)
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total Revenues (excluding gain on
disposition of property)........ $16,507 $16,130 $14,989 $15,534 $15,569
Gain (Loss) on Disposition of
Property........................ -0- -0- -0- 3,874 (327)
Interest Expense................. 4,868 4,960 4,767 5,000 5,612
Net Income (Loss)................ 289 248 (800) 3,282 (1,725)
Net Income (Loss) to General
Partners........................ 6 5 (16) 66 (35)
Net Income (Loss) per Special In-
terest.......................... -0- -0- -0- -0- -0-
Net Income (Loss) per Unit....... 4.37 3.75 (12.12) 49.74 (26.15)
Cash Distributions per Special
Interest........................ -0- -0- -0- 86.78 27.71
Cash Distributions per Unit...... 25.00 25.00 25.00 111.78 50.21
<CAPTION>
AT DECEMBER 31,
-------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total Assets..................... $73,894 $76,298 $78,463 $81,851 $94,300
Mortgage Loans Payable........... 57,927 58,897 59,765 60,877 68,373
Unitholders' Equity.............. 7,665 8,999 10,373 12,773 16,785
Special Limited Partners' Equity. 6,862 6,862 6,862 6,862 7,535
General Partners' Deficit........ (1,008) (981) (954) (904) (809)
Total Partners' Equity........... 13,519 14,880 16,281 18,731 23,511
</TABLE>
15
<PAGE>
THE PLAN
GENERAL
The Plan was developed by Spanos in connection with the Settlement of the
Litigation and is being proposed by Spanos for consent by Unitholders to each
element of the Plan--the Auction, the Amendment and the Plan of Liquidation.
See "INTRODUCTION" and "SPECIAL FACTORS--Background of the Plan."
The principal advantages of the Plan are:
. Sale of the Properties in a favorable market for multi-family
properties.
. Enhanced salability due to recent improved operations of the Properties.
. Sale of the Properties in a public auction, with substantial information
available to bidders.
. Providing liquidity to the Unitholders.
. Sale while the Properties are in good repair, avoiding substantial
expenditures for repairs and refurbishments.
. Guaranteed minimum bids from an affiliate of Spanos.
. Sale of the Properties shortly after the originally intended holding
period.
. Elimination of Schedule K-1 tax reports.
See "SPECIAL FACTORS--Advantages of the Plan."
The principal disadvantages of the Plan are:
. Unitholders will not benefit from possible improvements in economic and
market conditions affecting the Properties.
. Unitholders will not likely recover their original investments.
. No current independent appraisals of the Properties have been obtained.
. No independent opinion or evaluation of the fairness of the Plan to
Unitholders has been obtained.
See "SPECIAL FACTORS--Disadvantages of the Plan."
Spanos recommends that the Unitholders approve the Plan, including approval
of the Auction, which will result in the sale of all of the Partnership's
Properties, followed by the termination and liquidation of the Partnership. If
the Plan is approved, and the Court enters a final nonappealable order and
judgment approving the Settlement, the Properties will be sold in the Auction
on the terms set forth below and in accordance with the terms of the
Partnership Agreement as amended by the Amendment. See "Description of the
Auction" below.
Approval of the Plan will not automatically result in the sale of the
Properties. Spanos and its affiliates have the right, but not the obligation,
to terminate the Settlement on the occurrence of certain conditions, including
the failure by the Court to enter a final order and judgment approving the
Settlement, or the entering by the Court of an order and judgment which varies
from that contemplated by the parties to the Settlement Agreement, or the
failure of a majority of the Unitholders to approve the Plan. The only other
conditions which would permit Spanos and its affiliates to terminate the
Settlement have been satisfied by the date of this Solicitation Statement.
Termination of the Settlement would have the effects described under "SPECIAL
FACTORS--Failure to Approve the Plan," and the Litigation would continue.
The Court must enter an order and judgment approving the fairness of the
Settlement, and the order and judgment must become final and no longer subject
to appeal or review, before the Plan may be effected.
16
<PAGE>
DESCRIPTION OF THE AUCTION
In the Settlement Agreement, Spanos and its affiliates agreed that they will
make available for sale in the Auction all apartment buildings and other
improvements owned by them and located on the parcels of land owned by the
Partnership, so that each parcel of land, together with the buildings and
other improvements thereon, can be bid upon and sold as a single property in
the Auction. The Settlement Agreement further provides that the net proceeds
from the sale of such properties will be allocated between the Partnership and
the owner of the buildings and improvements as follows:
a. After payment of the mortgage indebtedness, the Partnership will receive
all of the net sale proceeds until it has recovered its original
purchase price for the land ($3,500,000 for the Cameron Creek Property
and $2,000,000 for Del Rio);
b. The owner of the buildings and improvements will then receive the
balance of the proceeds up to a "base amount" equal to the appraised
value of the land, buildings and improvements at the time of the
Partnership's original public offering ($18,000,000 for Cameron Creek
and $10,100,000 for Del Rio); and
c. Any remaining proceeds will be allocated 42.5% to the Partnership and
57.5% to the owner of the buildings and improvements.
The Auction will be conducted as follows:
a. CONDUCT OF THE AUCTION. The Settlement Agreement covers both the
Partnership and the Realty Partnership, and provides for a combined
simultaneous Auction of the properties of both partnerships (the "Auction
Properties"). Since one or more affiliates of Spanos and Spanos Realty
(collectively, the "Spanos General Partners") will bid initially in the
Auction, the Settlement Agreement provides that the Spanos General Partners
shall have no involvement in conducting the Auction except that they may
identify potential bidders to be invited to participate in the Auction, have
agreed to assist in accommodating due diligence information requests from
potential bidders and have agreed to submit certain minimum bids, as hereafter
described.
The Partnership and the Realty Partnership have engaged Ernst & Young LLP,
an independent national public accounting and consulting firm, through its E&Y
Kenneth Leventhal Real Estate Group (the "Agent") to conduct the Auction. P-B
Properties will also cause the Partnership and the Realty Partnership: (i) to
retain independent real estate counsel to advise them regarding the Auction;
(ii) to engage Eckland Consultants Inc., a national architectural, engineering
and environmental consulting firm ("Eckland Consultants"), to perform a
physical inspection of the Auction Properties and prepare an engineering
report setting forth any material structural or operational defects and to
provide a Phase I report (and if necessary a Phase II report) on the
environmental condition of each of the Auction Properties; (iii) to contract
with First American Title Insurance Company to perform title searches and
issue preliminary title commitments; and (iv) to contract with one or more
qualified termite inspection companies, selected by the Agent and acceptable
to P-B Properties and Lead Class Counsel, to perform termite inspections at
each Auction Property. The fees and expenses of the Agent, the independent
real estate counsel, Eckland Consultants, the title company and the termite
inspection companies will be borne by the Partnership and the Realty
Partnership. Where necessary, these fees and expenses will be allocated
between the Partnership and the Realty Partnership in proportion to the gross
sales price, in excess of existing mortgages, realized by each as a result of
the Auction.
17
<PAGE>
The Agent will prepare packages of information (the "Bid Packages") for
distribution to potential bidders regarding the Auction, the Auction
Properties, the Partnership and the Realty Partnership, including bidding
instructions, a bid form, a basic sales contract and various due diligence
materials for each of the Auction Properties, including the following:
(i) the reports of Eckland Consultants;
(ii) the preliminary title commitment;
(iii) the termite inspection report;
(iv) detailed operating statements for the last three full calendar years;
(v) the rent roll;
(vi) copies of leases and schedules of current lease rates and expirations;
(vii) descriptions of all capital improvements of all assets reflected in
the operating statement of the Auction Property;
(viii) schedules of required and planned capital improvements, renovations
and repairs;
(ix) a summary of any mortgage debt on the Auction Property, including
explanations of prepayment and assumption fee provisions; and
(x) a property-level budget, together with all property-level contracts not
cancelable on 30 days' notice.
The Bid Packages will also include audited consolidated operating statements
for the Partnership and the Realty Partnership for the last three full
calendar years, as well as any other information which the Agent may deem
useful and appropriate in soliciting bids.
In the Settlement Agreement, the Spanos General Partners have agreed to
assist in accommodating all reasonable due diligence requests from potential
bidders, including providing (i) access to the books and records of the
Partnership, the Realty Partnership and the individual Auction Properties
(including the rent rolls, operating statements and budgets included in the
Bid Packages, and such other information as is reasonably necessary to verify
the income and expenses of the Properties), (ii) opportunities for interviews
with management personnel of Spanos and Spanos Realty, including property
managers, superintendents and leasing agents and (iii) on-site inspections of
the Auction Properties.
To receive a Bid Package, a potential bidder must execute a confidentiality
agreement and demonstrate to the Agent's satisfaction that it has the
financial ability and legal capacity to prepare and submit a bona fide bid and
to undertake and perform all obligations arising upon acceptance of its bid.
After distribution of the Bid Packages, the Agent will solicit bids from
qualified bidders (i.e., persons or entities which the Agent believes to have
the financial ability and legal capacity to prepare and submit a bona fide bid
in the Auction and to undertake and perform all obligations arising upon
acceptance of any bid they may submit) and will conduct the Auction.
In the Auction, the Agent will neither favor nor disfavor the affiliate or
affiliates of the Spanos General Partners which submit the minimum required
bids described below.
The Agent will establish an "Initial Bid Period," within which bidders may
conduct further due diligence and submit preliminary written bids. A bidder
may either bid for all of the Auction Properties of either the Partnership or
the Realty Partnership (an "Overall Bid") or for any one or more of the
Auction Properties of either the Partnership or the Realty Partnership (an
"Individual Bid"). A bid may be either an all cash bid or a combined bid of
cash plus assumption of related mortgage debt (if assumable), with the bidder
being responsible for any assumption fees or similar costs. A bidder of all
cash will be responsible for any mortgage prepayment penalties and
reconveyance costs, and must provide evidence of financial ability to support
the bid. At the close
18
<PAGE>
of the Initial Bid Period, the Agent will review the bids received with P-B
Properties and Lead Class Counsel, and thereafter will encourage bids higher
than the previous high bid from bidders (other than the Spanos affiliate) who
have previously bid on a Property or Properties, for a period of no more than
30 days from the close of the Initial Bid Period. The Agent will then
determine the total of the highest of the Individual Bids submitted for each
of the Auction Properties, and the highest Overall Bid for all of the Auction
Properties, of each of the Partnership and the Realty Partnership. The Agent
will report the final bid results to P-B Properties and to Lead Class Counsel.
P-B Properties and Lead Class Counsel will then jointly determine the
"Successful Bids" (i.e., either the Overall Bid or the aggregate Individual
Bids which will, in the judgment of P-B Properties and Lead Class Counsel,
produce the highest gross cash price in excess of existing mortgage debt to
each of such partnerships).
Upon determination of the Successful Bids, the Agent will immediately notify
the makers of those bids (the "Successful Bidders") and seek to obtain their
signatures on the basic sales contract included in the Bid Package.
b. EXECUTION OF SALES CONTRACTS. The bid form will ask the Successful
Bidders to execute the basic sales contract immediately and promptly to
deposit the full purchase price into an escrow. However, the Agent will be
authorized to negotiate with each of the Successful Bidders as to the
definitive form of the sales contract, subject to approval by P-B Properties
and Lead Class Counsel. If any Successful Bidder fails or refuses to execute a
sales contract at the price and on the terms included in the Successful Bid
(with such modifications as may be approved as aforesaid), the Agent may, with
the concurrence of P-B Properties and Lead Class Counsel, substitute as the
Successful Bid for the Auction Property or Auction Properties in question the
bid or bids producing the next highest gross cash price in excess of existing
mortgage debt to the Partnership or the Realty Partnership, as the case may
be.
c. MINIMUM SPANOS BID; NO OTHER BIDS OR PURCHASES BY SPANOS. Under the
Settlement Agreement, Spanos has agreed that one or more of its affiliates
(the "Spanos Bidder") will, at the outset of the Initial Bid Period, submit a
preliminary written Overall Bid which will provide to the Partnership a gross
cash price in excess of then-existing mortgage debt of at least $20,560,000
(the "Minimum Overall Bid"). In addition, Spanos has agreed that the Spanos
Bidder will submit preliminary written Individual Bids for each of the
Properties in amounts such that the aggregate gross cash price in excess of
existing mortgage debt for all of the Properties is at least $20,560,000.
The following table sets forth the amount of each preliminary Individual Bid
which Spanos currently intends that the Spanos Bidder will submit:
<TABLE>
<CAPTION>
EXCESS OF BID
INDIVIDUAL MORTGAGE PRICE OVER
PROPERTY BID PRICE DEBT (1) MORTGAGE DEBT
- -------- ----------- ----------- -------------
<S> <C> <C> <C>
Le Parc................................... $ 7,317,000 $ 7,307,000 $ 10,000
Casa de Fuentes........................... 9,700,000 7,059,000 2,641,000
MacArthur Park............................ 9,700,000 6,188,000 3,512,000
Cypress Pointe............................ 15,100,000 11,071,000 4,029,000
Chelsea Park.............................. 10,900,000 7,680,000 3,220,000
Comanche Place............................ 10,600,000 9,682,000 918,000
Mission Trails............................ 14,975,000 8,765,000 6,210,000
Cameron Creek............................. 12,825,000 12,815,000 10,000
Del Rio................................... 7,243,000 7,233,000 10,000
----------- ----------- -----------
Total................................... $98,360,000 $77,800,000 $20,560,000
</TABLE>
- --------
(1) Principal amount of mortgage debt outstanding as of December 31, 1997.
As of December 31, 1997, the land, buildings and improvements on the Cameron
Creek Property were subject to mortgage debt of $12,815,000, and the land,
buildings and improvements on the Del Rio Property were subject to mortgage
debt of $7,233,000. Since as set forth above Spanos has determined that the
Spanos
19
<PAGE>
Bidder's Individual Bids for each of the Le Parc Property, the Cameron Creek
Property and the Del Rio Property will be $10,000 over the existing mortgage
debt, the Partnership will receive a return of only $30,000 of its aggregate
$10,519,000 cash purchase price for such Properties, if the Spanos minimum
Individual Bids are the Successful Bids for such Properties. Unless the
Successful Bid for each of Cameron Creek and Del Rio exceeds the Spanos
Bidder's Individual Bid by a substantial amount ($3,490,000 in the case of
Cameron Creek and $1,990,000 in the case of Del Rio), the Spanos affiliate
which owns the buildings and improvements on such Property will not receive
any portion of the Auction proceeds.
If the Spanos Bidder's guaranteed Minimum Overall Bid is the Successful Bid
for the Properties, Spanos estimates that the ultimate aggregate distributions
to Unitholders upon consummation of the Liquidation will be approximately $228
per Unit. See "Anticipated Results of Auction, Use of Proceeds and Cash
Distributions" below.
Under the Settlement Agreement, the Spanos Bidder may submit an improved
Individual Bid for one or more of the Properties during the re-bid period, and
may also improve any Overall Bid previously submitted. However, certain
Unitholders who were informed regarding the proposed conduct of the Auction
informally expressed concern that the ability of the Spanos Bidder to submit
improved Individual and Overall Bids could chill the interests of potential
third-party bidders in the Auction. Accordingly, Spanos has determined that,
after submission of the required Minimum Overall Bid and required initial
Individual Bids, neither the Spanos Bidder nor Spanos nor any other affiliate
of Spanos will submit improved bids during the re-bid period. Therefore, if
any third-party bidder submits an Overall Bid which exceeds the Minimum
Overall Bid of the Spanos Bidder, then the Spanos Bidder will not be the
Successful Bidder. Moreover, as to each Property, if any third-party bidder
submits an Individual Bid which exceeds the Spanos Bidder's initial Individual
Bid, then the Spanos Bidder will not be the Successful Bidder as to such
Property. Each of the bids submitted by the Spanos Bidder will be considered a
final bid and will remain open through the end of the re-bid period. If the
Spanos Bidder is the Successful Bidder with respect to one or more of the
Properties, it will be required to execute the basic sales contract without
change. It is presently anticipated that the Spanos Bidder will be A.G. Spanos
Construction, Inc., which will utilize its existing cash reserves and
presently available bank lines of credit to fund the purchase price of any
Property as to which it is the Successful Bidder.
d. CONSUMMATION OF SALES OF PROPERTIES. The bid form and the form of basic
sales contract will provide that the sale of a Property will be consummated as
soon as practicable after execution of the contract. At the closing of the
sale of each Property, the escrow agent for such property will be directed to
disburse the net sale proceeds to the Partnership.
For a general discussion of the tax consequences from the sale of the
Properties, see "FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN."
DESCRIPTION OF PROPERTIES
Seven of the Partnership's remaining Properties are apartment complexes, two
of which are located in suburbs of Atlanta, Georgia, two in suburbs of Kansas
City, Kansas and one each in San Diego, California, Louisville, Kentucky, and
Irving, Texas (a suburb of Dallas). Two of the Properties are parcels of land
underlying garden apartment complexes in Albuquerque, New Mexico and Fort
Worth, Texas, respectively.
20
<PAGE>
The following table sets forth certain information regarding the Properties as
of January 1, 1998:
<TABLE>
<CAPTION>
1997
AVERAGE
NO. ANNUAL MORTGAGE MONTHLY
OF LAND OCCUPANCY DATE OF PURCHASE MORTGAGE MORTGAGE INTEREST DEBT
PROPERTY LOCATION UNITS (ACRES) RATE PURCHASE PRICE(1) DEBT MATURITY RATE SERVICE
-------- ----------------- ----- ------- --------- -------- ------------ ----------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Le Parc......... Marietta, GA 188 8 93.1% 6/87 $ 13,207,000 $ 7,307,000 6/2016 7.25% $61,190
Casa de
Fuentes......... Overland Park, KS 288 30 94.8% 7/87 12,809,000 7,059,000 11/97 8.16% 58,886
MacArthur Park.. Irving, TX 276 13 95.5% 10/87 12,400,000 6,188,000 2/2001 8.00% 47,144
Cypress Pointe.. Louisville, KY 444 33 94.7% 10/87 18,632,000 11,071,000 5/99 10.02% 101,480
Comanche Place.. Overland Park, KS 306 29 95.0% 12/87 14,210,000 9,682,000 11/97 8.16% 64,133
Chelsea Park.... Norcross, GA 376 31 93.9% 3/88 17,766,000 7,680,000 6/2017 7.33% 78,041
Mission Trails.. San Diego, CA 208 5 95.6% 8/88 15,652,000 8,765,000 3/2000 8.13% 72,651
Cameron
Creek/2/........ Ft. Worth, TX 446 20 93.2% 10/87 3,500,000 12,815,000(3) 4/2016 7.245% 108,257
Del Rio/2/...... Albuquerque, NM 248 13 92.0% 12/87 2,000,000 7,233,000(3) 11/2000 6.495% 46,260
------------ -----------
$110,176,000 $77,800,000
============ ===========
<CAPTION>
EST.
BALLOON
PROPERTY PAYMENT
-------- ----------
<S> <C>
Le Parc......... -0-
Casa de
Fuentes......... $7,076,000
MacArthur Park.. 5,942,000
Cypress Pointe.. 10,917,000
Comanche Place.. 7,698,000
Chelsea Park.... -0-
Mission Trails.. 8,443,000
Cameron
Creek/2/........ -0-
Del Rio/2/...... 6,944,000
</TABLE>
- ----
(1) The purchase price per Property shown in the above table is the price
originally paid to an affiliate of Spanos for such Property, and does not
include acquisition fees aggregating $1,520,000 paid to an affiliate of
Spanos and acquisition expenses of approximately $253,000. In addition,
affiliates of Spanos paid to the Partnership an aggregate of $6,967,000 in
cash flow guaranty payments with respect to such Properties, which
payments were treated as reductions to the purchase prices per Property
set forth above.
(2) Land owned by Partnership, garden apartment complex thereon owned by
lessee of land.
(3) The Partnership's land and the buildings and other improvements on the
land owned by an affiliate of Spanos are subject to mortgage debt
aggregating the amounts shown at December 31, 1997.
21
<PAGE>
ANTICIPATED RESULTS OF AUCTION, USE OF PROCEEDS AND CASH DISTRIBUTIONS
The following table sets forth the anticipated application of the proceeds
from the Auction, as well as information regarding the estimated loss to be
realized per Unit upon sale of the Properties and termination of the
Partnership. The amount available for distribution to Unitholders shown below
assumes that: (i) the Spanos Bidder's guaranteed Minimum Overall Bid is the
Successful Bid for both the Partnership and the Realty Partnership and all of
the Auction Properties are purchased by the Spanos Bidder; and (ii) the costs
of the Auction and the solicitation of Consents are allocated between the
Partnership and the Realty Partnership in proportion to the amounts of the
Spanos Bidder's respective guaranteed Minimum Overall Bids. The amount
available for distribution to Unitholders would increase if the aggregate
sales price of the Properties exceeds the Spanos Bidder's guarantee by more
than the increased expenses of the Auction which will result from multiple
purchasers of the Properties.
<TABLE>
<S> <C>
APPLICATION OF PROCEEDS:
Auction Sale Price (Net of Mortgage Debt)............. $20,560,000
LESS:
Auction Expenses.................................. 785,000(1)
Consent Solicitation Expenses..................... 259,000(1)
-----------
Net Sale Price........................................ $19,516,000
PLUS:
Other Partnership Assets (Net of Liabilities)..... 3,300,000(2)
-----------
$22,816,000
===========
LESS:
Liquidation Expenses (est.)....................... 100,000
Attorneys' Fees................................... 988,000(3)
-----------
Net Distributable Amount.............................. $21,728,000
===========
Distributions to Unitholders.......................... 14,766,000(4)
Distributions to Special Limited Partners............. 6,862,000(5)
Distributions to General Partners..................... 100,000(6)
-----------
Total Distributions................................. $21,728,000
===========
DISTRIBUTION TO UNITHOLDERS PER UNIT
($1,000 of Original Capital Contribution):
Prior Cash Distributions Per Unit................... $ 537.36(7)
Distributions Per Unit from Auction Proceeds........ 228.36(4),(8)
Loss Per Unit......................................... $ 234.28(7),(8)
</TABLE>
- --------
(1) Auction expenses and Consent solicitation expenses are estimated amounts,
and are allocated between the Partnership and the Realty Partnership as
indicated in (ii) above. Expenses of the Auction will increase if there
are multiple purchasers of the Properties (i.e., if the Spanos Bidder is
not the sole Successful Bidder), but any such increase is not expected to
be material.
(2) Estimated based upon assets and liabilities as of December 31, 1997.
(3) Pursuant to the Settlement Agreement, and subject to the approval of the
Court, the Partnership will pay to Lead Class Counsel, on behalf of the
Unitholders, an amount not to exceed 8% of the amount otherwise
distributable to the Unitholders from the Auction Proceeds.
(4) Of this amount, the General Partners initially will withhold $1,000,000
($15.47 per Unit) for a period of up to one year as a reserve against
further unforeseen contingent obligations of the Partnership, including
any liabilities which may arise under the sales contracts for the
Properties.
(5) The Special Limited Partner Interests were issued to affiliates of Spanos
in consideration of a cash capital contribution of $4,526,000, for
reimbursement of $1,027,000 in refinancing fees paid to the Partnership's
mortgage lenders and in consideration of certain cash flow guaranty
payments made by such affiliates to the Partnership during the period from
inception through June 30, 1992.
22
<PAGE>
(6) The Partnership Agreement provides that liquidating distributions are to
be paid to the Unitholders, Special Limited Partners and General Partners
in accordance with their positive capital account balances, after
allocating the net income or loss from the terminating transaction. Based
upon the foregoing assumptions, it is estimated that approximately
$750,000 of the net income resulting from the Auction will be allocated to
the General Partners, which would bring their capital accounts (currently
a deficit of approximately $650,000) to a positive balance of
approximately $100,000. (See "Distributions and Fees" below.)
(7) Assumes Unitholder held Units since first closing of Partnership's
offering in 1987.
(8) Assumes contingency reserve is not utilized and is ultimately distributed
to Unitholders. In addition, Unitholders who are not tax-exempt investors
have received tax benefits from their investment in the Units, and many
Unitholders will receive additional amounts under both the Settlement
Agreement and the PSI Settlement Agreement described hereinafter under
"CERTAIN PENDING LITIGATION."
AMENDMENT TO PARTNERSHIP AGREEMENT
Pursuant to Section 15.4.20 of the Partnership Agreement, the General
Partners and their affiliates may not purchase real property from the
Partnership, other than in connection with joint ventures with the
Partnership. In order for an affiliate of Spanos to be able to bid for and, if
successful, to purchase any or all of the Properties, the Partnership
Agreement must be amended, which requires the approval of Unitholders holding
a majority of the outstanding Units. The Amendment will permit such a purchase
of the Properties, as set forth in Exhibit A hereto.
LIQUIDATION
Pursuant to the Settlement Agreement, within ten business days following the
closing of the sale of the last Property, the General Partners will cause the
Partnership (i) to pay all costs associated with the Auction, including the
solicitation of Consents from Unitholders and the preparation and mailing of
the notices required by the Settlement Agreement and the Court to be sent to
Unitholders for which bills have been received; (ii) to estimate and reserve
for all such costs associated with the Auction for which bills have not yet
been received; and (iii) to provide a further contingency reserve for
potential unforeseen costs and liabilities in an amount not to exceed
$1,000,000, such reserve to be maintained for a period not to exceed one year
from the closing of the sale of the final Property. The General Partners will
then cause the Partnership to distribute the balance of the cash from the
sales first, on behalf of the Unitholders, as attorneys' fees to Lead Class
Counsel, in such amount as has been awarded by the Court, which for the
Unitholders will not exceed eight percent (8%) of the amount otherwise
distributable to the Unitholders from the sales, and then to the Unitholders,
Special Limited Partners and General Partners as provided in the Partnership
Agreement. The remaining assets of the Partnership, and any remainder of the
contingency reserve, will be distributed to the Unitholders within one year
after the closing of the sale of the last Property. If any costs associated
with the Auction are not individually charged or allocated to the Partnership
or the Realty Partnership, the costs are to be allocated between the
Partnership and the Realty Partnership based on the gross cash amount in
excess of existing mortgage debt paid to either of them as a result of the
Auction, unless a more equitable method of allocation is agreed upon by P-B
Properties, Lead Class Counsel and the Spanos General Partners. Even if all
liabilities of the Partnership have not been satisfied after one year, the
remainder of the contingency reserve will be distributed to the Unitholders,
and the General Partners will remain obligated for such liabilities.
Section 19.1 of the Partnership Agreement provides that the Partnership will
terminate and be dissolved upon the disposition of all of the assets of the
Partnership and the receipt of the final cash payment of the purchase price of
all such assets.
DISTRIBUTIONS AND FEES
The sale of all of the Partnership's Properties in the Auction will
constitute a "Terminating Sale or Disposition," as defined below. Pursuant to
Section 11.7 of the Partnership Agreement, a Terminating Sale or Disposition
invokes allocation and distribution requirements which differ in certain
respects from those that
23
<PAGE>
would ordinarily result from sale or refinancing of one or more of the
Partnership's Properties. Section 11.7 and Section 11.4.4 of the Partnership
Agreement provide that any Net Income resulting from a Terminating Sale or
Disposition will be allocated first to Unitholders, Special Limited Partners
and General Partners who have negative capital account balances. As of the
date of this Solicitation Statement, only the General Partners had negative
capital account balances, which at December 31, 1997 aggregated approximately
$325,000 for each of the General Partners, and so an aggregate of
approximately $650,000 of the Net Income resulting from the Auction will be
allocated to the General Partners' capital accounts, bringing those accounts
to a zero balance. The remaining Net Income will next be allocated 2% to the
General Partners and 98% to the Unitholders and Special Limited Partners until
their capital account balances equal their Adjusted Contributions (i.e., the
original capital contribution of $1,000 per Unit less any prior distributions
of cash from sale or refinancing of Properties or from working capital
reserves). Since the capital account balances of the Special Limited Partners
currently equal their Adjusted Contributions, the General Partners will be
allocated approximately $50,000 each and all of the remaining Net Income will
be allocated to the Unitholders. Spanos does not anticipate that the Net
Income of the Partnership for the year 1998 (assuming all of the Properties
are sold in 1998) will be sufficient to restore the Unitholders' capital
account balances to the level of their Adjusted Contributions.
As set forth under "Anticipated Results of Auction, Use of Proceeds and Cash
Distributions" above, and based on the assumptions therein stated, Spanos
estimates that upon completion of the Liquidation, the General Partners will
have received cash distributions aggregating approximately $100,000, the
Special Limited Partners (who are affiliates of Spanos) will have received
cash distributions of $6,862,000 and the Unitholders will have received
approximately $14,766,000 of cash distributions, in each case in addition to
those previously received.
A "Terminating Sale or Distribution" is defined in the Partnership Agreement
to be the earlier to occur of (i) the sale or disposition of the Partnership's
last three Properties commencing with the first such sale or (ii) the sale or
disposition of a Property which causes the aggregate acquisition cost of all
Properties which have been sold or disposed of to exceed 66% of the aggregate
original acquisition cost of all Properties. Because all of the Properties
will be sold in the Auction as part of a single plan of disposition, each sale
will be treated as a Terminating Sale or Disposition, regardless of the
closing dates of sales of the individual Properties.
Neither of the General Partners will receive any fees in connection with the
sale of the Properties or the liquidation and dissolution of the Partnership.
However, as provided in the Partnership Agreement, the General Partners will
be entitled to receive cash distributions of approximately $50,000 each. Upon
sale of the Properties, the management fees and special distributions which
the General Partners presently receive will be eliminated. Furthermore, Spanos
has guaranteed that the Auction will generate gross proceeds of at least
$20,560,000 in excess of the aggregate outstanding principal balance of all
existing mortgage debt on the Properties, the net amount of which (after
payment of expenses of the Auction, certain plaintiffs' attorneys' fees and
the expenses of liquidation of the Partnership and establishment of a
contingency reserve) will be available for distribution to the Unitholders,
Special Limited Partners and General Partners as provided in the Partnership
Agreement. Sales of the Properties and liquidation of the Partnership will
also eliminate any liability of the General Partners for future Partnership
obligations and risk to the Partnership which might arise from continued
operation of the Partnership.
24
<PAGE>
PRO FORMA FINANCIAL INFORMATION
On a pro forma basis, if the Plan had been consummated on December 31, 1997
under the assumptions described above under "THE PLAN--Anticipated Results of
Auction, Use of Proceeds and Cash Distributions," the Partnership's Balance
Sheet as of December 31, 1997 would have reflected cash of approximately
$21,728,000, limited partners' equity of approximately $14,766,000, special
limited partners' equity of approximately $6,862,000 and general partners'
equity of approximately $100,000, and the Partnership's income statement for
the year ended December 31, 1997 would have reflected a nonrecurring gain of
approximately $8,209,000.
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS
See the Index to Financial Statements for information regarding the audited
balance sheet of the Spanos General Partner as of its most recent fiscal year-
end, and the audited balance sheets of the general partners of the Spanos
General Partner as of their respective most recent fiscal year-ends. The
Spanos General Partner has no reason to believe that P-B Properties does not
have the financial ability to meet its obligation to make an additional
capital contribution to the Partnership with respect to its capital account
deficiency, pursuant to the Partnership Agreement. Moreover, as set forth
under "THE PLAN--Distributions and Fees," allocation of the net income which
will be produced by sale of the Properties pursuant to the Minimum Overall Bid
will result in elimination of the capital account deficiency of P-B Properties
and any obligation of P-B Properties to make an additional capital
contribution.
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS
MARKET PRICES
The Units of the Partnership are not listed on any national securities
exchange or quoted on the NASDAQ System, and there is no established public
trading market for the Units. Secondary market activity for the Units has been
limited and sporadic. However, as a service to its clients, Prudential
Securities has facilitated sales to purchasers in a limited secondary market
for the Units. Limited information available to Spanos from secondary market
sources indicates that bid prices in the limited secondary market have ranged
from a low of approximately $192 per Unit to a high of approximately $291 per
Unit during the period from the first quarter of 1996 through November of
1997. Such bid prices may not reflect actual transactions, and the proceeds to
a seller of Units would be reduced by sales commissions, which may be
substantial, and transfer fees payable to the Partnership.
Prudential Securities was the principal distributor of the Units in the
Partnership's public offering, and continues to provide certain investor
services on a contractual basis, including processing of all transfers of
Units, subject to the approval of the General Partners. Prudential Securities
has advised Spanos that the transfer records for the Partnership reflect the
following aggregate numbers of Units transferred in the past five years:
<TABLE>
<CAPTION>
NO. OF UNITS
YEAR TRANSFERRED
---- ------------
<S> <C>
1993......................................................... 7,004
1994......................................................... 8,604
1995......................................................... 6,419
1996......................................................... 8,239
1997......................................................... 7,792
</TABLE>
Generally, no information regarding the prices at which Units were sold is
available from the Partnership's transfer records, and the transfers reflected
in the above table include non-sale transactions.
Spanos believes that the limited amount of information available regarding
transfers of Units and bid prices does not reflect sufficient market activity
to be representative of the market value of the Units, and such
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<PAGE>
information should not be relied upon as being indicative of the ability of
Unitholders to sell their Units in secondary market transactions or as to the
prices at which such Units may be sold. Therefore, the information presented
should not be relied upon by Unitholders in determining whether or not to
consent to the Plan.
On January 31, 1997, Equity Resource Fund XX, an entity not affiliated with
either of the General Partners, commenced a limited tender offer for up to
2,000 Units (3.1% of the outstanding Units) at a cash price of $175.00 per
Unit. The tender offer was scheduled to expire on March 1, 1997, and to the
knowledge of the General Partners was not extended. Based upon the
Partnership's records, it appears that a total of 412 Units were purchased in
this tender offer.
On February 12, 1997, First Trust Co., L.P., an entity not affiliated with
either of the General Partners, commenced a tender offer for up to 4.9% of the
outstanding Units (approximately 3,168 Units) at a cash price of $190.00 per
Unit, less any distributions made by the Partnership to tendering Unitholders
after February 1, 1997. This tender offer was scheduled to expire on March 17,
1997, and to the knowledge of the General Partners was not extended. Based
upon the Partnership's records, it appears that a total of 492 Units were
purchased in this tender offer.
On April 21, 1997, Kensington Partners LLC, an entity not affiliated with
either of the General Partners, commenced a limited tender offer for up to
1,940 Units (3.0% of the outstanding Units) at a cash price of $265.00 per
Unit, less the transfer fee of $75 payable to the Partnership and less any
cash distributions made by the Partnership to the tendering Unitholders after
April 1, 1997. This tender offer was scheduled to expire on May 19, 1997, and
to the knowledge of the General Partners was not extended. Based upon Units
presented by Kensington Partners LLC to the General Partners for transfer, it
appears that a total of 215 Units were purchased in this tender offer.
DISTRIBUTIONS TO UNITHOLDERS
The Partnership has made quarterly cash distributions to the Unitholders
since its inception. Such distributions were made from operating cash flow,
from proceeds of sales of Properties and from funds received under a cash flow
guaranty made by affiliates of Spanos at the inception of the Partnership,
which expired in 1990. Due to insufficient cash flow, the Partnership reduced
its cash distributions in 1991. The following table sets forth the amounts of
such distributions per Unit.
<TABLE>
<CAPTION>
DISTRIBUTION
PERIOD PER $1,000 UNIT*
------ ----------------
<S> <C>
1987**................................................... $40.37
1988..................................................... 70.00
1989..................................................... 70.00
1990..................................................... 70.00
1991..................................................... 30.00
1992..................................................... 20.00
1993..................................................... 50.21
1994..................................................... 111.78
1995..................................................... 25.00
1996..................................................... 25.00
1997 .................................................... 25.00
-------
$537.36
=======
</TABLE>
- --------
* Includes distribution of sale proceeds of $27.71 in 1993 and $86.78 in
1994.
** Assumes Unitholder held Units since first closing of Partnership's offering
in 1987.
During the same period, the Partnership made cash distributions to the
Special Limited Partners averaging $114.49 per $1,000 Unit, which
distributions were made from sale proceeds. Pursuant to the Partnership
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<PAGE>
Agreement, the Partnership has made special distributions to P-B Properties
aggregating $2,383,000 for the period 1987-1997, which distributions were made
from operating cash flow and were treated for financial reporting and tax
purposes as operating expenses.
In addition to distributions from the Partnership, most Unitholders will be
entitled to receive payments with respect to their Units pursuant to the PSI
Settlement Agreement described below under "CERTAIN PENDING LITIGATION."
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<PAGE>
FEDERAL INCOME TAX
CONSEQUENCES OF THE PLAN
GENERAL
Approval of the Plan has certain tax implications to the Unitholders that
should be considered. The following discussion summarizes the material federal
income tax consequences arising from the Partnership's proposed sale of the
Properties and provides a general overview of certain state income tax
considerations. This summary is based upon the Internal Revenue Code of 1986,
as amended (the "Code"), Treasury Regulations, court decisions and published
positions of the Internal Revenue Service (the "IRS"), as currently in effect.
There can be no assurance that the IRS will agree with the conclusions stated
herein or that future legislative or administrative changes or court decisions
will not significantly modify the federal or state income tax laws regarding
the matters described herein, potentially with retroactive effect. This
summary is addressed only to Unitholders who are United States persons within
the meaning of Section 7701(a)(30) of the Code, deals only with Units that are
held as capital assets within the meaning of Section 1221 of the Code and is
not intended to be and should not be considered as an opinion respecting the
federal or state income tax consequences of the Plan. In addition, this
summary does not address the tax consequences that may be relevant to
Unitholders in special tax situations (including, for example, life insurance
companies, dealers in securities or currency, banks or other financial
institutions, or Units held as a hedge or as part of a hedging, straddle or
conversion transaction). ACCORDINGLY, UNITHOLDERS SHOULD CONSULT THEIR OWN TAX
ADVISORS CONCERNING THE APPLICATION OF UNITED STATES FEDERAL INCOME TAX LAWS,
AS WELL AS THE LAWS OF ANY STATE, LOCAL OR FOREIGN TAXING JURISDICTION, TO
THEIR PARTICULAR SITUATIONS.
Certain United States federal income tax consequences associated with an
investment in the Units were discussed in the Prospectus, dated February 24,
1987, covering the original public offering of the Units. This summary does
not update that discussion; rather it discusses only the federal income tax
aspects directly relevant to the Plan.
PARTNERSHIP TAXATION
This summary assumes, and Spanos believes, that the Partnership has been and
will continue to be properly classified as a partnership for federal income
tax purposes. An entity that is classified as a partnership is not subject to
federal income tax. Instead, each partner in the partnership is required to
take into account in computing his or her income tax liability the partner's
allocable share of the partnership's items of income, gain, loss, deduction
and credit.
SALE OF PROPERTIES
The Partnership will have taxable gain or loss upon its sale of each
Property, measured by the difference between the amount realized on the sale
(generally, cash or other consideration received reduced by the expenses of
sale) and the Partnership's adjusted basis in such Property. The "adjusted
basis" of a Property generally is its cost plus the amount of any capital
expenditures (such as improvements) minus the amount of depreciation and
amortization.
Assuming (i) the Spanos guaranteed Minimum Overall Bid is the Successful Bid
for the Properties, (ii) the selling expenses (including Lead Class Counsel's
legal fees) are $1,775,000 and (iii) the sales are consummated in 1998, Spanos
estimates that the total net gain resulting from the sale of the Properties
would be approximately $5.3 million. The amount of gain realized on the sale
of the Properties will depend upon the actual sales prices and the actual
selling expenses and legal fees incurred in connection with the sale of the
Properties.
Any such gain or loss generally will constitute Section 1231 gain or Section
1231 loss (i.e., gains or losses from disposition of real property or
depreciable personal property used in a trade or business and held for more
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<PAGE>
than one year, other than property held for sale to customers in the ordinary
course of business). A Unitholder's share of the gains or losses from the
sales of the Properties would be combined with any other Section 1231 gains or
Section 1231 losses of the Unitholder for that year. Net Section 1231 gains or
net Section 1231 losses generally would be treated as long-term capital gain
or ordinary loss, as the case may be. However, a Unitholder's net Section 1231
gains would be treated as ordinary income rather than capital gain to the
extent of his or her net Section 1231 losses, if any, incurred in the five
preceding years. Furthermore, in the event that a Property is sold at a gain,
the depreciation expense may be recaptured as ordinary income under Section
1245 or Section 1250 of the Code to the extent of the realized gain. In
general, under Section 1250, if real property is depreciated on an accelerated
basis rather than on a straight-line basis, then the lesser of (i) any gain
realized on disposition of the property or (ii) the excess of accelerated
depreciation over straight-line depreciation as of the date of sale will be
treated as ordinary income in the year the property is sold. The Partnership
does not expect to have any gain from the sale of the Properties subject to
recapture under Section 1250 of the Code. Spanos estimates that approximately
$1.6 million of the gain would be subject to recapture as ordinary income
under Section 1245 of the Code if the Properties are sold for the Minimum
Overall Bid. Unitholders classified as corporations for federal income tax
purposes may be required, under Section 291(a) of the Code, to treat 20% of
the gain from the sale of a Property attributable to depreciation expense not
subject to recapture under Section 1250 as ordinary income instead of Section
1231 gain. The total amount of gain subject to Section 291(a) ordinary income
treatment for a corporate Unitholder is estimated to be approximately $2.1
million (approximately $28 per Unit).
Under Section 702(a)(3) of the Code, a partnership is required to state
separately, and the partners are required to account separately for, their
distributive share of all gains and losses of their partnership. Accordingly,
each Unitholder's allocable share of the gains or losses from the sale of the
Properties (including each Unitholder's allocable share of Section 291(a)
gain, Section 1245 gain, Section 1231 gain or Section 1231 loss) will be
separately stated and reflected on the applicable Schedule K-1 forms provided
to the Unitholders by the Partnership.
For most tax-exempt Unitholders, only a portion of the gain from the sale of
the Properties would be treated as unrelated business income. Under Section
514(a) of the Code, gain from the sale of "debt-financed property" is treated
as unrelated business income generally in an amount equal to a ratio
determined by comparing the property's debt to its basis. The Del Rio and
Cameron Creek Properties are not debt-financed property, and therefore none of
the estimated $5.5 million taxable loss on their sale is expected to
constitute unrelated business income. The other seven Properties are debt-
financed, and if they are sold for the estimated total gain of approximately
$10.8 million, Spanos estimates that the portion of the gain that will be
treated as unrelated business income is $9.6 million (or $128 per unit).
Additional unrelated business income may result to a tax-exempt Unitholder
which borrowed funds to purchase its Units. Tax-exempt Unitholders should
consult their own tax advisors regarding the unrelated trade or business
income that may result from the sale of the Properties.
TAX ALLOCATIONS AND DISTRIBUTIONS
Gain (or loss) from the sale of the Properties will be allocated to the
Partners in accordance with the Partnership Agreement. Allocations of a
partnership's items of income, gain, loss, deduction and credit will be
respected for federal income tax purposes if they have substantial economic
effect or are otherwise made in accordance with the partners' economic
interests in the partnership. This summary assumes, and Spanos believes, that
the allocations of Partnership items of income, gain, loss, deduction and
credit to the Unitholders have substantial economic effect or are otherwise in
accordance with the Unitholders' economic interests in the Partnership.
In general, under the Partnership Agreement, any Net Income in connection
with a Terminating Sale or Disposition will be allocated among the Partners
(prior to making distributions of sale proceeds) first to restore the General
Partners' negative capital account balances and then 98% to Unitholders and 2%
to the General Partners. If the Net Income of the Partnership for the year
1998 is not sufficient to restore the Unitholders' capital account balances to
the level of their Adjusted Contributions, then the Partnership Agreement
provides that the
29
<PAGE>
Units held by earlier-admitted Unitholders are to be allocated more of the
gain from the sale of the Properties in order to equalize their per-Unit
capital accounts with those of the later-admitted Unitholders. See "THE PLAN--
Distributions and Fees." If the Properties are sold for the Minimum Overall
Bid, Spanos estimates that a Unit acquired on the earliest closing date will
be allocated approximately $123 of the gain, and a Unit acquired on the last
closing date will be allocated none of the gain. Approximately $41 of gain
allocated to a Unit acquired on the earliest closing date would be
characterized as Section 1245 income, with the balance characterized as
Section 1231 gain. To the extent that the actual gain on the Properties is
more than that estimated above, the per-Unit allocation of such gain would be
correspondingly higher. Any allocation of gain (or loss) from the sale of
Properties will increase (or decrease) a Unitholder's basis in the Units.
In general, under the Partnership Agreement, loss from the sale of a
Property must be allocated 2% to the General Partners and 98% to the
Unitholders. However, in such circumstances a special allocation of gross
rental income (depending upon the ultimate sales proceeds) would be made to P-
B Properties to reduce its negative capital account by a comparable amount,
and an equal amount of loss will be allocated among the Unitholders.
Allocation of loss will reduce a Unitholder's basis in the Units. However, no
loss can be utilized currently to the extent the loss exceeds the Unitholder's
basis in the Units.
Distributions to a Unitholder will generally not be taxable to the extent
the distributions do not exceed the Unitholder's adjusted tax basis in the
Units. For purposes of determining tax basis in a Unitholder's Units, any
payment received by the Unitholder from the settlement fund established
pursuant to the PSI Settlement Agreement (see "CERTAIN PENDING LITIGATION"),
or from any other settlements related to the Units, should be applied to
reduce such Unitholder's adjusted tax basis. The tax basis in the Units will
also be reduced by the distributions. To the extent any settlement payment and
the distributions exceed the adjusted tax basis, such excess will generally be
treated as capital gain, which will be long-term if the applicable Units have
been held for more than one year. Unitholders who have remaining tax basis in
their Units after termination of the Partnership will generally have a capital
loss. Such capital loss can be used to offset any net Section 1231 gains that
have not been otherwise characterized as ordinary income, but only if such
capital loss occurs in the same year as the net Section 1231 gain. Net capital
losses of taxpayers other than corporations may not be carried back to earlier
years.
It is not expected that the Partnership will terminate for federal income
tax purposes in the year in which the Properties are sold, because a reserve
for potential unforeseen costs and liabilities will be established and
maintained for a period not to exceed one year from the closing of the sale of
the final Property. Accordingly, a Unitholder will likely be allocated gain
from the sale of the Properties in a different year than termination of the
Partnership, which may result in a capital loss to a Unitholder which cannot
be used to offset the gain from the sale of the Properties.
Based on the estimated net gain of $5.3 million, Spanos estimates that after
payment of the selling expenses incurred in connection with the sale of the
Properties and other expenses and liabilities of the Partnership and certain
attorneys' fees, the amount available for distribution to Unitholders would be
approximately $228 per Unit.
CAPITAL GAINS TAX
With respect to individuals, trusts and estates, the Taxpayer Relief Act of
1997 ("TRA") generally reduces the maximum tax rate on net capital gains on
capital assets held for more than 18 months to 20% and provides a maximum tax
rate on net capital gains derived from capital assets held for more than one
year and for not more than 18 months ("mid-term gains") of 28%. TRA does not
affect the taxation of capital gains realized by corporations. Substantially
all of the Partnership's assets have been held for longer than 18 months.
Accordingly, a substantial portion of any Section 1231 gains of the
Partnership realized on the sale of assets and allocable to Unitholders who
are individuals, trusts and estates may be taxed at a maximum federal income
tax rate of 20% (if such gains are not recharacterized as ordinary income as
described above under "Sale of Properties," or are not subject to the special
tax rate described in the next paragraph).
30
<PAGE>
Under TRA, individuals, trusts and estates are taxed on unrecaptured Section
1250 gain at a maximum federal income tax rate of 25%. Unrecaptured Section
1250 gain generally equals the excess of (i) the lesser of the gain realized
on disposition of depreciable real property or depreciation allowed or
allowable on the property through the date of disposition, over (ii) the
amount of depreciation recapture realized upon the disposition (as described
above under "Sale of Properties"). Spanos believes that substantially all of
the gain realized upon the sale of the Partnership's assets pursuant to the
transactions described herein will be unrecaptured Section 1250 gain.
Net capital losses of such a Unitholder can be utilized to offset ordinary
income limited to the sum of net capital gains from other sources recognized
by the Unitholder during the tax year, plus $3,000 ($1,500 in the case of a
married individual filing a separate return). The excess amount of such net
capital loss may be carried forward and utilized in subsequent years subject
to the same limitations but may not be carried back to a prior year.
Unitholders classified as corporations are taxed on capital gains at the
same rates as ordinary income. A corporate Unitholder can deduct capital
losses only to the extent of capital gains, with any unused capital losses
generally being carried back three years and forward five years.
PASSIVE LOSS LIMITATIONS
Unitholders that are individuals, trusts, estates, closely held corporations
or personal service corporations are subject to the passive activity loss
limitations rules. A Unitholder's allocable share of Partnership income or
loss is treated as derived from a passive activity, except to the extent of
the Partnership's portfolio income, which includes interest, dividends and
gains from the sale of property held for investment purposes. A Unitholder's
allocable share of any Partnership gain realized on the sale of its Properties
(other than gain from the sale of portfolio investments) will be characterized
as passive activity income that may be offset by passive activity losses from
other passive activity investments. If all of the Properties are sold, a
Unitholder's allocable share of any Partnership loss realized on such sale, or
any loss realized by the Unitholder upon liquidation of his or her Units, will
not be subject to the passive activity loss limitations. In addition, upon the
complete disposition of a Unitholder's entire interest in the Partnership, any
suspended passive activity losses of the Unitholder with respect to his or her
investment in the Partnership could be used to reduce other income of the
Unitholder.
FINAL PARTNERSHIP RETURNS AND FUTURE TAX ISSUES
Following the termination of the Partnership, the General Partners, on
behalf of the Partnership, will file a final tax return for the Partnership,
and on a timely basis will provide Schedule K-1 forms to all Unitholders
setting forth their allocable shares of the Partnership's items of income,
gain, loss, deduction and credit. P-B Properties will also have full
responsibility and authority for any other tax-related matter arising after
the termination of the Partnership, including acting as the "tax matters
partner" representing the Partnership in any federal or other audit of returns
of the Partnership for its final year or any prior year.
Unitholders should understand that while the Partnership will be terminated,
such termination will not eliminate the possibility that the IRS could
challenge the tax treatment of the Partnership's activities for the year of
termination or any prior year for which the statute of limitations for making
adjustments has not elapsed. If any adjustments are made to the Partnership's
income tax returns, P-B Properties will so notify the Unitholders. Any tax
audit or adjustments could result in assessment of additional tax liabilities
upon the Unitholders which would be payable from their own funds and would not
be reimbursable by the General Partners or the Partnership.
CERTAIN STATE INCOME TAX CONSIDERATIONS
Because each state's tax law varies, it is impossible to predict the tax
consequences to the Unitholders in all the states in which they are already
subject to tax. Accordingly, the following is a general summary of certain
31
<PAGE>
common (but not necessarily uniform) principles of state income taxation.
State tax consequences to each Unitholder will depend upon the provisions of
the state tax laws to which the Unitholder is subject. The Partnership will
generally be treated as engaged in business in each of the states in which the
Properties are located, and the Unitholders will generally be treated as doing
business in such state and therefore subject to tax in such state. Most states
modify or adjust the taxpayer's federal taxable income to arrive at the amount
of income potentially subject to state tax. Resident individuals generally pay
state tax on 100 percent of such state-modified income, while corporations and
other taxpayers generally pay state tax only on that portion of state-modified
income assigned to the taxing state under the state's own apportionment and
allocation rules.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the Units on the Record Date vote in
favor of the Plan, such approval will bind all Unitholders. The Partnership
Agreement and the Delaware Revised Uniform Limited Partnership Act, under
which the Partnership is governed, do not give rights of appraisal or similar
rights to Unitholders who dissent from the vote of the majority in approving
or disapproving the Plan. Accordingly, dissenting Unitholders do not have the
right to have their Units appraised or to have the value of their Units paid
to them if they disapprove of the action of a majority in interest of the
Unitholders.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 64,660 Units issued and outstanding and
entitled to vote on matters upon which Unitholders may vote or consent.
According to publicly available information, and to the best knowledge of
Spanos, as of the Record Date, no person or entity owned more than 5% of the
outstanding Units. As of the Record Date, neither of the General Partners nor
any officer or director thereof, nor any officer or director of either of the
general partners of Spanos, owned any Units. Prudential Securities
beneficially owned 1,920 Units as of the Record Date and has advised Spanos
that it intends to vote such Units to consent or withhold consent to the Plan
in the same proportions as do the other Unitholders.
CERTAIN PENDING LITIGATION
There is currently pending in the United States District Court for the
Southern District of New York (the "Court") a class action entitled In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
No. 1005, M-21-67 (MP). The consolidated action had its genesis in several
different class actions filed in various courts, all of which were transferred
to a single judge and consolidated for pretrial proceedings under the
aforementioned caption.* On June 8, 1994, plaintiffs in the consolidated
action filed a Consolidated Complaint that superseded the individual
complaints previously filed in various courts and that was purportedly brought
on behalf of a class of approximately 350,000 investors who had purchased
units in approximately 700 limited partnerships sponsored or co-sponsored by
P-B Properties or its affiliates (collectively the "Prudential Organization").
The Consolidated Complaint named as defendants, among others, Prudential
Securities, P-B Properties, certain of the affiliates and present and former
officers and employees of the aforementioned, and the co-general partners of
other partnerships sponsored or co-sponsored by the Prudential Organization,
including Spanos. The Partnership is not named as a defendant in the
Consolidated Complaint, but the Partnership is listed as being among the
limited partnerships at issue in the case.
- --------
* The various consolidated cases are: Bottner v. A.G. Spanos Residential
Partners-86, et al., 93 Civ. 7708 (S.D.N.Y.); Kahn v. Prudential-Bache
Properties, Inc., et al., 93 Civ. 5976 (S.D.N.Y.); Dumbroff, et al. v.
Avron B. Fogelman, et al., 93 Civ. 6261 (S.D.N.Y.); Gorman v. Almahurst,
Inc., et al., 93 Civ. 8805 (S.D.N.Y.); Kinnes, et al. v. Prudential
Securities Group, Inc., et al., 93 Civ. 654 (D. Ariz.); Massad, et al. v.
Prudential Insurance Co., et al., 93 Civ. 5095 (D.N.J.); Levine, et al. v.
Prudential-Bache Properties Inc., et al., 92 Civ. 52 (N.D. Ill.); Connelly,
et al. v. Prudential-Bache Securities, Inc., et al., CIV 93-713 TUC ACM (D.
Ariz.).
32
<PAGE>
The Consolidated Complaint alleges violations of the federal and New Jersey
Racketeer Influenced and Corrupt Organizations Act ("RICO") statutes, fraud,
negligent misrepresentation, breach of fiduciary duties, breach of third-party
beneficiary contracts and breach of implied covenants in connection with the
marketing and sales of limited partnership interests. Plaintiffs request
relief in the nature of rescission of the purchase of securities and recovery
of all consideration and expenses in connection therewith, as well as
compensation for lost use of money invested less cash distributions;
compensatory damages; consequential damages; treble damages for defendants'
alleged RICO violations (both federal and New Jersey); general damages for all
injuries allegedly resulting from negligence, fraud, breaches of contract, and
breaches of duty in an amount to be determined at trial; disgorgement and
restitution of all earnings, profits, benefits, and compensation received by
defendants as a result of their allegedly unlawful acts; and costs and
disbursements of the action. On August 9, 1995, P-B Properties, Prudential
Securities and other Prudential Organization defendants (collectively the "PSI
Settling Defendants") entered into a Stipulation and Agreement of Partial
Compromise and Settlement (the "PSI Settlement Agreement") with plaintiffs in
the consolidated action. The Court preliminarily approved the PSI Settlement
Agreement by order dated August 29, 1995 and, following a hearing held
November 17, 1995, found that the PSI Settlement Agreement was fair,
reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers
of interests in specific limited partnerships, including the Partnership,
released all settled claims by members of the class against the PSI Settling
Defendants and permanently barred and enjoined class members from instituting,
commencing or prosecuting any settled claim against the released parties.
Pursuant to the PSI Settlement Agreement, PSI and its affiliates paid a total
of $110,000,000 into a settlement fund for distribution to members of the
plaintiff class, including Unitholders who purchased their Units prior to June
8, 1994. The consolidated action remained pending against Spanos and certain
of its affiliates, as well as other co-general partners of other partnerships,
including Spanos Realty. The Partnership is not named a defendant in the
Consolidated Complaint and the action is not expected to have a material
effect on the Partnership's financial condition; accordingly, no provision for
any loss that may result upon resolution of the Consolidated Complaint has
been made in the financial statements of the Partnership.
On May 12, 1997, Spanos and those of its affiliates named as defendants in
the consolidated action entered into the Settlement Agreement with the
plaintiffs therein. P-B Properties is not a party to the Settlement Agreement,
but has acknowledged the Settlement and agreed to be bound by certain
provisions of the Settlement Agreement which require that P-B Properties take,
or forbear from taking, certain actions in connection with the Plan. The
Settlement Agreement requires, among other things, that Spanos use its best
efforts to solicit the consent of the Unitholders of the Partnership for the
Auction and the subsequent termination and dissolution of the Partnership. In
addition to the provisions for the Auction, the minimum Spanos bids and the
contingency reserve, the Settlement Agreement provides that Spanos and its
affiliates will pay (i) $1,175,000 into a settlement fund, to be distributed
to members of the plaintiff class, including Unitholders who purchased their
Units prior to June 8, 1994, (ii) $100,000 for the costs of providing notice
to the members of the plaintiff class and (iii) $500,000 to Lead Class
Counsel. On May 19, 1997, the Court preliminarily certified two settlement
classes and preliminarily approved the Settlement. For a more detailed
description of the Settlement and the rights of Unitholders in connection
therewith, refer to the NOTICE TO EQUITABLE CLASS OF PENDENCY OF CLASS ACTION,
PROPOSED PARTIAL SETTLEMENT OF CLASS ACTION BY THE SPANOS DEFENDANTS,
REQUIREMENT FOR MAJORITY CONSENT TO THE AUCTION OF THE PROPERTIES OF CERTAIN
PARTNERSHIPS AS PART OF THE SPANOS SETTLEMENT, SETTLEMENT FAIRNESS HEARING,
RIGHT TO APPEAR AT HEARING AND RIGHT TO OBJECT TO THE SETTLEMENT, which
accompanies this Solicitation Statement.
On or about April 15, 1994, a multiparty petition entitled Schreiber, et al.
v. Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed in the
189th Judicial District Court of Harris County, Texas, purportedly on behalf
of investors in the Partnership against the Partnership, the General Partners,
Prudential Securities, The Prudential Insurance Company of America and a
number of other defendants. The Petition alleges common law fraud, fraud in
the inducement and negligent misrepresentation in connection with the offering
of limited partnership interests and negligence, breach of fiduciary duty,
civil conspiracy, and violations of the federal
33
<PAGE>
Securities Act of 1933 (sections 11 and 12) and of the Texas Securities and
Deceptive Trade Practices statutes. The suit seeks, among other things,
compensatory and punitive damages, costs and attorneys' fees. Most of the
plaintiffs have released their claims against the defendants in exchange for
monetary payments by Prudential Securities. It is expected that the remaining
claims will be resolved by Prudential Securities at no cost to the
Partnership. Accordingly, no provision for any loss that may result upon
resolution of this matter has been made in the financial statements of the
Partnership.
34
<PAGE>
AVAILABLE INFORMATION
This Solicitation Statement does not purport to be a complete description of
all agreements and matters relating to the condition of the Partnership, its
Properties and the transactions described herein. Attached to this
Solicitation Statement as Exhibit B and incorporated by reference into this
Solicitation Statement is the Partnership's Annual Report on SEC Form 10-K for
the year ended December 31, 1997, as amended, which provides additional
information regarding the Partnership. With respect to statements contained in
this Solicitation Statement as to the content of any contract or other
document filed as an exhibit to the Form 10-K, each such statement is
qualified in all respects by reference to such report and the schedules
thereto, which may be obtained without charge upon written request to the
Partnership. To make such a request, a Unitholder must write to P-B
Properties, One Seaport Plaza, New York, New York 10292.
All documents filed by the Partnership with the Securities and Exchange
Commission after the date of this Solicitation Statement, but before the
Partnership takes action pursuant to this Consent, shall be deemed to be
incorporated by reference into this Solicitation Statement. Copies of these
documents will be available without charge upon request to P-B Properties, One
Seaport Plaza, New York, New York 10292. Any statement contained in a document
incorporated or deemed to be incorporated by reference in this Solicitation
Statement shall be deemed to be modified or superseded for purposes of this
Solicitation Statement to the extent that a statement contained in this
Solicitation Statement (or in any other subsequently filed document that also
is or is deemed to be incorporated by reference in this Solicitation
Statement) modifies or supersedes such statement. Any statement so modified or
superseded shall not be deemed, except as so modified or superseded, to
constitute a part of this Solicitation Statement.
35
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
A.G. SPANOS RESIDENTIAL PARTNERS-86, A CALIFORNIA LIMITED PARTNERSHIP
Independent Auditors' Report............................................... F-2
Balance Sheet as of September 30, 1997..................................... F-3
Notes to Balance Sheet..................................................... F-4
AGS FINANCIAL CORPORATION
Independent Auditors' Report............................................... F-6
Balance Sheet as of August 31, 1997........................................ F-7
Notes to Balance Sheet..................................................... F-9
A.G. SPANOS REALTY, INC.
Independent Auditors' Report............................................... F-13
Balance Sheet as of September 30, 1997..................................... F-14
Notes to Balance Sheet..................................................... F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Partners
A.G. SPANOS RESIDENTIAL PARTNERS-86, A CALIFORNIA LIMITED PARTNERSHIP
Stockton, California
We have audited the accompanying balance sheet of A.G. SPANOS RESIDENTIAL
PARTNERS-86, A CALIFORNIA LIMITED PARTNERSHIP, as of September 30, 1997. This
financial statement is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of A.G. SPANOS RESIDENTIAL PARTNERS-
86, A CALIFORNIA LIMITED PARTNERSHIP, as of September 30, 1997, in conformity
with generally accepted accounting principles.
Bowman & Company, LLP
Stockton, California
January 28, 1998
F-2
<PAGE>
A.G. SPANOS RESIDENTIAL PARTNERS-86, A CALIFORNIA LIMITED PARTNERSHIP
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash.............................................................. $ 1,361
Accounts Receivable............................................... 81,034
Advances to General Partner....................................... 121,861
--------
$204,256
========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable.................................................. $ 92,457
Distributions and recognized losses in excess of investment in
Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I..... 503,867
--------
Liabilities..................................................... 96,324
--------
General Partners' deficit......................................... (7,845)
Limited Partners' deficit......................................... (384,223)
--------
Partners' deficit............................................... (392,068)
$204,256
========
</TABLE>
See Notes to Balance Sheet
F-3
<PAGE>
A.G. SPANOS RESIDENTIAL PARTNERS-86, A CALIFORNIA LIMITED PARTNERSHIP
NOTES TO BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
A.G. Spanos Residential Partners-86, A California Limited Partnership (the
"Partnership"), was organized under the laws of the State of California on
January 15, 1987 and will continue until December 31, 2026, unless previously
terminated in accordance with the provisions of the Limited Partnership
Agreement.
AGS Financial Corporation ("AGS") and A.G. Spanos Realty, Inc. ("Realty")
are the general partners of the Partnership, and Mr. A.G. Spanos, Mr. Dean A.
Spanos, Mr. Michael A. Spanos, Mr. Barry L. Ruhl, Mrs. Dea Spanos Berberian
and the Spanos Grandchildren's Trust are the limited partners of the
Partnership. On January 13, 1987, the general partners contributed $10 each
for their interest and the limited partners contributed $980 for their
interests in the Partnership.
The Partnership was organized for the sole purpose of becoming a general
partner in Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I, a
Delaware limited partnership ("Genesis Income Partners L.P., I"). Genesis
Income Partners L.P., I acquired (from sellers affiliated with the
Partnership) 13 apartment projects and land subject to ground leases improved
with existing apartment projects, and has and will continue to operate these
properties until the projects and land are sold.
The books of the Partnership are kept on the accrual basis of accounting and
the Partnership's fiscal year ends September 30.
INCOME TAXES
No federal or state income taxes have been reflected in the accompanying
balance sheet because the Partnership is not a tax-paying entity, and all tax
consequences flow to the individual partners.
INVESTMENT IN PARTNERSHIP
The Partnership reflects its investment in Genesis Income Partners L.P., I
using the equity method of accounting, whereby the Partnership's cash
investment is reduced by cash distributions to the Partnership and by the
Partnership's proportionate share of the net loss of Genesis Income Partners
L.P., I. Since distributions and allocated losses exceed the Partnership's
investment, the balance has been classified as a liability.
USE OF ESTIMATES
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reporting amounts of assets, liabilities and disclosures of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
F-4
<PAGE>
NOTES TO BALANCE SHEET
NOTE 2. COMMITMENTS AND CONTINGENT LIABILITIES
LAWSUITS
The Partnership has been named as a defendant in a "consolidated" complaint
that supersedes separate class action complaints that were filed during the
1993 calendar year. The plaintiffs seek unspecified damages for economic
injury suffered by them for their investment in Genesis Income Partners L.P.,
I. Among other things, the plaintiffs allege that the Partnership earned
excess fees for the syndication of the entity.
During the year ended September 30, 1994, the Partnership was named as a
defendant in two separate lawsuits. Both lawsuits contend that investors were
induced to purchase units in limited partnerships by fraudulent
misrepresentations. One lawsuit settled with no liability to the Partnership
during the year.
During the year ended September 30, 1995, the Partnership was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff purchased
units in limited partnerships because of misrepresentations by the
Partnership. On May 12, 1997, the Partnership and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing the
plaintiff class in the consolidated actions. The settlement contemplates,
among other things, the sale of all of the properties of Genesis Income
Partners L.P., I at public auction and the subsequent liquidation and
dissolution of Genesis Income Partners L.P., I. The settlement agreement was
preliminarily approved by the Court on May 19, 1997. Pursuant to the
settlement, detailed information about the proposed auction sale and other
terms of the settlement will be sent to the Unitholders of Genesis Income
Partners L.P., I with proxy solicitation materials seeking the Unitholders'
consent to the auction sale. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness hearing at
which the Unitholders and other interested parties will have an opportunity to
be heard. There can be no assurance that the conditions to implementation of
the settlement will be satisfied.
The Partnership believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be covered by
indemnification agreements from co-defendants, or by insurance, and would not
have a material effect on the financial condition of the Partnership. It is
impossible at this point to evaluate the likely outcome and estimate any
amount or range of potential losses. Accordingly, the Partnership has not
accrued a contingent loss on the balance sheet.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
AGS FINANCIAL CORPORATION
Stockton, California
We have audited the accompanying balance sheet of AGS FINANCIAL CORPORATION
AND SUBSIDIARIES, as of August 31, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express
an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AGS FINANCIAL CORPORATION AND
SUBSIDIARIES as of August 31, 1997, in conformity with generally accepted
accounting principles.
Bowman & Company, LLP
Stockton, California
October 21, 1997
F-6
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997
ASSETS
<TABLE>
<S> <C>
CASH............................................................ $ 1,309,581
-----------
RECEIVABLES
Fees receivable................................................ $ 950,229
Accrued interest receivable.................................... 622,597
Advances to sponsored partnerships............................. 241,272
Other receivables.............................................. 91,539
Notes receivable from sponsored partnerships................... 1,057,878
Receivable from affiliated partnership......................... 3,518,395
-----------
$ 6,481,910
-----------
INVESTMENT IN PARTNERSHIPS...................................... $ 30,814
-----------
FURNITURE AND EQUIPMENT
Office furniture and equipment................................. $ 247,092
Less accumulated depreciation and amortization................. 246,340
-----------
$ 752
-----------
$ 7,823,057
===========
</TABLE>
See Notes to Consolidated Balance Sheet.
F-7
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<S> <C>
LIABILITIES
Accounts payable and accrued expenses.......................... $ 404,381
Deferred income taxes.......................................... 1,250,661
Advances from affiliated company............................... 46,611
Recognized losses in excess of investment in partnerships...... 270,982
Payable to affiliated company.................................. 3,678,141
-----------
$ 5,650,776
===========
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, stated value $1 per share
authorized 100,000 shares, issued 10,000 shares............... $ 10,000
Retained earnings.............................................. 2,162,281
-----------
$ 2,172,281
-----------
$ 7,823,057
===========
</TABLE>
See Notes to Consolidated Balance Sheet.
F-8
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
AGS Financial Corporation syndicates and functions as general partner in
real estate limited partnerships. One of the Company's wholly-owned
subsidiaries, AGS Securities Corporation, is inactive. The two other wholly-
owned subsidiaries, Residential Portfolio Depository Corp. and AGS Depository
Corp., are assignor limited partners in public syndications.
The Company earns fees for services that it renders to the partnerships,
which are generally located in the Western and Sunbelt states. In addition,
the Company may advance funds to the partnerships. The Company's receivables
consist primarily of these fees and advances. Such receivables are not
secured. However, the Company generally has priority on the proceeds from the
sale of the real estate when such sales occur. This priority is subordinated
only to the mortgage debt secured by such property
A summary of the Company's significant accounting policies follows:
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries. All material intercompany accounts and transactions are
eliminated in consolidation.
USE OF ESTIMATES
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reporting amounts of assets, liabilities and disclosures of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
INVESTMENTS IN PARTNERSHIPS
The Company's general partner investment in these entities is reflected
using the equity method of accounting, whereby the Company's cash investment
is reduced by partnership distributions to the Company and by the Company's
proportionate share of net losses of the partnerships. In the partnerships
where allocated losses exceed the Company's investment, the balance has been
classified as a liability.
FURNITURE AND EQUIPMENT
Furniture and equipment are stated at cost and are depreciated using either
the straight-line method or double declining balance method over five years.
F-9
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
INCOME TAXES
The Company and its subsidiaries file consolidated federal and state income
tax returns. To the extent that undistributed earnings of the subsidiaries are
expected to be indefinitely invested in the subsidiaries' business, no
provisions is made for income taxes which would be payable if these earnings
were paid as dividends to the parent company.
Deferred taxes are provided on temporary differences between the recognition
of revenues and expenses for tax and accounting purposes using the tax rates
at which the differences are expected to reverse in accordance with the
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes."
The major sources of deferred income taxes are the use of accelerated
depreciation in the partnerships, cash basis reporting by the Company for tax
purposes, and the treatment of partnership fees as guaranteed payments for tax
purposes.
CASH
For purposes of reporting the statements of cash flows, the Company includes
all cash accounts which are not subject to withdrawal restrictions or
penalties, and all highly liquid debt instruments purchased with a maturity of
three months or less as cash on the accompanying balance sheet.
Frequently, the Company had cash amounts deposited in a financial
institution in excess of federally insured limits. As of August 31, 1997 there
was $1,094,053 deposited in excess of federally insured limits.
NOTE 2. RELATED PARTY TRANSACTIONS
COMPANY-SPONSORED LIMITED PARTNERSHIPS
As managing general partner or pursuant to agreements with each of the
limited partnerships, the Company performs certain services for which it
receives compensation. Fees receivable from partnerships for services
performed were $950,229 at August 31,1997. The Company also makes short-term
advances to the partnerships which are reimbursed as cash flow permits.
Advances were $43,762 at August 31, 1997.
PURCHASE AND MANAGEMENT OF REAL ESTATE PROJECTS
All but one of the company-sponsored limited partnerships have purchased
real estate projects from entities owned by several of the shareholders of the
Company. A corporation owned by several shareholders provides property
management services to all of the real estate partnerships organized by the
Company.
NOTES RECEIVABLE FROM AFFILIATED PARTNERSHIPS
The Company has made loans to company-sponsored limited partnerships in
order to allow the partnerships to meet their cash needs. In addition, the
Company has taken back notes for unreimbursed offering and organization costs
incurred during the formation of several partnerships. Notes receivable from
partnerships were $1,057,878 at August 31, 1997. Interest of $622,384 has
accrued on these notes at August 31, 1997.
F-10
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
NOTE 2. RELATED PARTY TRANSACTIONS (CONT.)
ADVANCES FROM AFFILIATED COMPANY
The Company owes affiliates $46,611 at August 31, 1997, for working capital
advances by the affiliates. The advances are payable on demand. Accrued
interest owed to affiliates of $12,346 at August 31, 1997, has been included
in accounts payable and accrued expenses.
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
COMPANY-SPONSORED LIMITED PARTNERSHIPS
As general partner for various limited partnerships, the Company may be
subject to liabilities of the partnerships if the partnerships' assets should
become insufficient to meet their obligations. In the opinion of management,
the future revenues and the value of the underlying assets of each of these
partnerships will be sufficient to meet partnership obligations.
As general partner, the Company has a fiduciary responsibility to oversee
the management of company-sponsored limited partnerships. The assets and
liabilities of such partnerships are included in the individual partnership
financial statements and not on the accounts of the Company.
LAWSUITS
AGS Financial Corporation has been named as a defendant in a "consolidated"
complaint that supersedes separate class action complaints that were filed
during the 1993 calendar year. The plaintiffs seek unspecified damages for
economic injury suffered by them for their investment in Prudential-Bache/A.G.
Spanos Realty Partners L.P., I ("Spanos Realty") and Prudential-Bache/A.G.
Spanos Genesis Income Partners L.P., I ("Spanos Genesis"). Among other things,
the plaintiffs allege that the Company earned excess fees for the syndication
of the entities.
During the year ended August 31,1994, the Company was named as a defendant
in two separate lawsuits. Both lawsuits contend that they were induced to
purchase units in limited partnerships by fraudulent misrepresentations. One
lawsuit settled with no liability to the Company during the year.
During the year ended August 31, 1995, the Company was named as a defendant
in a lawsuit. The lawsuit contended that the plaintiff purchased units in
limited partnerships because of misrepresentations by the Company. On May 12,
1997, the Company and certain of its affiliates entered into a Stipulation of
Settlement with legal counsel representing the plaintiff class in the
consolidated actions. The settlement contemplates, among other things, the
sale of all of the properties of Spanos Realty and Spanos Genesis at public
auction and the subsequent liquidation and dissolution of Spanos Realty and
Spanos Genesis. The settlement agreement was preliminarily approved by the
Court on May 19, 1997. Pursuant to the settlement, detailed information about
the proposed auction sale and other terms of the settlement will be sent to
the Unitholders of Spanos Realty and Spanos Genesis with proxy solicitation
materials seeking the Unitholders' consent to the auction sale. The settlement
agreement contains numerous conditions and must be finally approved by the
Court at a fairness hearing at which the Unitholders and other interested
parties will have an opportunity to be heard. There can be no assurance that
the conditions to implementation of the settlement will be satisfied.
The Company believes it has meritorious defenses in all pending cases and
that adverse decisions in any or all of these cases would be covered by
indemnification agreements from co-defendants, or by insurance, and would not
have a material effect on the financial condition of the Company. It is
impossible at this point to evaluate the likely outcome and estimate any
amount or range of potential losses. Accordingly, the Company has not accrued
a contingent loss on the financial statements.
F-11
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET--(CONTINUED)
NOTE 4. SUBSEQUENT EVENTS
During the months of September, October and November, 1997, the real
property of the several partnership investments (other than Spanos Realty and
Spanos Genesis) were sold. These sales generated gains for the Company.
Payments of the receivables due from these partnerships are expected to be
made to the Company.
NOTE 5. EXCHANGE OBLIGATION
On October 31, 1996, a partnership affiliated with the Company deeded
property in anticipation of a deferred tax free exchange. The Company sold the
property on October 31, 1996. The Company entered into an agreement to build a
replacement property for the affiliated partnership and deeded the property to
the affiliated partnership on April 29, 1997, subject to a construction loan
which had a balance at August 31, 1997 of $8,173,053.
At August 31, 1997, the Company had cash in the amount of $159,746 and
accounts receivable of $3,518,395 from the October 31, 1996 sale and exchange
and had an account payable to an affiliated corporation in the amount of
$3,678,141. These amounts are reflected on the accompanying balance sheet.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
A.G. SPANOS REALTY, INC.
Stockton, California
We have audited the accompanying balance sheet of A.G. SPANOS REALTY, INC.,
a California corporation, as of September 30, 1997. This financial statement
is the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the balance sheet is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall balance sheet
presentation. We believe that our audit of the balance sheet provides a
reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of A.G. SPANOS REALTY, INC. as of
September 30, 1997, in conformity with generally accepted accounting
principles.
Bowman & Company, LLP
Stockton, California
January 28, 1998
F-13
<PAGE>
A.G. SPANOS REALTY, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash............................................................ $ 41,895
Certificate of Deposit ......................................... 100,000
----------
$ 141,895
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Distributions and recognized losses in excess of investment in
A.G. Spanos Residential Partners-86, A California Limited
Partnership ................................................... $ 3,923
----------
Common stock, stated value $100,000 per share, 10,000 shares
authorized and 20 shares issued................................ 2,000,000
Note receivable--shareholder.................................... (1,900,000)
Retained earnings .............................................. 37,972
----------
137,972
----------
$ 141,895
==========
</TABLE>
See Notes to Balance Sheet
F-14
<PAGE>
A.G. SPANOS REALTY, INC.
NOTES TO BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
A.G. Spanos Realty, Inc. (the "Company") was organized on July 24, 1978, but
was inactive until December 1, 1986 when the Company issued 20 shares of
common stock with a stated value in the amount of $2,000,000. The stock was
purchased by Mr. Alex G. Spanos with a $1,900,000 unsecured non-interest
bearing note due on demand and cash in the amount of $100,000.
The Company's sole purpose was to invest as a general partner in A.G. Spanos
Residential Partners-86, A California Limited Partnership (the "Partnership").
The Partnership's sole purpose is that of becoming a general partner in
Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I, a Delaware
limited partnership ("Genesis Income Partners L.P., I").
The books of the Company are kept on the accrual basis of accounting and the
Company's fiscal year ends September 30.
INVESTMENT IN PARTNERSHIP
The Company reflects its investment in the Partnership using the equity
method of accounting, whereby the Company's cash investment is reduced by
Partnership distributions to the company and by the Company's proportionate
share of the net loss of the Partnership. Since distributions and allocated
losses exceed the Company's investment, the balance has been classified as a
liability.
USE OF ESTIMATES
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reporting amounts of assets, liabilities and disclosures of
contingent assets and liabilities at the date of the balance sheet. Actual
results could differ from those estimates.
NOTE 2. NOTE RECEIVABLE FROM SHAREHOLDER
The Note receivable from Mr. Alex G. Spanos is an unsecured non-interest
bearing note and is due on demand. The Note receivable arose from the issuance
of common stock to Mr. Alex G. Spanos.
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
LAWSUITS
The Company has been named as a defendant in a "consolidated" complaint that
supersedes separate class action complaints that were filed during the 1993
calendar year. The plaintiffs seek unspecified damages for economic injury
suffered by them for their investment in Genesis Income Partners L.P., I.
Among other things, the plaintiffs alleged that the Company earned excess fees
for the syndication of the entity.
During the year ended September 30, 1994, the Company was named as a
defendant in two separate lawsuits. Both lawsuits contend that investors were
induced to purchase units in limited partnerships by fraudulent
misrepresentations. One lawsuit settled with no liability to the Company
during the year.
During the year ended September 30, 1995, the Company was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff purchased
units in limited partnerships because of misrepresentations by the
F-15
<PAGE>
A.G. SPANOS REALTY, INC.
NOTES TO BALANCE SHEET--(CONTINUED)
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
Company. On May 12, 1997, the Company and certain of its affiliates entered
into a Stipulation of Settlement with legal counsel representing the plaintiff
class in the consolidated actions. The settlement contemplates, among other
things, the sale of all of the properties of Genesis Income Partners L.P., I
at public auction and the subsequent liquidation and dissolution of Genesis
Income Partners L.P., I. The settlement agreement was preliminarily approved
by the Court on May 19, 1997. Pursuant to the settlement, detailed information
about the proposed auction sale and other terms of the settlement will be sent
to the Unitholders of Genesis Income Partners L.P., I with proxy solicitation
materials seeking the Unitholders' consent to the auction sale. The settlement
agreement contains numerous conditions and must be finally approved by the
Court at a fairness hearing at which the Unitholders and other interested
parties will have an opportunity to be heard. There can be no assurance that
the conditions to implementation of the settlement will be satisfied.
The Company believes it has meritorious defenses in all pending cases and
that adverse decisions in any or all of these cases would be covered by
indemnification agreements from co-defendants, or by insurance, and would not
have a material effect on the financial condition of the Company. It is
impossible at this point to evaluate the likely outcome and estimate any
amount or range of potential losses. Accordingly, the Company has not accrued
a contingent loss on the balance sheet.
F-16
<PAGE>
EXHIBIT A
Proposed Amendment to Amended and Restated Agreement of Limited Partnership of
Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I
Section 15.4.20 of the Amended and Restated Agreement of Limited Partnership of
Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I is amended to read
in full as follows (language in BOLDFACE to be added):
<TABLE>
<C> <S>
15.4 Limitations. Neither the General Partners nor any Affiliate shall have
the authority to:
. . .
15.4.20 except as provided in Article 9, and Paragraphs 15.2.15, 15.4.4,
15.4.25 and 15.4.26, purchase or lease real property from the
Partnership or sell or lease real property to the Partnership;
PROVIDED, HOWEVER, THAT AN AFFILIATE OF THE SPANOS GENERAL PARTNER MAY
BID FOR, AND IF SUCH BID IS SUCCESSFUL PURCHASE, ANY OR ALL OF THE
PROPERTIES IN A PUBLIC AUCTION HELD PURSUANT TO THE ORDER OF A COURT
WITH JURISDICTION OVER THE PARTNERSHIP, THE GENERAL PARTNERS, THE
SPECIAL LIMITED PARTNERS, THE LIMITED PARTNERS AND THE UNITHOLDERS.
</TABLE>
A-1
<PAGE>
EXHIBIT B: Annual Report of Partnership on SEC Form 10-K for the year ended
December 31, 1997, as amended.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K/A
AMENDMENT NO. 1
(Mark One)
[X]ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGEACT
OF 1934
For the fiscal year ended December 31, 1997
OR
[_]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
COMMISSION FILE NUMBER: 0-16861
PRUDENTIAL-BACHE/A.G. SPANOSGENESIS INCOME PARTNERS L.P., I
(EXACT NAME OF REGISTRANT AS SPECIFIED IN CHARTER)
DELAWARE 94-3028296
(STATE OR OTHER JURISDICTIONOF (I.R.S. EMPLOYERIDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
1341 WEST ROBINHOOD, SUITE B-9, 95207
STOCKTON, CA (ZIP CODE)
(ADDRESS OF PRINCIPAL EXECUTIVE
OFFICES)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE (209) 478-0140
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
<TABLE>
<CAPTION>
NAME OF EACH EXCHANGE
TITLE OF EACH CLASS ON WHICH REGISTERED
------------------- ---------------------
<S> <C>
None None
</TABLE>
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
DEPOSITORY UNITS OF LIMITED PARTNERSHIP INTERESTS
(TITLE OF CLASS)
Indicate by check CK whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirement for the past 90 days. Yes [X] No [_]
Indicate by check CK if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
B-1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
PART I
Item 1. Business......................................................... B-3
Item 2. Properties....................................................... B-4
Item 3. Legal Proceedings................................................ B-6
Item 4. Submission of Matters to a Vote of Security Holders.............. B-6
PART II
Item 5. Market for the Partnership's Depository Units of Limited
Partnership Interest and Related Security Holder Matters........... B-6
Item 6. Selected Financial Data.......................................... B-7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................... B-7
Item 8. Financial Statements and Supplementary Data...................... B-9
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..................................................... B-23
PART III
Item 10. Directors and Executive Officers of the Registrant............... B-23
Item 11. Executive Compensation........................................... B-26
Item 12. Security Ownership of Certain Beneficial Owners and Management... B-26
Item 13. Certain Relationships and Related Transactions................... B-26
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K. B-28
</TABLE>
B-2
<PAGE>
PART I
ITEM 1. BUSINESS
The Registrant, Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I
(the "Partnership"), is a limited partnership formed on January 14, 1987 under
Delaware law. The business of the Partnership is managed and controlled by its
general partners (the "General Partners"), A.G. Spanos Residential Partners-
86, a California Limited Partnership (the "Spanos General Partner") and
Prudential-Bache Properties, Inc. (the "Bache General Partner"). The primary
purpose of the Partnership is to acquire from affiliates of the Spanos General
Partner, invest in, hold, manage, sell, dispose of, and otherwise act with
respect to properties on which multi-family residential developments have been
constructed. The Partnership originally invested in eight apartment properties
("Apartment Projects") and five land parcels, upon which apartment properties
had been constructed, which were leased back to the seller ("Land/Leases").
The Apartment Projects and Land/Leases are collectively referred to as the
"Properties." Through 1997, the Partnership had sold one Apartment Project and
three Land/Leases. The remaining Properties are located in six metropolitan
areas: Atlanta (two Properties), Louisville (one Property), Dallas/Fort Worth
(two Properties), Kansas City (two Properties), Albuquerque (one Property) and
San Diego (one Property). The Partnership will continue until December 31,
2021, unless terminated earlier under the provisions of its Amended and
Restated Agreement of Limited Partnership (the "Partnership Agreement").
On May 12, 1997, the Spanos General Partner and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing the
plaintiff class in the litigation described in Note F to the financial
statements in Item 8, Financial Statements and Supplementary Data. The
settlement contemplates, among other things, the sale of all of the
Partnership Properties at public auction and the subsequent liquidation and
dissolution of the Partnership. The Spanos General Partner intends to file a
preliminary proxy statement seeking the Limited Partners' consent to the
auction sale with the Securities and Exchange Commission in early April, 1998.
The settlement agreement contains numerous conditions and must be finally
approved by the Court at a fairness hearing at which Limited Partners and
other interested parties will have an opportunity to be heard. There can be no
assurance that the conditions to implementation of the settlement will be
satisfied.
Occupancy information is set forth in Item 2. The Properties are subject to
competition from other apartment properties located in close proximity,
including properties owned by affiliates of the Spanos General Partner. The
Properties compete for a variety of tenant groups, including young
professionals, retail, service and trade employees, students and retirees.
Competition for tenants is principally on the basis of location, physical
condition, amenities, and rental rates. The location and condition of the
Properties is considered to be good to above-average. The Properties feature
amenities fairly typical for properties built in the 1980's, including
swimming pools, tennis courts, fitness facilities, microwave ovens and guarded
entrances, and are generally able to compete adequately with similar projects
in their respective markets.
Many areas, including Albuquerque, Kansas City, Dallas/Fort Worth and
Atlanta have seen construction of new apartment properties increase since
1992. This has led to the emergence of market segmentation between 1980's
vintage properties (such as the Partnership's) and the newer generation of
apartment properties completed recently. The newer properties have a
competitive advantage not only because they are new, but because many are
designed with larger unit sizes, have floor plans and finishes similar to
those found in single family homes, and feature more extensive amenities than
do the properties built in the 1980's. To date, these newer properties
generally command higher rents and have competed with each other for tenants
able to pay premium rents, leaving the 1980's vintage properties to compete
with each other for the next tier of apartment renters. There is a risk,
however, that if overbuilding in the upper segment of the market results in
lower rents, the new properties with more extensive amenities could be highly
competitive with the 1980's vintage apartment product. To date, only Del Rio
(a Land/Lease property located in Albuquerque) has been adversely affected by
the level of new competition. Revenue there declined 7.4% from 1995 to 1996
and 7.5% from 1996 to 1997.
B-3
<PAGE>
Within the greater housing market, the apartment sector competes with
single-family homes. Thus, apartment demand can be affected by the
affordability of owner-occupied housing, which can increase and decrease with
changes in mortgage interest rates.
The Partnership does not segregate revenues or assets by geographic regions.
Two Apartment Projects accounted for 15% or more of annual Apartment Project
rental revenue in each of the prior three years: Chelsea Park (17% to 19%) and
Cypress Pointe (18% to 19%). No single tenant accounted for 10% or more of the
revenue for any of the three years ended December 31, 1997. The Partnership is
engaged solely in the business of real estate investment; therefore,
presentation of industry segment information is not applicable. The General
Partners believe the Properties are adequately insured. For more information
regarding the Properties, see Item 2, Properties. For more information
regarding the Partnership's operations, see Item 7, Management's Discussion
and Analysis of Financial Condition and Results of Operations.
The Partnership has no employees. The officers and employees of the General
Partners and their affiliates perform services for the Partnership pursuant to
the Partnership Agreement.
ITEM 2. PROPERTIES
The Partnership owned nine Properties described below at March 1, 1998:
<TABLE>
<CAPTION>
PURCHASE
LOCATION DATE MORTGAGE HOLDER (1)
-------------------------- -------- ----------------------------
<S> <C> <C> <C>
APARTMENT PROJECTS(1):
Le Parc Apartments: Marietta, Georgia 06/03/87 Great Western Bank(3)
a 188-unit, midrise (suburb of Atlanta)
apartment complex
located on
approximately
8 acres.
Casa de Fuentes Overland Park, Kansas 07/02/87 Wells Fargo Bank(4)
Apartments: (suburb of Kansas City) (successor to Great American
a 288-unit, garden First Savings)
apartment complex
located on
approximately 30 acres.
MacArthur Park Las Colinas, Texas 10/01/87 Mellon Mortgage
Apartments: (suburb of Irving/ Dallas) (successor to American
a 276-unit, garden Savings Bank)
apartment complex
located on
approximately 13 acres.
Cypress Pointe Louisville, Kentucky 10/01/87 GE Capital(5)
Apartments:
a 444-unit, garden
apartment complex
located on
approximately 33 acres.
Comanche Place Overland Park, Kansas 12/04/87 Wells Fargo Bank(4)
Apartments: (suburb of Kansas City) (successor to Great American
a 306-unit, garden First Savings)
apartment complex
located on
approximately 29 acres.
Chelsea Park Apartments: Norcross, Georgia 03/25/88 Great Western Bank(3)
a 376-unit, garden (suburb of Atlanta)
apartment complex
located on
approximately 31 acres.
Mission Trails San Diego, California 08/12/88 Union Bank(4)
Apartments:
a 208-unit, garden
apartment complex
located on
approximately
5 acres.
</TABLE>
B-4
<PAGE>
<TABLE>
<CAPTION>
PURCHASE MORTGAGE
LOCATION DATE HOLDER
----------------------- -------- ----------------------
<S> <C> <C> <C>
LAND LEASES(2):
Cameron Creek Fort Worth, Texas 10/01/87 Great Western Bank(3)
Apartments:
a land parcel of
approximately 20
acres upon which a
446-unit, garden
apartment complex has
been constructed.
Del Rio Apartments: Albuquerque, New Mexico 12/21/87 Gibraltar Savings Bank
a land parcel of
approximately 13
acres upon which a
248-unit, garden
apartment complex has
been constructed
</TABLE>
<TABLE>
<CAPTION>
AVERAGE ANNUAL 1997
AVERAGE ANNUAL OCCUPANCY REVENUE PER APT. UNIT(6) REALTY TAX DATA
---------------------------- ----------------------------------- ---------------
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993 AMOUNT RATE
---- ---- ---- ---- ---- ------- ------ ------ ------ ------ -------- ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APARTMENT PROJECTS:
Le Parc................. 93.8% 93.1% 96.1% 95.9% 95.4% $ 8,728 $8,567 $8,381 $8,061 $7,698 $100,100 1.3000%
Casa de Fuentes......... 94.5% 94.8% 92.5% 91.8% 94.1% $ 6,762 $6,683 $6,389 $6,295 $6,514 $180,621 1.5819%
MacArthur Park.......... 96.0% 95.5% 95.8% 95.8% 95.4% $ 7,850 $7,468 $7,152 $6,867 $6,463 $282,273 2.4320%
Cypress Pointe.......... 95.4% 94.7% 92.0% 94.9% 95.2% $ 6,566 $6,520 $5,944 $5,954 $5,476 $160,000 1.0430%
Comanche Place.......... 94.8% 95.0% 94.5% 94.8% 93.3% $ 6,947 $6,760 $6,474 $6,217 $5,852 $144,642 1.2121%
Chelsea Park............ 91.2% 93.9% 94.8% 95.4% 95.9% $ 7,214 $7,391 $7,201 $6,457 $5,905 $201,877 1.3780%
Mission Trails.......... 96.9% 95.6% 92.3% 92.5% 91.9% $10,266 $9,467 $9,044 $9,145 $8,818 $154,343 1.1150%
LAND LEASES:
Cameron Creek........... 94.4% 93.2% 93.8% 94.4% 94.7% (7) (7) (7) (7) (7) (9) (9)
Del Rio................. 90.7% 92.0% 93.2% 94.6% 95.5% (8) (8) (8) (8) (8) (9) (9)
</TABLE>
- --------
(1) The Partnership has a 100% fee simple ownership interest in each Property
subject to a first mortgage lien in favor of the indicated holder. Each
mortgage is secured only by the Property to which it relates and is
without recourse to either of the General Partners or the Partnership.
(See Note C and Schedule III to the Financial Statements.)
(2) The Partnership has a 100% fee simple interest in the land with respect to
the Land/Leases. The lessees, who are affiliates of the Spanos General
Partner, own the apartment complexes constructed thereon which are
encumbered by first mortgage liens in favor of the indicated holder. Each
lienholder has recourse only to the apartment complex owned by the lessee
and the land owned by the Partnership to which the lien relates, and each
such lien is without recourse to either of the General Partners or the
Partnership. (See Note E and Schedule III to the Financial Statements.)
(3) Loan may be prepaid upon payment of a 2% prepayment charge. The lender may
waive the prepayment charge for principal prepayments during the calendar
year which do not exceed 20% of the original loan balance and for
prepayments made within 90 days of a notice of installment adjustment. The
lender will also waive the prepayment charge so long as A.G. Spanos
Construction, Inc. or any entity owned and controlled by A.G. Spanos
Construction or by Alex G. Spanos remains liable on the loan.
(4) Loan may be prepaid without charge at any time unless the Partnership has
elected for interest to be computed based on a LIBOR fixing, in which case
prepayment must be accompanied by a yield maintenance prepayment charge.
(5) Loan may be prepaid upon payment of prepayment charges of 2% and 1%,
respectively, for prepayments occurring prior to June 1, 1998 and March 1,
1999.
(6) Average annual revenue per apartment unit is determined by dividing total
operating revenues for the Property by the number of apartment units.
(7) Ground lease requires payments of $350,000 per year through October 1992,
and $420,000 per year thereafter.
(8) Ground lease requires payments of $200,000 per year through December 1992,
and $240,000 per year thereafter.
(9) The ground leases are triple-net, with the tenant responsible for payment
of all property taxes. Property taxes and tax rate for 1997 for Cameron
Creek were $405,489 and 3.266%, respectively, and for Del Rio, $101,783
and 1.219%, respectively.
B-5
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
This information is incorporated by reference to Note F to the financial
statements in Item 8, Financial Statements and Supplementary Data.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Unitholders during the fourth
quarter of the fiscal year covered by this report through the solicitation of
proxies or otherwise.
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S DEPOSITORY UNITS OF LIMITED PARTNERSHIP
INTEREST AND RELATED SECURITY HOLDER MATTERS
The Partnership had four limited partners as of March 5, 1998: Residential
Portfolio Depository Corp. (the "Assignor Limited Partner"), a wholly owned
subsidiary of AGS Financial Corporation, and three affiliates of the Spanos
General Partner which are holders of Special Limited Partnership Interests
("Special Interests"). The Assignor Limited Partner has transferred and
assigned to the Unitholders all of the Assignor Limited Partner's rights and
interest in and to the assigned Limited Partnership Interests, except for
record ownership and the right to vote directly on matters submitted to the
Limited Partners and Unitholders for a vote. There were 3,152 Unitholders as
of March 5, 1998.
A significant secondary market for the Units has not developed, and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in the Partnership Agreement limiting the ability of a
Unitholder to transfer Units. Consequently, Unitholders may not be able to
liquidate their investments in the event of an emergency or any other reason.
Distributions of cash from operations were paid to Unitholders approximately
45 days after the end of the specified quarter. Distributions per Unit in 1996
and 1997 were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED DISTRIBUTION
------------- ------------
<S> <C>
March 31, 1996................................................ $6.25
June 30, 1996................................................. $6.25
September 30, 1996............................................ $6.25
December 31, 1996............................................. $6.25
March 31, 1997................................................ $6.25
June 30, 1997................................................. $6.25
September 30, 1997............................................ $6.25
December 31, 1997............................................. $6.25
</TABLE>
Approximately $1,334,000 and $1,374,000 of the distributions paid to
Unitholders for 1997 and 1996, respectively, represent a return of capital on
a generally accepted accounting principle ("GAAP") basis. The return of
capital on a GAAP basis is calculated as Unitholder distributions less net
income, if any, allocated to Unitholders.
There are no material legal restrictions on the Partnership's present or
future ability to make distributions in accordance with the provisions of the
Partnership Agreement. Future distributions will be dependent upon the
performance of the Partnership. See Item 7, Management's Discussion and
Analysis of Financial Condition and Results of Operations, for a discussion of
the factors affecting future Distributions.
B-6
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA(A)
<TABLE>
<CAPTION>
FOR THE YEAR ENDED DECEMBER 31,
------------------------------------------------------------
1997 1996 1995 1994 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Total revenues
(excluding gain on
disposition of
property).............. $16,507,383 $16,129,902 $14,988,762 $15,534,333 $15,568,580
Gain (loss) on
disposition of
property............... -- -- -- $ 3,874,238 $ (326,682)
Interest expense........ $ 4,867,527 $ 4,960,498 $ 4,767,362 $ 4,999,648 $ 5,611,979
Net income (loss)....... $ 288,649 $ 247,518 $ (799,735) $ 3,282,153 $(1,725,161)
Net income (loss) per
Unit................... $ 4.37 $ 3.75 $ (12.12) $ 49.74 $ (26.15)
Net income (loss) per
Special Interest....... -- -- -- -- --
Cash distributions per
Unit(b)................ $ 25.00 $ 25.00 $ 25.00 $ 111.78 $ 50.21
Cash distributions per
Special Interest....... -- -- -- $ 86.78 $ 27.71
Total assets............ $73,894,386 $76,298,063 $78,463,093 $81,851,130 $94,299,558
Mortgage loans payable.. $57,927,235 $58,897,267 $59,764,780 $60,877,063 $68,372,936
</TABLE>
- --------
(a) The above selected financial data should be read in conjunction with the
financial statements and the related notes (see Item 8).
(b) The cash distributions did not result in taxable income to the
Unitholders. Each Unitholder's taxable income or loss from the Partnership
is equal to his allocable share of the taxable income or loss of the
Partnership, without regard to the cash generated or distributed by the
Partnership.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Capital Resources and Liquidity
The Partnership had cash of $5,323,000 at December 31, 1997. There are no
proposed programs for renovation, improvement or development of the Properties
other than maintenance and repairs (including major repairs) in the ordinary
course which will be paid from operations, and the Partnership's liquidity
position is considered satisfactory.
On May 12, 1997, the Spanos General Partner and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing the
plaintiff class in the consolidated actions. The settlement contemplates,
among other things, the sale of all of the Partnership Properties at public
auction and the subsequent liquidation and dissolution of the Partnership. The
Spanos General Partner intends to file a preliminary proxy statement seeking
the Limited Partners' consent to the auction sale with the Securities and
Exchange Commission in early April, 1998. The settlement agreement contains
numerous conditions and must be finally approved by the Court at a fairness
hearing at which Limited Partners and other interested parties will have an
opportunity to be heard. There can be no assurance that the conditions to
implementation of the settlement will be satisfied.
The Partnership's operating activities provided cash of $2,945,000 in 1997,
of which $176,000 reflects timing differences related to current assets and
liabilities. Of the balance, $970,000 was applied to scheduled principal
amortization on the Partnership's mortgage debt, $1,649,000 was paid in cash
distributions, and $502,000 was retained. Reported cash provided by operating
activities declined $419,000 in 1997 compared to 1996, however the decrease
related primarily to changes in timing differences between the two years. Cash
provided by operating activities increased $892,000 in 1996 compared to 1995,
principally because of improved operations of the Apartment Projects as
described below and an increase in reported Land/Lease rentals which arose
because certain rentals are no longer accounted for as a recovery of recorded
carrying amount as described in Note B to the financial statements. (Reported
cash flows from investing activities declined $372,000 from 1995
B-7
<PAGE>
to 1996 for the same reason.) Cash flows from 1996 financing activities
includes the payment of the $8,943,000 balance of the matured Mission Trails
mortgage with the proceeds from a new $9,000,000 mortgage from another lender.
The Partnership's long term debt, which consists of seven real estate
mortgages with respect to the remaining Apartment Projects, was $57,927,000 at
December 31, 1997. This debt requires monthly installments of principal and
interest of $486,000. The Apartment Projects are currently generating
aggregate revenue to cover operating expenses and debt service. Five of the
mortgage loans require balloon payments: Casa de Fuentes, Comanche Place and
Cypress Pointe in 1999; Mission Trails in 2000; and MacArthur Park in 2001.
The General Partners anticipate that the Properties securing the balloon
payment mortgages will be sold or refinanced before the balloon payment due
dates. If the Properties are not sold or refinanced beforehand, the
Partnership would be required to refinance them when the balloon payments
become due subject to then existing conditions in the real estate and mortgage
financing markets or to sell the properties under terms which may not be the
most favorable to the Partnership. If the Partnership were unable to complete
sales or refinancings, then the lenders could institute foreclosure
proceedings against the Properties.
Results of Operations
1997 Compared to 1996. Rental revenue was $15,658,000 in 1997, an increase
of 2.3% compared to 1996. Revenue increased at five Apartment Projects (Le
Parc, Casa de Fuentes, MacArthur Park, Comanche Place and Mission Trails)
principally as a result of increased effective rental rates. Revenue was down
2.4% at Chelsea Park, principally because of lower occupancy. Revenue at
Cypress Pointe was generally unchanged from 1996. Overall, the average
occupancy of the Apartment Projects was 94.5% in 1997 compared to 94.7% in
1996.
Property operating expenses were $6,097,000 in 1997 compared to $5,707,000
for 1996. Major repairs (i.e., exterior painting, asphalt work and other
expensive repairs that do not recur on an annual basis) increased to $718,000
in 1997 compared to $596,000 for 1996. Furnished unit expense was down $38,000
compared to 1996, reflecting fewer furnished unit rentals in 1997. Operating
expenses excluding major repairs and furnished unit expense increased $305,000
or approximately 6.3% over 1996. Expense categories showing the greatest
increases were maintenance, up $131,000 or 8.6%, reflecting the generally
higher costs of operating an aging property portfolio; on-site salaries, up
$114,000 or 8.5%, reflecting higher personnel costs; and utilities, up $82,000
or 7.4%. Property management fees, which are 3% of property revenue, increased
with the increase in revenue. Interest expense declined $93,000, primarily
because of lower outstanding principal on the mortgage loans. Interest income
increased because average cash balances and money market interest rates were
higher in 1997.
1996 Compared to 1995. Rental revenue was $15,308,000 in 1996, an increase
of 4.9% compared to 1995. Revenue increased at all seven Apartment Projects,
principally as a result of increased effective rental rates. Same Property
average occupancy was 94.7% in 1996 compared to 93.8% in 1995.
Property operating expenses declined slightly from 1995 to 1996 as small
decreases in maintenance expenses offset smaller increases in other operating
expenses. Property taxes also declined slightly from 1995 because an appeal of
the Le Parc taxes resulted in a $63,000 reduction which more than offset tax
increases at the other properties. Interest expense was higher in 1996 because
the interest rates on the Casa de Fuentes, Comanche Place and Mission Trails
mortgages increased. Depreciation expense declined $103,000 because certain
personal property assets were fully depreciated in 1995. Interest income
increased because average cash balances and money market interest rates were
higher in 1996.
Year 2000.
The General Partners do not expect that any costs related to year 2000
compliance will be material to the financial statements of the Partnership.
B-8
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
-------
<S> <C>
Independent Auditors' Report........................................... B-10
Balance Sheets at December 31, 1997 and 1996........................... B-11
Statements of Operations for the Years ended December 31, 1997, 1996
and 1995.............................................................. B-12
Statements of Changes in Partners' Equity (Deficit) for the Years ended
December 31, 1997, 1996 and 1995...................................... B-13
Statements of Cash Flows for the Years ended December 31, 1997, 1996
and 1995.............................................................. B-14
Notes to Financial Statements.......................................... B-15-22
Schedule to Financial Statements....................................... B-33
</TABLE>
B-9
<PAGE>
INDEPENDENT AUDITORS' REPORT
General and Limited Partners
Prudential-Bache/A.G. Spanos
Genesis Income Partners, L.P., I:
We have audited the accompanying balance sheets of Prudential-Bache/A.G.
Spanos Genesis Income Partners L.P., I (a limited partnership) (the
"Partnership") as of December 31, 1997 and 1996, and the related statements of
operations, changes in partners' equity (deficit) and cash flows for each of
the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule of the Partnership listed at Item
14(a)(2). These financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential-Bache/A.G. Spanos Genesis
Income Partners L.P., I as of December 31, 1997 and 1996, and the results of
its operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth therein.
/s/ Deloitte & Touche LLP
San Francisco, California
March 13, 1998
B-10
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
ASSETS
Property, net........................................ $68,176,821 $71,009,033
Cash and cash equivalents............................ 5,323,329 4,997,867
Accounts receivable, affiliate....................... 163,476 163,476
Other assets......................................... 230,760 127,687
----------- -----------
$73,894,386 $76,298,063
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage loans payable............................. $57,927,235 $58,897,267
Accounts payable................................... 449,811 459,065
Accounts payable, affiliate........................ 203,626 189,914
Distributions payable.............................. 412,373 412,373
Accrued interest................................... 409,443 409,605
Accrued property taxes............................. 453,016 596,829
Unearned rent and tenant deposits.................. 520,212 453,497
----------- -----------
60,375,716 61,418,550
----------- -----------
Partners' equity (deficit):
Limited partners' equity (64,660 units authorized
and outstanding).................................. 7,665,188 8,998,812
Special limited partners' equity (7,749.5 units
authorized and outstanding)....................... 6,862,188 6,862,188
General partners' deficit.......................... (1,008,706) (981,487)
----------- -----------
13,518,670 14,879,513
----------- -----------
$73,894,386 $76,298,063
=========== ===========
</TABLE>
See notes to financial statements.
B-11
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Revenues:
Rental.................................. $15,657,774 $15,307,834 $14,598,620
Land/Lease rentals from affiliates...... 660,000 660,000 240,000
Interest................................ 189,609 162,068 150,142
----------- ----------- -----------
16,507,383 16,129,902 14,988,762
----------- ----------- -----------
Expenses:
Property operating expenses............. 6,097,461 5,707,050 5,720,062
Property taxes.......................... 1,235,151 1,221,069 1,244,270
Property management fees to affiliates.. 469,310 457,754 438,068
General and administrative expense...... 90,763 91,487 99,511
Interest expense........................ 4,867,527 4,960,498 4,767,362
Management fees to affiliates........... 626,310 612,314 583,944
Depreciation............................ 2,832,212 2,832,212 2,935,280
----------- ----------- -----------
16,218,734 15,882,384 15,788,497
----------- ----------- -----------
Net income (loss)......................... $ 288,649 $ 247,518 $ (799,735)
=========== =========== ===========
Net income (loss) allocated to General
Partners................................. $ 5,773 $ 4,950 $ (15,995)
=========== =========== ===========
Net income (loss) allocated to Limited
Partners................................. $ 282,876 $ 242,568 $ (783,740)
=========== =========== ===========
Net income (loss) allocated to Special
Limited Partners......................... $ -0- $ -0- $ -0-
=========== =========== ===========
Net income (loss) per unit of limited
partnership interest..................... $ 4.37 $ 3.75 $ (12.12)
=========== =========== ===========
</TABLE>
See notes to financial statements.
B-12
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
SPECIAL
LIMITED LIMITED GENERAL
TOTAL PARTNERS PARTNERS PARTNERS
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Partners' equity (deficit)--
December 31, 1994........... $18,730,714 $12,772,984 $6,862,188 $ (904,458)
Net loss..................... (799,735) (783,740) -0- (15,995)
Distributions................ (1,649,492) (1,616,500) -0- (32,992)
----------- ----------- ---------- -----------
Partners' equity (deficit)--
December 31, 1995........... 16,281,487 10,372,744 6,862,188 (953,445)
Net income................... 247,518 242,568 -0- 4,950
Distributions................ (1,649,492) (1,616,500) -0- (32,992)
----------- ----------- ---------- -----------
Partners' equity (deficit)--
December 31, 1996........... 14,879,513 8,998,812 6,862,188 (981,487)
Net income................... 288,649 282,876 -0- 5,773
Distributions................ (1,649,492) (1,616,500) -0- (32,992)
----------- ----------- ---------- -----------
Partners' equity (deficit)--
December 31, 1997........... $13,518,670 $ 7,665,188 $6,862,188 $(1,008,706)
=========== =========== ========== ===========
</TABLE>
See notes to financial statements.
B-13
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)..................... $ 288,649 $ 247,518 $ (799,735)
----------- ----------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation........................ 2,832,212 2,832,212 2,935,280
(Increase) decrease in other assets. (103,073) 14,638 16,987
Decrease in account receivable,
affiliate.......................... -0- 165,000 145,802
Increase in accounts payable,
affiliate.......................... 13,712 2,585 8,123
(Decrease) increase in accounts
payable............................ (9,254) (43,324) 105,362
(Decrease) increase in accrued
interest........................... (162) 11,309 3,615
(Decrease) increase in accrued
property taxes..................... (143,813) 131,001 42,453
Increase in unearned rent and tenant
deposits........................... 66,715 2,886 13,920
----------- ----------- -----------
Total adjustments................. 2,656,337 3,116,307 3,271,542
----------- ----------- -----------
Net cash provided by operating
activities............................. 2,944,986 3,363,825 2,471,807
----------- ----------- -----------
Cash flows from investing activities:
Land/lease payments................... -0- -0- 372,498
----------- ----------- -----------
Cash flows from financing activities:
Proceeds from mortgage loan payable... -0- 9,000,000 -0-
Mortgage loan principal amortization.. (970,032) (924,033) (978,940)
Other mortgage loan repayments........ -0- (8,943,480) (133,343)
Distributions to partners............. (1,649,492) (1,649,492) (1,649,492)
----------- ----------- -----------
Net cash used in financing activities... (2,619,524) (2,517,005) (2,761,775)
----------- ----------- -----------
Net increase in cash and cash
equivalents............................ 325,462 846,820 82,530
Cash and cash equivalents, beginning of
year................................... 4,997,867 4,151,047 4,068,517
----------- ----------- -----------
Cash and cash equivalents, end of year.. $ 5,323,329 $ 4,997,867 $ 4,151,047
=========== =========== ===========
</TABLE>
See notes to financial statements.
B-14
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 1997, 1996 AND 1995
NOTE A--ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I (the
"Partnership") is a Delaware limited partnership organized for the purpose of
acquiring and operating thirteen specified apartment properties (the
"Properties") consisting of eight apartment projects (the "Apartment Projects")
and five land parcels, upon which apartment complexes have been constructed, to
be leased back to the sellers for up to 25 years (the "Land/Leases"). Through
December 31, 1997, the Partnership had sold three of the Land/Leases and one of
the Apartment Projects. The General Partners of the Partnership are Prudential-
Bache Properties, Inc. (the "Bache General Partner") and A.G. Spanos
Residential Partners-86, A California Limited Partnership (the "Spanos General
Partner"). The Partnership will continue until December 31, 2021, unless
previously terminated in accordance with the provisions of its Amended and
Restated Agreement of Limited Partnership (the "Partnership Agreement").
The Partnership sold 64,660 depository units of limited partnership interest
("Units") between February 1987 and August 1988 for aggregate capital
contributions (net of certain volume selling commission discounts) of
$64,641,610. The Partnership has also issued non-voting Special Limited
Partnership Interests ("Special Interests") to affiliates of the Spanos General
Partner in consideration for capital contributions, payments under a cash flow
guaranty, and certain refinancing costs paid on behalf of the Partnership by
such affiliates.
Financial Statement Preparation
The Partnership has a fiscal year ending December 31. The books and records
of the Partnership are maintained on the accrual basis of accounting in
accordance with generally accepted accounting principles. Certain
reclassifications have been made to prior year amounts in order to be in
conformity with the current year presentation.
Accounting Estimates
In preparing the financial statements, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities (see Note F) at the date of the
financial statements and the reported amounts of revenues and expenses from the
reporting period. Actual results could differ from those estimates.
Cash Equivalents
Cash equivalents consist of money market funds containing money market
instruments with an original maturity date of 90 days or less whose cost
approximates market value.
Property
Property, which includes land, buildings and equipment, is carried at the
lower of depreciated cost or estimated fair value. Depreciated cost was reduced
by certain payments received under the cash flow guaranty (see Note D).
Depreciation on buildings and equipment is recorded on a straight-line basis
over their estimated useful lives, which range from 7 to 27.5 years.
B-15
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Other Assets
Other assets include prepaid expenses and tenant receivables.
Income Taxes
No provision has been made for federal or state income taxes (or credits)
since such items are the responsibility of the partners. A reconciliation of
the net income (loss) in the financial statements to the net taxable income
(loss) is set forth below:
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- ---------
<S> <C> <C> <C>
Net income (loss) per financial statements... $288,649 $247,518 $(799,765)
Land/Lease revenue accounted for as a
reduction of recorded carrying amount....... -0- -0- 420,000
Loan fee amortization and interest expense
adjustment.................................. (45,251) (49,365) 49,204
Unearned rent and non refundable deposits
recognized as income for tax purposes when
received.................................... 23,352 (15,046) 8,627
-------- -------- ---------
Net taxable income (loss).................... $266,750 $183,107 $(321,904)
======== ======== =========
</TABLE>
The book and tax bases of partners' equity differ by the cumulative effect
of the book to tax income adjustments.
Allocations and Distributions
Pursuant to the Partnership Agreement, operating income, losses and cash
distributions are generally allocated 98% to the Unitholders and 2% to the
General Partners. Taxable income and losses are allocated in the same manner.
Cash distributions resulting from sales or refinancings of the Properties are
generally allocable as follows: First, 98% to the limited partners and 2% to
the General Partners until (I) the aggregate of all such distributions equals
the limited partners' aggregate capital contributions and (ii) the aggregate
of all other cash distributions (including operating cash distributions, but
excluding distributions in repayment of capital contributions) equals the
limited partners' 10% per annum cumulative noncompounded return on their
adjusted capital contributions (the "First Level Sale or Refinance
Distributions"). Thereafter, cash distributions resulting from a sale or
refinancing are generally allocable 85% to the Unitholders and 15% to the
General Partners (the "Second Level Sale or Refinance Distributions").
The Special Interests entitle the holders to receive First Level Sale or
Refinance Distributions (and corresponding allocations of income on sales),
but no allocations of operating income, losses or cash distributions and no
allocations of Second Level Sale or Refinance Distributions.
Cash distributions to the partners are recorded in the periods to which they
relate for financial reporting purposes. The Partnership paid fourth quarter
cash distributions of $412,373 in February 1998 and 1997. These distributions
were accrued at December 31, 1997 and 1996.
Revenue Recognition
Rental income is accrued as rents are due.
B-16
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial instruments," requires the determination of fair value for
certain of the Partnership's assets and liabilities. The following methods and
assumptions were used to estimate the fair value of those financial
instruments included in the following categories:
Cash and Cash Equivalents--The carrying amount approximates fair value based
on the liquidity of the assets.
Mortgage Loans Payable (see Note C)--The carrying value approximates fair
value based on interest rates available to the Partnership on debt instruments
with similar terms.
NOTE B--PROPERTY
Property is comprised of the following at December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------------ ------------
<S> <C> <C>
Apartment buildings.............................. $ 77,245,362 $ 77,245,362
Equipment........................................ 4,937,209 4,937,209
Land............................................. 17,147,732 17,147,732
Land held for lease.............................. 2,479,098 2,479,098
------------ ------------
101,809,401 101,809,401
Less: Accumulated depreciation................... (33,632,580) (30,800,368)
------------ ------------
$ 68,176,821 $ 71,009,033
============ ============
</TABLE>
The Partnership leases apartments under lease agreements with terms ranging
from one to twelve months. The ground leases for the Land/Leases are described
in Note E.
The Partnership recorded provisions for loss on impairment of assets in 1992
and 1991 to reduce the carrying amount of the three Land/Leases located in the
Dallas-Fort Worth Metropolitan area to an amount estimated to be recoverable
through cash flows from their future operation and proceeds from disposition
on an undiscounted basis. Additionally, in 1993, 1994 and 1995, the
Partnership accounted for the rentals from those Land/Leases (of which
$1,620,851 relates to the one Dallas-Fort Worth Land/Lease unsold at December
31, 1997) as a reduction of their recorded carrying amounts rather than as
revenue. Based on current market conditions, further reductions in the
carrying value of the Land/Lease were not required in 1996 or 1997, and the
Partnership is currently recording rental receipts as revenue.
B-17
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE C--MORTGAGE LOANS PAYABLE
The mortgage loans payable are collateralized by first deeds of trust on the
respective Properties and security interests in the equipment contained
therein. Detailed information regarding the mortgage loans is set forth below.
<TABLE>
<CAPTION>
FINAL MONTHLY PRINCIPAL ESTIMATED
OBLIGATION OBLIGATION INTEREST MATURITY PAYMENT DUE DURING BALLOON
AT 12/31/97 AT 12/31/96 RATE DATE TERMS 1998 PAYMENT
----------- ----------- -------- -------- ------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
PROPERTY PLEDGED
AS COLLATERAL
Le Parc Apartments
Marietta, Georgia...... 7,306,943 7,494,808 7.25% 06/01/16 61,190 201,937 N/A
Casa de Fuentes
Apartments Overland
Park, Kansas........... 7,058,608 7,160,608 8.50% 11/01/99 59,838 102,000 6,872,000
MacArthur Park
Apartments Irving,
Texas.................. 6,363,405 6,481,910 8.00% 02/01/01 47,144 73,346 5,942,000
Cypress Pointe
Apartments Louisville,
Kentucky............... 11,070,645 11,171,607 10.02% 05/31/99 101,480 111,556 10,917,000
Comanche Place
Apartments Overland
Park, Kansas........... 7,680,261 7,791,262 8.50% 11/01/99 65,178 111,000 7,476,000
Chelsea Park Apartments
Norcross, Georgia...... 9,682,469 9,900,202 7.33% 06/01/17 78,041 234,247 N/A
Mission Trails
Apartments San Diego,
California............. 8,764,904 8,896,870 8.13% 03/01/00 73,225 142,478 8,443,000
---------- ---------- ------- -------
57,927,235 58,897,267 486,096 976,564
========== ========== ======= =======
</TABLE>
Interest paid in 1997, 1996 and 1995 was $4,867,689, $4,949,189 and
$4,763,747 respectively.
In March 1996, the Partnership refinanced the Mission Trails mortgage loan
with the proceeds of a new $9,000,000 first mortgage loan. The new loan bears
interest at 0.5% above the lender's prime interest rate or, at the option of
the Partnership, a rate 2.5% above the London Interbank Offered Rate (LIBOR)
based upon 3, 6, 9, or 12 month. The loan requires monthly payments of
interest plus fixed monthly principal reductions ranging from $10,313 to
$12,978. The Partnership paid the lender loan fees and other costs totaling
$60,480.
In November 1997, the Partnership and the lender entered into an agreement
to extend the maturity date of the Casa de Fuentes and Comanche Place mortgage
loans through November 1, 1999. Pursuant to the extension agreement, the loans
bear interest at the lender's prime interest rate or, at the option of the
Partnership, a rate 2.5% above the London Interbank Offered Rate (LIBOR) based
upon 3, 6, 9, or 12 month fixings. The loans require monthly payments of
interest plus fixed principal reductions of $8,500 per month for Casa de
Fuentes and $9,250 for Comanche Place.
B-18
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Aggregate maturities of mortgage loans payable for each of the five years
ending December 31, 2002 and thereafter are as follows:
<TABLE>
<S> <C>
1998........................................................... 976,564
1999........................................................... 26,224,603
2000........................................................... 9,059,081
2001........................................................... 6,491,650
2002........................................................... 583,401
Thereafter..................................................... 14,591,936
-----------
$57,927,235
===========
</TABLE>
NOTE D--RELATED PARTY TRANSACTIONS
The Partnership acquired the Properties from affiliates of the Spanos
General Partner (the "Sellers"). Under the terms of the acquisitions, the
Sellers guaranteed that if the Apartment Projects as a group did not meet
certain annual net cash flow levels between their acquisition dates and
December 31, 1990, then the Sellers would make up any deficiency by periodic
cash payments ("Support Payments") to the Partnership. The first $7,623,000 of
Support Payments were non-refundable, and the Partnership accounted for them
as a reduction of the purchase price of the Apartment Projects. The
Partnership issued Special Interests in exchange for Support Payments in
excess of that amount; however, the Special Interests were cancelable by the
Partnership to the extent that the aggregate net cash flow from any of the
Apartment Projects (treated individually and not collectively) was negative
during the guaranty period. The cancellations were also accounted for as a
reduction of the purchase price of the Apartment Projects.
Support Payments of $10,978,307 accrued to the Partnership based upon the
operating results of the Apartment Projects from inception of the Partnership
through the conclusion of the guaranty on December 31, 1990. The Partnership
issued 3,355 Special Interests to a Seller in exchange for $3,355,307 of
Support Payments in excess of the $7,623,000 non-refundable amount. Two
properties had aggregate negative net cash flow totaling $1,158,870;
accordingly, the Partnership canceled 1,159 Special Interests.
Affiliates of the Spanos General Partner are the lessees under the
Land/Leases. Rentals accrued under the leases from such affiliates were
$660,000 in 1997 and 1996 and $612,498 in 1995. Rentals of $163,476 were
receivable at December 31, 1997. The apartment complexes owned by the lessees
and the land owned by the Partnership on which the apartment complexes are
constructed have been pledged as collateral for the borrowings used to finance
the development of the Properties. At December 31, 1997, the Del Rio complex
was encumbered by $7,233,045 of outstanding mortgage debt bearing interest at
the rate of 6.495% per annum, requiring monthly payments of principal and
interest of $46,260, and maturing November 1, 2000; and the Cameron Creek
complex was encumbered by $12,815,341 of outstanding mortgage debt bearing
interest at the rate of 7.245% per annum, requiring monthly payments of
principal and interest of $108,257, and maturing April 1, 2016.
An affiliate of the Spanos General Partner manages the Apartment Projects.
Property management fees totaled $469,310, $457,754 and $438,068,
respectively, in 1997, 1996 and 1995. Under the management agreements, the
affiliate employs property managers and other on-site personnel, and the
Partnership bears the expense for their compensation (including employment
taxes and fringe benefits). That expense was approximately $1,460,000,
$1,346,000 and $1,324,000, respectively in 1997, 1996 and 1995. Accruals of
$42,212 and $37,132 for property management fees and $115,264 and $118,148 for
salary expense reimbursements were outstanding at December 31, 1997 and 1996,
respectively.
B-19
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Under the Partnership Agreement, the Spanos General Partner is entitled to a
supervisory management fee and the Bache General Partner is entitled to a
special distribution. The fee and distribution are each equal to two percent
of the revenues from the Apartment Projects. The special distribution is
reduced to the extent of reimbursements to the Bache General Partner for
certain expenses incurred in the administration of the Partnership. Amounts
accrued during the past three years were as follows.
<TABLE>
<CAPTION>
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Supervisory management fee....................... $313,155 $306,157 $291,972
Special distribution............................. 266,297 259,299 245,114
Administrative expense reimbursements............ 46,858 46,858 46,858
-------- -------- --------
$626,310 $612,314 $583,944
======== ======== ========
</TABLE>
Accruals of $161,414 and $152,782 for management fees payable to the General
Partners were outstanding at December 31, 1997 and 1996, respectively.
Under the Partnership Agreement, the General Partners may be entitled to
subordinated real estate commissions if the Partnership is able to provide the
limited partners with (i) aggregate distributions of sales and refinancing
proceeds equal to the limited partners' aggregate capital contributions and
(ii) aggregate distributions from all other sources except distributions in
repayment of capital contributions equal to the limited partners' 6% per annum
cumulative noncompounded return on their adjusted capital contributions. The
subordinated real estate commissions would be the lesser of 3% of the sales
price of the Properties or one-half of the normal and competitive rate
customarily charged by unaffiliated parties. It is highly unlikely that the
Partnership will achieve the distribution threshold; accordingly, no provision
for subordinated real estate commissions has been made in the financial
statements.
The General Partners' capital account deficit for financial accounting
purposes exceeds the amount the General Partners would be obligated to restore
if the Partnership were to dissolve.
Prudential Securities Incorporated ("PSI"), an affiliate of the Bache
General Partner, owned 1,920 Units at December 31, 1997.
NOTE E--LAND/LEASES
The Land/Leases are leased to affiliates of the Spanos General Partner (see
Notes B and D). Under the leases either the Partnership, as owner of the land,
or the lessees, as the owners of the buildings, have the power to sell the
entire project to any third party purchaser. As a result, the Partnership may
be required to dispose of the Land/Leases at a time and on terms which it
might not otherwise have approved. The leases provide that upon the sale of
the project, the proceeds, if any, remaining after payment of the related
mortgage indebtedness will be allocated first to the Partnership to the extent
of its purchase price for the land, then to the lessee to the extent of its
specified "tenant's equity," and then 42.5% to the Partnership and 57.5% to
the lessee.
NOTE F--CONTINGENCIES
On or about October 18, 1993, a putative class action captioned Kinnes et
al. v. Prudential Securities Group Inc. et al. (93 Civ. 654) was filed in the
United States District Court for the District of Arizona, purportedly on
behalf of investors in the Partnership against the Partnership, the Bache
General Partner, PSI and a number of other defendants. On or about November
16, 1993, a putative class action captioned Connelly et al. v. Prudential-
Bache Securities Inc. et al. (93 Civ. 713) was filed in the United States
District Court for the District of Arizona,
B-20
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
purportedly on behalf of investors in the Partnership against the Partnership,
the Bache General Partner, PSI and a number of other defendants. On or about
November 9, 1993, a putative class action entitled Bottner v. A.G. Spanos
Residential Partners-86 et al. (93 Civ. 7708) was filed in the United States
District Court for the Southern District of New York, purportedly on behalf of
investors in the Partnership against the General Partners, PSI, Prudential
Insurance Company of America and certain of their affiliates and officers. On
or about February 13, 1995, an individual action captioned Estate of Jean
Adams v. Prudential Securities, Inc. et al. (Case No. 1995 CV 00265) was filed
in the Court of Common Pleas in Stark County, Ohio against PSI, The
Prudential, the General Partners, the Partnership and affiliates of the Spanos
General Partner. The action was removed to the United States District Court
for the Northern District of Ohio (Eastern Division) on March 15, 1995.
Plaintiff alleged misrepresentations, breach of fiduciary duties and civil
conspiracy by defendants in connection with the sale of units of the
Partnership. Plaintiff sought unspecified damages, including punitive damages.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, the Kinnes and Bottner cases, by order dated June 8, 1994, the Connelly
case, and by order dated April 7, 1995, the Adams case, were transferred to a
single judge of the United States District Court for the Southern District of
New York and consolidated for pretrial proceedings under the caption In re
Prudential Securities Incorporated Limited Partnerships Litigation (MDL Docket
1005). On June 8, 1994, plaintiffs in the transferred cases filed a complaint
that consolidated the previously filed complaints and named as defendants,
among others, PSI, certain of its present and former employees and the General
Partners. The Partnership is not named a defendant in the consolidated
complaint, but the name of the Partnership is listed as being among the
limited partnerships at issue in the case. The consolidated complaint alleges
violations of the federal and New Jersey Racketeer Influenced and Corrupt
Organizations Act ("RICO") statutes, fraud, negligent misrepresentation,
breach of fiduciary duties, breach of third- party beneficiary contracts and
breach of implied covenants in connection with the marketing and sales of
limited partnership interests. Plaintiffs request relief in the nature of
rescission of the purchase of securities and recovery of all consideration and
expenses in connection therewith, as well as compensation for lost use of
money invested less cash distributions; compensatory damages; consequential
damages; treble damages for defendants' RICO violations (both federal and New
Jersey); general damages for all injuries resulting from negligence, fraud,
breaches of contract, and breaches of duty in an amount to be determined at
trial; disgorgement and restitution of all earnings, profits, benefits, and
compensation received by defendants as a result of their unlawful acts; and
costs and disbursements of the action. On November 28, 1994 the transferee
court deemed each of the complaints in the constituent actions (including
Kinnes and Bottner) amended to conform to the allegations of the consolidated
complaint. On August 9, 1995 the Bache General Partner, PSI and other
Prudential defendants entered into a Stipulation and Agreement of Partial
Compromise and Settlement with legal counsel representing plaintiffs in the
consolidated actions. On November 20, 1995, the court gave final approval to
the settlement, dismissed the Kinnes and Bottner actions, certified a class of
purchasers of specific limited partnerships, including the Partnership,
released all settled claims by members of the class against the PSI settling
defendants and permanently barred and enjoined class members from instituting,
commencing or prosecuting any settled claim against the released parties. By
orders entered August 12, 1996 and October 25, 1996, respectively, the Adams
and Connelly cases were dismissed as to the Bache General Partner, PSI and the
other Prudential defendants. The full amount due under the settlement
agreement has been paid. The consolidated action as well as the Adams and
Connelly cases remain pending against nonsettling defendants, including the
Spanos General Partner and certain of its affiliates. The Partnership is not
named a defendant in the consolidated complaint and the action is not expected
to have a material effect on the Partnership's financial statements;
accordingly, no provision for any loss that may result upon resolution of this
matter has been made in the accompanying financial statements.
B-21
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
On May 12, 1997, the Spanos General Partner and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing the
plaintiff class in the consolidated actions. The settlement contemplated,
among other things, the sale of all of the Partnership Properties at public
auction and the subsequent liquidation and dissolution of the Partnership. The
settlement agreement was preliminarily approved by the Court on August 28,
1997. Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the Limited
Partners with proxy solicitation materials seeking the Limited Partners'
consent to the auction sale. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness hearing at
which Limited Partners and other interested parties will have an opportunity
to be heard. There can be no assurance that the conditions to implementation
of the settlement will be satisfied.
On or about April 15, 1994, a multiparty petition entitled Schreiber et al.
v. Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed in the
189th Judicial District Court of Harris County, Texas, purportedly on behalf
of investors in the Partnership against the Partnership, the General Partners,
PSI, The Prudential Insurance Company of America and a number of other
defendants. The Petition alleges common law fraud, fraud in the inducement and
negligent misrepresentation in connection with the offering of limited
partnership interests and negligence, breach of fiduciary duty, civil
conspiracy, and violations of the federal Securities Act of 1933 (sections 11
and 12) and of the Texas Securities and Deceptive Trade Practices statutes.
The suit seeks, among other things, compensatory and punitive damages, costs
and attorney's fees. Most of the plaintiffs have released their claims against
the defendants in exchange for monetary payments by PSI. It is expected that
the remaining claims will be resolved by PSI at no cost to the Partnership.
Accordingly, no provision for any loss that may result upon resolution of this
matter has been made in the accompanying financial statements.
B-22
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The Partnership does not have directors or executive officers. The
Partnership is managed by the General Partners, which have formed, and may
continue to form, other real estate investment entities with investment
policies similar to those of the Partnership and which may compete with the
Partnership for management services. The Spanos General Partner is a
California limited partnership whose general partners are AGS Financial
Corporation and A.G. Spanos Realty, Inc. AGS Financial Corporation is the
managing general partner of the Spanos General Partner. The directors and
executive officers of AGS Financial Corporation and of the Bache General
Partner who perform services for the Partnership are listed below, together
with a brief description of their experience. All have indefinite terms.
AGS Financial Corporation is owned by Dean A. Spanos, Michael A. Spanos,
Barry L. Ruhl, Dea Economou and a Spanos family trust. Dean A. Spanos, Michael
A. Spanos and Dea Economou are children of Alex G. Spanos, Chairman of the
Board of AGS Financial Corporation. Barry L. Ruhl is a son-in-law of Alex G.
Spanos. There are no other family relationships among the directors and
executive officers of AGS Financial Corporation or the Bache General Partner.
The General Partners and their directors and executive officers, and any
persons holding more than ten percent of the Partnership's Units are required
to report their initial ownership of such units and any subsequent changes in
that ownership to the Securities and Exchange Commission on Forms 3, 4 and 5.
Such executive officers, directors and greater than ten percent Unitholders
are required by Securities and Exchange Commission regulations to furnish the
Partnership with copies of all Forms 3, 4 and 5 they file. All of these filing
requirements were satisfied on a timely basis. In making the disclosures, the
Partnership has relied solely on written representations of the General
Partners' directors and executive officers and greater than ten percent
Unitholders or copies of the reports that they have filed with the Securities
and Exchange Commission during and with respect to its most recent fiscal
year.
AGS FINANCIAL CORPORATION
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Alex G. Spanos............ Chairman of the Board
Dean A. Spanos............ Vice Chairman and Director
Barry L. Ruhl............. Director
Michael A. Spanos......... Director
Arthur J. Cole............ President and Director
Jeremiah T. Murphy........ Executive Vice President and Chief Financial Officer
</TABLE>
Alex G. Spanos, age 74, has been Chairman of the Board of AGS Financial
Corporation since its founding in 1981. In addition, he serves as Chairman of
the Board or President of each of the other Spanos companies and owns a
controlling interest in the San Diego Chargers, a professional football team.
Mr. Spanos founded the combined Spanos organizations in the early 1960's and
has been the driving force behind the development of approximately 60,000
apartments and over 3 million square feet of office space. Mr. Spanos
maintains close contact with the key executives of each of his companies and
lends his judgment and experience to all major land acquisitions, development
and property financing decisions, and the investment activities of AGS
Financial Corporation. Mr. Spanos attended the University of the Pacific.
B-23
<PAGE>
Dean A. Spanos, age 47, has been Vice Chairman and a Director of AGS
Financial Corporation since its founding in 1981. He is the chief operating
officer of the property development and management companies within the Spanos
organization, responsible for land acquisitions, financing construction and
property sales. Mr. Spanos holds a bachelor's degree in business
administration from the University of the Pacific.
Michael A. Spanos, age 38, has served as a Director of AGS Financial
Corporation since its founding in 1981. He is Executive Vice President of A.G.
Spanos Construction, Inc. He holds a bachelor's degree from the University of
the Pacific.
Barry L. Ruhl, age 46, has been a Director of AGS Financial Corporation
since its founding in 1981. He is Executive Vice President of A.G. Spanos
Construction, Inc. He holds a D.D.S. from the University of the Pacific Dental
School.
Arthur J. Cole, age 43, has served as President of AGS Financial Corporation
since August 1990 and as a director since 1986. He joined AGS Financial
Corporation in 1983. He holds a bachelor's degree from Golden Gate University.
Jeremiah T. Murphy, age 53, has served as an Executive Vice President of AGS
Financial Corporation and is the Chief Financial Officer for all the A.G.
Spanos Companies. He has been employed by the Spanos companies since 1983.
Prior to joining the Spanos companies he was a partner with the accounting
firm, Bowman & Company, which he joined in 1970. Mr. Murphy is a Certified
Public Accountant and a graduate of Bernard Baruch College.
PRUDENTIAL-BACHE PROPERTIES, INC.
<TABLE>
<CAPTION>
NAME POSITION
---- --------
<S> <C>
Brian J. Martin............ President, Chief Executive Officer, Director and
Chairman of the Board of Directors
Barbara J. Brooks.......... Vice President--Finance and Chief Financial Officer
Eugene D. Burak............ Vice President
Chester A. Piskorowski..... Senior Vice President
Frank W. Giordano.......... Director
Nathalie P. Maio........... Director
</TABLE>
Brian J. Martin, age 47, is the President, Chief Executive Officer, Chairman
of the Board of Directors and a Director of the Bache General Partner. He is a
Senior Vice President of Prudential Securities Incorporated ("PSI"), an
affiliate of the Bache General Partner. Mr. Martin also serves in various
capacities for other affiliated companies. Mr. Martin joined PSI in 1980. Mr.
Martin is a member of the Pennsylvania Bar.
Barbara J. Brooks, age 49, is the Vice President--Finance and Chief
Financial Officer of the Bache General Partner. She is a Senior Vice President
of PSI. Ms. Brooks also serves in various capacities for other affiliated
companies. She has held several positions within PSI since 1983. Ms. Brooks is
a certified public accountant.
Eugene D. Burak, age 52, is a Vice President of the Bache General Partner.
He is a First Vice President of PSI. Prior to joining PSI in September 1995,
he was a management consultant for three years and was with Equitable Capital
Management Corporation from March 1990 to May 1992. Mr. Burak is a certified
public accountant.
Chester A. Piskorowski, age 54, is a Senior Vice President of the Bache
General Partner. He is a Senior Vice President of PSI and is the Senior
Manager of the Specialty Finance Asset Management area. Mr. Piskorowski has
held several positions within PSI since April 1972. Mr. Piskorowski is a
member of the New York and Federal Bars.
B-24
<PAGE>
Frank W. Giordano, age 55, is a Director of the Bache General Partner. He is
a Senior Vice President of PSI and Executive Vice President and General
Counsel of Prudential Mutual Fund Management LLC, an affiliate of PSI. Mr.
Giordano also serves in various capacities for other affiliated companies. He
has been with PSI since July 1967.
Nathalie P. Maio, age 47, is a Director of the Bache General Partner. She is
a Senior Vice President and Deputy General Counsel of PSI and supervises
nonlitigation legal work for PSI. She joined PSI's Law Department in 1983;
presently, she also serves in various capacities for other affiliated
companies.
Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of the Bache General Partner
effective May 2, 1997. Effective May 2, 1997, Brian J. Martin was elected
President, Chief Executive Officer, Chairman of the Board of Directors and
director of the Bache General Partner.
B-25
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
The Partnership is not required to and did not pay remuneration to the
officers and directors of the General Partners. Certain officers and directors
of the General Partners receive compensation from the General Partners and/or
their affiliates (but not from the Partnership) for services performed for
various affiliated entities, which may include services performed for the
Partnership; however, the General Partners believe that any compensation
attributable to services performed for the Partnership is immaterial. See Item
13 "Certain Relationships and Related Transactions" for a discussion of
compensation and fees to which the General Partners and their affiliates are
entitled.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
No Unitholder is known by the Partnership to own beneficially more than 5%
of the outstanding Units. The percentage of outstanding Units held by all
directors and officers of the General Partners is less than 1%.
The Partnership has issued 7,749.5 Special Interests to affiliates of the
Spanos General Partner at March 5, 1998, all of which Interests are
beneficially owned by members of the Spanos family, certain of whom are
directors and officers of the general partners of the Spanos General Partner.
As of March 5, 1998, the individual directors and the directors and
officers, as a group, of AGS Financial Corporation and A.G. Spanos Realty,
Inc., the general partners of the Spanos General Partner, beneficially owned
shares of the common stock of AGS Financial Corporation and A.G. Spanos
Realty, Inc. as follows:
<TABLE>
<CAPTION>
AGS FINANCIAL A.G. SPANOS
CORPORATION REALTY, INC.
------------------ ------------
% OF % OF
NAME SHARES CLASS SHARES CLASS
---- ------- ------ ------ -----
<S> <C> <C> <C> <C>
Alex G. Spanos................................. -0- -0- 20 100%
Dean A. Spanos................................. 1,000 10%
Barry L. Ruhl.................................. 1,000 10%
Michael A. Spanos.............................. 1,000 10%
All directors and officers as a group (8
persons)...................................... 9,000(1) 90% 20 100%
</TABLE>
- --------
(1) These amounts include shares beneficially owned by virtue of certain
beneficial interests in a Spanos family trust which owns 6,000 shares
(60%) of the shares of AGS Financial Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The General Partners and their affiliates are permitted to engage in
transactions with the Partnership as described in the Partnership Agreement.
Specific information regarding these transactions is set forth below.
Certain affiliates of the Spanos General Partner are the lessees under the
ground leases for the Partnership's Land/Lease properties. Set forth below is
information regarding the ground leases.
<TABLE>
<CAPTION>
TERMINATION ANNUAL
PROPERTY LESSEE DATE(1) RENT(2)(3)
- -------- ------ ----------- ----------
<S> <C> <C> <C>
Cameron Creek............ A.G. Spanos Construction, Inc. 10/01/2012 $420,000
Del Rio.................. A.G. Spanos Construction, Inc. 12/21/2012 $240,000
</TABLE>
- --------
(1) Under the ground lease, the lessor and lessee each have the power to sell
the land and improvements without the consent of the other party. Such a
sale would terminate the lease before the nominal termination date.
(2) In addition to the base rental income, the Partnership is entitled to
proceeds upon the sale or refinancing of the Land/Leases and improvements.
(3) Of the total annual rent, $163,476 was receivable at December 31, 1997.
B-26
<PAGE>
The General Partners and certain affiliates thereof have, during the
Partnership's year ended December 31, 1997 earned or received compensation or
payments for services from the Partnership as set forth below. In addition,
under the Partnership Agreement, the General Partners are entitled to
subordinated real estate commissions equal to the lesser of 3% of the sales
price of the Properties or one-half of the normal and competitive rate
customarily charged by unaffiliated parties. The subordinated real estate
commissions are not payable until the limited partners have received certain
priority distributions. See note D to the financial statements.
<TABLE>
<CAPTION>
CAPACITY IN FORM OF CASH
RECIPIENT WHICH SERVED COMPENSATION COMPENSATION
--------- ---------------- ---------------------------- ------------
<S> <C> <C> <C>
Spanos General Partner.. General Partner Supervisory Management Fee(1) $313,155
Bache General Partner... General Partner Special Distribution(2) 266,297
A.G. Spanos Management
Inc.................... Property Manager Property Management Fees(3) 469,310
General Partners........ General Partners Cash from Operations(4) 32,992
Bache General Partner... General Partner Expense Reimbursements 46,858
</TABLE>
- --------
(1) Supervisory Property Management Fee for supervising the management of the
Properties equal to 2% of gross receipts from the Apartment Projects.
(2) Special Distribution for services in managing and administering the
Partnership equal to 2% of gross receipts from the Apartment Projects,
reduced to the extent of reimbursements, if any, for certain expenses
incurred in the administration of the Partnership.
(3) Property Management Fees for property management services equal to 3% of
gross receipts from the Apartment Projects.
(4) Cash from Operations equal to 2% of Adjusted Cash from Operations
remaining after payment of the Special Distribution.
B-27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) (1) Financial Statements:
See Index to Financial Statements and Schedule on page B-9.
(2) Financial Statement Schedule:
III. Real Estate and Accumulated Depreciation, page B-33.
All other schedules have been omitted because they are inapplicable or not
required, or the information is included in the financial statements or notes
thereto.
EXHIBITS
<TABLE>
<C> <S>
4(a) Certificate of Limited Partnership of Registrant as filed with the
Secretary of State of Delaware, incorporated by reference to Exhibit 4(a)
to Amendment No. 1 to Registration Statement on Form S-11, File No. 33-
9139, filed with the Securities and Exchange Commission on January 28,
1987.
4(b) Amendment to Certificate of Limited Partnership of Registrant as filed
with the Secretary of State of Delaware, incorporated by reference to
Exhibit 4(b) to Amendment No. 2 to Registration Statement on Form S-11,
File No. 33-9139, filed with the Securities and Exchange Commission on
February 20, 1987.
4(c) Amended and Restated Agreement of Limited Partnership of Registrant,
incorporated by reference to Exhibit 4 to Amendment No. 2 to Registration
Statement on Form S-11, File No. 33-9139, filed with the Securities and
Exchange Commission on February 20, 1987.
4(d) Amendments No. 1 through 6 dated June 3, July 2, August 3 and 20,
September 10 and October 2, 1987, respectively, to the Amended and
Restated Agreement of Limited Partnership of Registrant, incorporated by
reference to Exhibit 4(d) to Post-Effective Amendment No. 1 to
Registration Statement on Form S-11, File No. 33-9139, filed with the
Securities and Exchange Commission on November 12, 1987.
4(e) Amendments No. 7 through 13 dated December 4 and 18, 1987 and February 1,
March 8 and 25, April 27 and August 12, 1988, respectively, to the
Amended and Restated Agreement of Limited Partnership of Registrant,
incorporated by reference to Exhibit 4(e) of the Annual Report on Form
10-K dated December 31, 1988, File No. 33-9139.
27 Financial Data Schedule (filed herewith)
</TABLE>
(b) Reports on Form 8-K:
There were no reports on Form 8-K filed during the last quarter of the period
covered by this Report.
B-28
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Prudential-Bache/A.G. Spanos General
Income Partners L.P., I
(Registrant)
By: Prudential-Bache Properties,
Inc. A Delaware corporation,
General Partner
/s/ Brian J. Martin Chairman of the May 4, 1998
By: _________________________________ Board of Directors
BRIAN J. MARTIN and Director
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES (WITH RESPECT TO THE GENERAL PARTNERS) AND ON THE
DATES INDICATED.
By: Prudential-Bache Properties,
Inc. A Delaware corporation,
General Partner
/s/ Brian J. Martin Chairman of the May 4, 1998
By: _________________________________ Board of Directors
BRIAN J. MARTIN and Director
(Principal
Executive Officer)
/s/ Barbara J. Brooks Vice President- May 4, 1998
By: _________________________________ Finance and Chief
BARBARA J. BROOKS Financial Officer
(Principal
Financial Officer)
/s/ Nathalie P. Maio Director May 4, 1998
By: _________________________________
NATHALIE P. MAIO
B-29
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED
ON ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
Prudential-Bache/A.G. Spanos Genesis
Income Partners L.P., I
(Registrant)
By: A.G. Spanos Residential
Partners-86, A California Limited
Partnership, a General Partner
By: AGS Financial Corporation, a
general partner
/s/ Arthur J. Cole President (Principal May 4, 1998
By: _________________________________ Accounting Officer)
ARTHUR J. COLE
By: A.G. Spanos Realty, Inc., a
general partner
/s/ Arthur J. Cole Vice President May 4, 1998
By: _________________________________
ARTHUR J. COLE
RESIDENTIAL PORTFOLIO DEPOSITORY CORP. (Registrant as to the issuance of
Depository Receipts with respect to the Assigned Limited Partnership
Interests)
/s/ Arthur J. Cole Vice President May 4, 1998
By: _________________________________
ARTHUR J. COLE
B-30
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES (WITH RESPECT TO THE GENERAL PARTNERS) AND ON THE
DATES INDICATED.
By: A.G. Spanos Residential Partner-
86, A California Limited
Partnership, General Partner
By: AGS Financial Corporation, a
general partner
/s/ Alex G. Spanos Chairman of the May 4, 1998
By: _________________________________ Board of Directors
ALEX G. SPANOS
/s/ Dean A. Spanos Vice Chairman and May 4, 1998
By: _________________________________ Director
DEAN A. SPANOS
/s/ Michael A. Spanos Director May 4, 1998
By: _________________________________
MICHAEL A. SPANOS
/s/ Barry L. Ruhl Director May 4, 1998
By: _________________________________
BARRY L. RUHL
/s/ Arthur J. Cole President and May 4, 1998
By: _________________________________ Director (Principal
ARTHUR J. COLE Executive Officer)
/s/ Jeremiah T. Murphy Executive Vice May 4, 1998
By: _________________________________ President and Chief
JEREMIAH T. MURPHY Financial Officer
(Principal
Financial and
Accounting Officer)
B-31
<PAGE>
By: A.G. Spanos Realty, Inc., a
general partner
/s/ Alex G. Spanos President and May 4, 1998
By: _________________________________ Director (Principal
ALEX G. SPANOS Executive Officer)
/s/ Dean A. Spanos Executive Vice May 4, 1998
By: _________________________________ President and
DEAN A. SPANOS Director
/s/ Michael A. Spanos Executive Vice May 4, 1998
By: _________________________________ President and
MICHAEL A. SPANOS Director
/s/ Barry L. Ruhl Executive Vice May 4, 1998
By: _________________________________ President and
BARRY L. RUHL Director
/s/ Jeremiah T. Murphy Vice President May 4, 1998
By: _________________________________ (Principal
JEREMIAH T. MURPHY Financial and
Accounting Officer)
Residential Portfolio Depository Corp.
/s/ Alex G. Spanos Director, President May 4, 1998
By: _________________________________ and Chief Financial
ALEX G. SPANOS Officer (Principal
Executive,
Financial and
Accounting Officer)
/s/ Dean A. Spanos Director May 4, 1998
By: _________________________________
DEAN A. SPANOS
/s/ Jeremiah T. Murphy Director May 4, 1998
By: _________________________________
JEREMIAH T. MURPHY
B-32
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1997
<TABLE>
<CAPTION>
COLUMN A COLUMN B COLUMN C COLUMN D COLUMN E COLUMN F
-------- --------------------- -------------------- ---------------------------------- ----------- ------------
COSTS CAPITALIZED GROSS AMOUNT AT WHICH
INITIAL COST TO SUBSEQUENT TO CARRIED AT CLOSE OF PERIOD
PARTNERSHIP ACQUISITION NOTES 2, 3 AND 5
--------------------- -------------------- ---------------------------------- ACCUMULATED
BLDGS & CARRYING BUILDINGS & TOTAL DEPR. DATE OF
DESCRIPTION (NOTE 1) LAND EQUIP IMPS COST LAND EQUIPMENT NOTE 2 (NOTE 4) CONSTRUCTION
- -------------------- ---------- ---------- -------- ---------- ---------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
APARTMENT
PROJECTS:
Le Parc......... 1,865,589 12,069,597 -0- -0- 1,290,008 9,907,346 11,197,354 4,400,100 1986
Marietta, GA
Casa de Fuentes. 2,320,250 11,016,653 -0- -0- 2,120,968 10,343,379 12,464,347 4,454,707 1986
Overland Park,
KS
MacArthur Park.. 2,945,824 9,482,602 -0- -0- 2,249,379 9,375,318 11,624,697 3,722,629 1985
Irving, TX
Cypress Pointe.. 3,351,303 15,552,843 -0- -0- 2,315,883 15,351,195 17,667,078 6,433,246 1986
Louisville, KY
Comanche Place.. 2,298,429 12,558,324 -0- -0- 1,509,771 12,368,550 13,878,321 5,027,699 1987
Overland Park,
KS
Chelsea Park.... 3,945,526 14,157,150 -0- -0- 2,991,645 14,194,635 17,186,280 5,693,185 1986
Chamblee, GA
Mission Trails.. 5,411,288 10,398,770 -0- -0- 4,670,078 10,642,148 15,312,226 3,901,014 1987
San Diego, CA
LAND LEASES:
Cameron Creek... 3,508,024 -0- -0- 1,887,173 -0- 1,887,173 -0- 1985
Fort Worth, TX
Del Rio......... 2,004,585 -0- -0- 2,004,585 -0- 2,004,585 -0- 1985
Albuquerque, NM
---------- ---------- -------- -------- ---------- ---------- ----------- ----------
27,650,818 85,235,939 -0- -0- 21,039,490 82,182,571 103,222,061 33,632,580
========== ========== ======== ======== ========== ========== =========== ==========
<CAPTION>
COLUMN A COLUMN G
-------- --------
DATE
DESCRIPTION (NOTE 1) ACQUIRED
- -------------------- --------
<S> <C>
APARTMENT
PROJECTS:
Le Parc......... 06/03/87
Marietta, GA
Casa de Fuentes. 07/02/87
Overland Park,
KS
MacArthur Park.. 10/01/87
Irving, TX
Cypress Pointe.. 10/01/87
Louisville, KY
Comanche Place.. 12/04/87
Overland Park,
KS
Chelsea Park.... 03/25/88
Chamblee, GA
Mission Trails.. 08/12/88
San Diego, CA
LAND LEASES:
Cameron Creek... 10/01/87
Fort Worth, TX
Del Rio......... 12/21/87
Albuquerque, NM
</TABLE>
See notes.
B-33
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
( A LIMITED PARTNERSHIP)
NOTES TO SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
Note 1--See description of mortgage notes payable in note C of the Notes to
Financial Statements. Depreciable property is depreciated over useful lives of
7 to 27.5 years.
Note 2--Reconciliation of real estate:
<TABLE>
<CAPTION>
1997 1996 1995
------------ ------------ ------------
<S> <C> <C> <C>
Balance at beginning of period....... $103,222,061 $103,222,061 $103,594,559
Additions during period:
Acquisitions....................... -0- -0- -0-
------------ ------------ ------------
103,222,061 103,022,061 118,594,559
Deductions during period:
Dispositions....................... -0- -0- -0-
Land/Lease revenue accounted for as
a recovery of recorded carrying
amount............................ -0- -0- 372,498
------------ ------------ ------------
Balance at close of period........... 103,222,061 103,222,061 103,222,061
============ ============ ============
</TABLE>
Note 3--The aggregate cost of real estate for federal income tax purposes is
$103,816,029.
Note 4--Reconciliation of accumulated depreciation:
<TABLE>
<CAPTION>
1997 1996 1995
----------- ----------- -----------
<S> <C> <C> <C>
Balance at beginning of period........... $30,800,368 $27,968,156 $25,032,876
Additions during period:
Depreciation........................... 2,832,212 2,832,212 2,935,280
----------- ----------- -----------
33,632,580 30,800,368 27,968,156
Deductions during period:
Dispositions........................... -0- -0-
----------- ----------- -----------
Balance at close of period............... 33,632,580 30,800,368 27,968,156
=========== =========== ===========
</TABLE>
Note 5--The Partnership has recorded aggregate provisions for loss on
impairment of assets of $1,412,660 with respect to the Cameron Creek
Land/Lease at December 31, 1997.
B-34
<PAGE>
LOGO
PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
CONSENT REGARDING SALE OF ASSETS,
AMENDMENT TO THE PARTNERSHIP AGREEMENT AND LIQUIDATION
The undersigned holder ("Holder") of units ("Units") of limited partnership
interest in Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I (the
"Partnership"), hereby votes as follows:
1. The proposed sale of substantially all of the assets of the Partnership in a
public auction:
[_] CONSENTS [_] DOES NOT CONSENT [_] ABSTAINS
2. The proposed amendment of the Amended and Restated Agreement of Limited
Partnership of the Partnership:
[_] CONSENTS [_] DOES NOT CONSENT [_] ABSTAINS
3. The proposed termination and liquidation of the Partnership:
[_] CONSENTS [_] DOES NOT CONSENT [_] ABSTAINS
in each case as more fully described in the Statement Furnished in Connection
with the Solicitation of Consents of A.G. Spanos Residential Partners--86, A
California Limited Partnership ("Spanos") dated May 15, 1998 (the "Solicitation
Statement").
The Units represented by this Consent will be voted in accordance with the
elections specified by the Holder named below. IF NO ELECTIONS ARE SPECIFIED,
ANY OTHERWISE PROPERLY COMPLETED AND SIGNED CONSENT FORM WILL BE DEEMED TO BE A
CONSENT TO EACH OF THE FOREGOING PROPOSALS AS DESCRIBED IN THE SOLICITATION
STATEMENT. By execution hereof, the undersigned Holder acknowledges receipt of
the Solicitation Statement.
Spanos reserves the right to waive any conditions to, or modify the terms of,
the Solicitation (as defined in the Solicitation Statement). In order to count,
this Consent must be received by the Partnership prior to the earlier of (a)
the date (not prior to June 10, 1998) on which Spanos receives Consents from
Unitholders owning a majority of the outstanding Units, or (b) 10:00 a.m.,
California Time, on June 30, 1998, or on such later date as may be determined
by Spanos. This fully completed and executed Consent should be sent by mail in
the self-addressed, postage-paid envelope enclosed for that purpose, or by
overnight courier, or by fax, to Spanos, as follows:
LOGO
If delivered by If delivered by
mail or by courier,fax, to:
to:
MARK HERE FOR ADDRESS
CHANGE AND NOTE BELOW Skinner & Co.
Skinner & Co. Facsimile Number:
660 Market Street, (415) 788-0794
Suite 204 Telephone Number:
San Francisco, CA (415) 981-0970
94104
Please sign your name below ex-
actly in the same manner as the
name(s) in which ownership of the
Units is registered. When Units
are held by two or more joint
Holders, all such Holders should
sign. When signing as attorney-
in-fact, executor, administrator,
trustee or guardian, please give
full title as such. If a corpora-
tion, please sign in full corpo-
rate name by the President or
other authorized officer. If a
partnership, please sign in part-
nership name by an authorized
person.
Dated: ____________________ , 1998
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Signature
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Name (Please Print)
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Signature if held jointly
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Name (Please Print)
PLEASE MARK, SIGN, DATE AND RETURN THIS
CONSENT CARD PROMPTLY USING THE ENCLOSED
POSTAGE PRE-PAID ENVELOPE.
