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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:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
[_] Definitive Proxy Statement Rule 14a-6(e)(2))
[_] 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)
A.G. SPANOS RESIDENTIAL PARTNERS-86, A CALIFORNIA LIMITED PARTNERSHIP
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[_] No fee required.
[X] 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:
Units of limited partnership interest in Prudential-Bache/A.G. Spanos
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Genesis Income Partners L.P., I
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(2) Aggregate number of securities to which transaction applies:
64,660 Units
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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):
$31.80(1)
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(4) Proposed maximum aggregate value of transaction:
$20,560,000(1)
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(5) Total fee paid:
$4,112
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[_] Fee paid previously with preliminary materials.
[X] 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:
$4,112
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(2) Form, Schedule or Registration Statement No.:
SCHEDULE 13E3
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(3) Filing Party:
A.G. SPANOS RESIDENTIAL PARTNERS - 86, A CALIFORNIA LIMITED
PARTNERSHIP
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(4) Date Filed:
APRIL 8, 1998
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Notes:
(1) Estimated solely for purposes of calculating the fee. Based on
estimated total distributions to Unitholders, Special Limited
Partners and General Partners after application of anticipated proceeds
less applicable expenses.
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A.G. SPANOS RESIDENTIAL PARTNERS - 86,
A CALIFORNIA LIMITED PARTNERSHIP
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
April __, 1998
Dear Unitholders:
As you know, 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
<PAGE>
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 Appeal 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,
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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.
If the Plan is approved, it is anticipated that the property sales
will be consummated by mid-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
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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 $14,851,000, or approximately $230 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
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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
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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.
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.
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* 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,
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<PAGE>
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 forebear 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.
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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: ______________________________
Arthur J. Cole
President
By A.G. Spanos Realty, Inc.,
General Partner
By: ______________________________
Arthur J. Cole
Vice President
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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
1
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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 May , 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.
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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.
Dated: April __, 1998 A.G. SPANOS RESIDENTIAL PARTNERS
-86, A California Limited
Partnership, General Partner
By AGS Financial Corporation,
General Partner
By ____________________________
Arthur J. Cole
President
By A.G. Spanos Realty, Inc.,
General Partner
By ____________________________
Arthur J. Cole
Vice President
3
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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
1
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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
- ---------------------------
/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.
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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 require that P-B Properties take, or forebear
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
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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 May , 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
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of Consent are first being mailed to Unitholders on or about April __, 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 May , 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
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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 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
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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 in June, 1998. The aggregate expenses to be
incurred relating to this solicitation are estimated to be approximately
$172,000.
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.
7
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TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
INTRODUCTION.............................................. 1
SUMMARY................................................... 10
SPECIAL FACTORS........................................... 15
Background of the Plan............................... 15
Effects of the Plan.................................. 21
Fairness of the Plan; Recommendation of Spanos....... 21
Disadvantages of the Plan............................ 24
Advantages of the Plan............................... 25
Vote Required to Approve the Plan.................... 27
No Other Offers...................................... 28
Failure to Approve the Plan.......................... 28
SELECTED HISTORICAL FINANCIAL DATA........................ 30
THE PLAN.................................................. 31
General.............................................. 31
Description of the Auction........................... 33
Description of Properties............................ 42
Anticipated Results of Auction, Use of Proceeds and
Cash Distributions.................................. 45
Amendment to Partnership Agreement................... 47
Liquidation.......................................... 47
Distributions and Fees............................... 49
PRO FORMA FINANCIAL INFORMATION........................... 53
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS.......... 53
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS... 55
Market Prices........................................ 55
Distributions to Unitholders......................... 57
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN............... 60
General.............................................. 60
Partnership Taxation................................. 61
Sale of Properties................................... 61
Tax Allocations and Distributions.................... 64
Capital Gains Tax.................................... 67
Passive Loss Limitation.............................. 69
Final Partnership Returns and Future Tax Issues...... 70
Certain State Income Tax Considerations.............. 71
NO APPRAISAL RIGHTS....................................... 71
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF........... 72
CERTAIN PENDING LITIGATION................................ 72
AVAILABLE INFORMATION..................................... 78
INDEX TO FINANCIAL STATEMENTS............................. F-1
</TABLE>
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<TABLE>
<S> <C>
Section 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........................... A-1
EXHIBIT B: Annual Report of Partnership on SEC Form 10-K
for the year ended December 31, 1997....... B-1
</TABLE>
9
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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 garden 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
10
<PAGE>
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 May , 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).
THE PLAN
- --------
General . . . . . . . . . . The Plan is a single proposal consisting of the
Auction, the
11
<PAGE>
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 mid-1998.
12
<PAGE>
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 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
13
<PAGE>
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.
14
<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
15
<PAGE>
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
16
<PAGE>
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.
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.
17
<PAGE>
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
18
<PAGE>
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 Genesis 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
19
<PAGE>
$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 20, 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."
20
<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 $214.21 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
21
<PAGE>
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;
22
<PAGE>
(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.
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."
23
<PAGE>
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,
24
<PAGE>
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
25
<PAGE>
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.
(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
26
<PAGE>
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.
27
<PAGE>
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.
Moreover, certain limited tender offers for Units have been made during such
period. See "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS"
Failure to Approve the Plan
- ---------------------------
If the Unitholders fail to approve the Plan, the Partnership will
continue to own the Properties. In such event,
28
<PAGE>
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.
29
<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, a copy of which is attached hereto as Exhibit B.
<TABLE>
<CAPTION>
For Years Ended December 31,
------------------------------------------------
1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
(In thousands, except per Unit
and per Special Interest amounts)
- -------------------------------------------
OPERATING RESULTS
Total Revenues (excluding gain on $16,507 $16,130 $14,989 $15,534 $15,569
disposition of property)
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 -0- -0- -0- -0- -0-
Interest
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
At December 31,
---------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
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' 6,862 6,862 6,862 6,862 7,535
Equity
General Partners' Deficit (1,008) (981) (954) (904) (809)
Total Partners' Equity 13,519 14,880 16,281 18,731 23,511
</TABLE>
30
<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.
31
<PAGE>
* 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
32
<PAGE>
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.
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
33
<PAGE>
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
34
<PAGE>
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.
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;
35
<PAGE>
(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 Genesis 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 Genesis Partnership and the individual Auction Properties
(including the rent rolls, operating statements and budgets
36
<PAGE>
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
Genesis, 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
37
<PAGE>
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 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.
38
<PAGE>
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.
39
<PAGE>
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 Price Over
Property Bid Price Mortgage 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 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
40
<PAGE>
$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 $230 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
41
<PAGE>
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 garden 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.
42
<PAGE>
The following table sets forth certain information regarding the
Properties as of January 1, 1998:
43
<PAGE>
<TABLE>
<CAPTION>
1997
Average
No. Annual Date Mortgage
of Land Occupancy of Purchase Mortgage Mortgage Interest
Property Location Units (Acres) Rate Purchase Price/1/ Debt Maturity Rate
- -------- -------- ----- ------- --------- -------- -------- -------- -------- --------
<S> <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%
Casa de Fuentes Overland Park, KS 288 30 94.8% 7/87 12,809,000 7,059,000 11/97 8.16%
MacArthur Park Irving, TX 276 13 95.5% 10/87 12,400,000 6,188,000 2/2001 8.00%
Cypress Pointe Louisville, KY 444 33 94.7% 10/87 18,632,000 11,071,000 5/99 10.02%
Comanche Place Overland Park, KS 306 29 95.0% 12/87 14,210,000 9,682,000 11/97 8.16%
Chelsea Park Norcross, GA 376 31 93.9% 3/88 17,766,000 7,680,000 6/2017 7.33%
Mission Trails San Diego, CA 208 5 95.6% 8/88 15,652,000 8,765,000 3/2000 8.13%
Cameron Creek2/ Ft. Worth, TX 446 20 93.2% 10/87 3,500,000 12,815,0003/ 4/2016 7.245%
- -
Del Rio2/ Albuquerque, NM 248 13 92.0% 12/87 2,000,000 7,233,0003/ 11/2000 6.495%
--------- ---------
$110,176,000 $77,800,000
============ ===========
Monthly Est.
Debt Balloon
Services Payment
- -------- -----------
<C> <C>
$ 61,190 -0-
58,886 $ 7,076,000
47,144 5,942,000
101,480 10,917,000
64,133 7,698,000
78,041 -0-
72,651 8,443,000
108,257 -0-
46,260 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.
44
<PAGE>
Anticipated Results of Auction, Uses of Proceedings and Cash Distribtions
- -------------------------------------------------------------------------
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 agtregate 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>
<CAPTION>
<S> <C>
Application of Proceeds:
Auction Sale Price (Net of Mortgage Debt) $20,560,000
Less: Auction Expenses 785,000 1/
Consent Solicitation Expenses 172,000 1/
Net Sale Price $19,603,000
Plus: Other Partnership Assets 3,300,000 2/
(Net of Liabilities) -----------------
$22,903,000
=================
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Less: Liquidation Expenses (est.) 100,000
Attorneys' Fees 990,000 3/
Net Distributable Amount $21,813,000
Distributions to Unitholders 14,851,000 4/
Distributions to Special Limited Partners 6,862,000 3/
Distributions to General Partners 100,000 6/
Total Distributions $21,813,000
Distribution to Unitholders Per Unit
($1,000 of Original Capital Constribution):
Prior Cash Distributions Per Unit $537.36 7/
Distributions Per Unit from Auction Proceeds 229.68 4/8/
Loss Per Unit $232.96 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 (iii) 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 Agreeement, 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.
46
<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
47
<PAGE>
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
48
<PAGE>
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 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
49
<PAGE>
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
$14,851,000 of cash distributions, in each case in addition to those previously
received.
50
<PAGE>
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
51
<PAGE>
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.
52
<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
$21,813,000, limited partners' equity of approximately $14,851,000, 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 $7,994,000.
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
53
<PAGE>
deficiency of P-B Properties and any obligation of P-B Properties to make an
additional capital contribution.
54
<PAGE>
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:
55
<PAGE>
<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
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
56
<PAGE>
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
57
<PAGE>
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 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
58
<PAGE>
their Units pursuant to the PSI Settlement Agreement described below under
"CERTAIN PENDING LITIGATION."
59
<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
60
<PAGE>
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
61
<PAGE>
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 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
62
<PAGE>
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 $28.00
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
63
<PAGE>
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 properties, and therefore none of
the estimated $5.5 million 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 $128.00 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,
64
<PAGE>
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 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 closng 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
65
<PAGE>
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
66
<PAGE>
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 $230 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
67
<PAGE>
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).
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
68
<PAGE>
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 Limitation
- ------------------------
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
69
<PAGE>
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.
70
<PAGE>
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
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,
71
<PAGE>
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
72
<PAGE>
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 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
- -------------------------
* 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.).
73
<PAGE>
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
74
<PAGE>
prosecuting any settled claim against the released parties. Pursuant to the PSI
Settlement Agreement, PSI and its affiliates have paid a total of $110,000,000
into a settlement fund for future distributions 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 Genesis. 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 forebear 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
75
<PAGE>
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 20, 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 Securities Act of 1933 (sections 11
and 12) and of the Texas Securities and
76
<PAGE>
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.
77
<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, 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
78
<PAGE>
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.
79
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
A.G. Spanos Residential Partners - 86, A California Limited Partnership
- -----------------------------------------------------------------------
<TABLE>
<CAPTION>
<S> <C>
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-5
Balance Sheet as of August 31, 1997 F-6
Notes to Balance Sheet F-7
A.G. Spanos Realty, Inc.
- ----------------------------------------
Independent Auditors' Report F-8
Balance Sheet as of September 30, 1997 F-9
Notes to Balance Sheet F-10
</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
ASSETS
<TABLE>
<CAPTION>
<S> <C>
Cash $ 1,361
Accounts Receivable 81,034
Advances to General Partner 121,861
--------
$204,256
========
</TABLE>
LIABILITIES AND PARTNERS' DEFICIT
<TABLE>
<CAPTION>
<S> <C>
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)
----------
$ 04,256
==========
</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
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 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>
<CAPTION>
<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
LIABILITIES
<TABLE>
<CAPTION>
<S> <C>
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 $ 10,000
authorized 100,000 shares, issued 10,000 shares
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>
NOTES TO CONSOLIDATED BALANCE SHEET
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.
F-10
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 2. RELATED PARTY TRANSACTIONS (CONT.)
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.
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. Among other things, the plaintiffs allege that the
Company earned excess fees for the syndication of the entity.
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 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 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 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.
F-11
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
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.
NOTE 4. SUBSEQUENT EVENTS
During the months of September, October and November, 1997, the real
property of the several partnership investments 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.
Stockton, California Bowman & Company, LLP
January 28, 1998
F-13
<PAGE>
A.G. SPANOS REALTY, INC.
BALANCE SHEET
September 30, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 41,895
Certificate of Deposit 100,000
-----------
$ 141,895
===========
</TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
<S> <C>
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.
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.
F-15
<PAGE>
NOTES TO BALANCE SHEET
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 fradulent
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 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 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 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):
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.
A-1
<PAGE>
EXHIBIT B: ANNUAL REPORT OF PARTNERSHIP ON SEC FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997.
B-1
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT 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. SPANOS GENESIS INCOME PARTNERS L.P., I
- --------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 94-3028296
- --------------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1341 West Robinhood, Suite B-9, Stockton, CA 95207
- --------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (209) 478-0140
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
------------------- ----------------------
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]
Page 1 of 46
Exhibit Index at page 39
<PAGE>
TABLE OF CONTENTS
Part I
Item 1. Business 3
Item 2. Properties 5
Item 3. Legal Proceedings 7
Item 4. Submission of Matters to a Vote of Security Holders 7
Part II
Item 5. Market for the Partnership's Depository Units of Limited
Partnership Interest and Related Security Holder Matters 8
Item 6. Selected Financial Data 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 11
Item 8. Financial Statements and Supplementary Data 14
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 31
Part III
Item 10. Directors and Executive Officers of the Registrant 32
Item 11. Executive Compensation 35
Item 12. Security Ownership of Certain Beneficial Owners and
Management 36
Item 13. Certain Relationships and Related Transactions 36
Part IV
Item 14. Exhibits, Financial Statement Schedules, and
Reports on Form 8-K 39
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
3
<PAGE>
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.
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.
4
<PAGE>
Item 2. Properties
<TABLE>
<CAPTION>
The Partnership owned the nine Properties described below at March 1, 1998:
Purchase
Location Date Mortgage Holder
Apartment Projects (1):
<S> <C> <C> <C>
Le Parc Apartments: Marietta, Georgia 06/03/87 Great Western Bank (3)
a 188-unit, midrise apartment complex (suburb of Atlanta)
located on approximately 8 acres.
Casa de Fuentes Apartments: Overland Park, Kansas 07/02/87 Wells Fargo Bank (4)
a 288-unit, garden apartment complex (suburb of Kansas (successor to Great
located on approximately 30 acres. City) American First Savings)
MacArthur Park Apartments: Las Colinas, Texas 10/01/87 Mellon Mortgage
a 276-unit, garden apartment complex (suburb of Irving/ (successor to American
located on approximately 13 acres. Dallas) Savings Bank)
Cypress Pointe Apartments: Louisville, Kentucky 10/01/87 GE Capital (5)
a 444-unit, garden apartment complex
located on approximately 33 acres.
Comanche Place Apartments: Overland Park, Kansas 12/04/87 Wells Fargo Bank (4)
a 306-unit, garden apartment complex (suburb of Kansas (successor to Great
located on approximately 29 acres. City) American First Savings)
Chelsea Park Apartments: Norcross, Georgia 03/25/88 Great Western Bank (3)
a 376-unit, garden apartment complex (suburb of Atlanta)
located on approximately 31 acres.
Mission Trails Apartments: San Diego, California 08/12/88 Union Bank (4)
a 208-unit, garden apartment complex
located on approximately 5 acres.
Land Leases (2):
Cameron Creek Apartments: Fort Worth, Texas 10/01/87 Great Western Bank (3)
a land parcel of approximately 20 acres
upon which a 446-unit, garden
apartment complex has been constructed.
Del Rio Apartments: Albuquerque, New 12/21/87 Gibraltar Savings Bank
a land parcel of approximately 13 acres Mexico
upon which a 248-unit, garden
apartment complex has been constructed.
</TABLE>
5
<PAGE>
Item 2. Properties (continued)
<TABLE>
<CAPTION>
Average Annual Occupancy Average Annual Revenue Per Apt. Unit (6) 1997 Realty Tax Data
Apartment Projects: 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>
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.
6
<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.
7
<PAGE>
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:
Quarter Ended Distribution
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
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.
8
<PAGE>
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.
9
<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 $16,507,383 $16,129,902 $14,988,762 $15,534,333 $15,568,580
on disposition of property)
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.
10
<PAGE>
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 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
11
<PAGE>
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.
12
<PAGE>
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.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data
Page
Independent Auditors' Report 15
Balance sheets at December 31, 1997 and 1996 16
Statements of operations for the years ended
December 31, 1997, 1996 and 1995 17
Statements of changes in partners' equity (deficit) for the
years ended December 31, 1997, 1996 and 1995 18
Statements of cash flows for the years ended
December 31, 1997, 1996 and 1995 19
Notes to financial statements 20-30
Schedule to financial statements 45
14
<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
15
<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.
16
<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.
17
<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.
18
<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.
19
<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.
20
<PAGE>
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.
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:
1997 1996 1995
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)
--------- --------- ---------
--------- --------- ---------
The book and tax bases of partners' equity differ by the cumulative effect
of the book to tax income adjustments.
21
<PAGE>
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.
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:
22
<PAGE>
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:
1997 1996
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
----------- -----------
----------- -----------
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.
23
<PAGE>
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.
24
<PAGE>
<TABLE>
<CAPTION>
Final Monthly Principal Estimated
Property Pledged Obligation Obligation Interest Maturity Payment Due During Balloon
as Collateral at 12/31/97 at 12/31/96 Rate Date Terms 1998 Payment
---------- ---------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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.
25
<PAGE>
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.
Aggregate maturities of mortgage loans payable for each of the five years
ending December 31, 2002 and thereafter are as follows:
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
----------
----------
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.
26
<PAGE>
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.
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.
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.
1997 1996 1995
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
------- ------- -------
------- ------- -------
Accruals of $161,414 and $152,782 for management fees payable to the
General Partners were outstanding at December 31, 1997 and 1996,
respectively.
27
<PAGE>
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 aggregate distributions of sales and refinancing proceeds equal
to the limited partners' aggregate capital contributions and 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.
No provision for subordinated real estate commissions have been made
because this distribution threshold has not been achieved.
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, 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.
28
<PAGE>
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
29
<PAGE>
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.
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 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.
30
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
Not applicable.
31
<PAGE>
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.
32
<PAGE>
AGS FINANCIAL CORPORATION
Name Position
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
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.
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.
33
<PAGE>
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.
Name Position
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
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.
34
<PAGE>
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.
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.
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.
35
<PAGE>
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:
AGS Financial A.G. Spanos
Corporation Realty, Inc.
Name Shares % of Class Shares % of Class
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%
(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.
36
<PAGE>
Annual
Property Lessee Termination Date(1) Rent (2)(3)
Cameron Creek A.G. Spanos
Construction, Inc. 10/01/2012 $420,000
Del Rio A.G. Spanos
Construction, Inc. 12/21/2012 $240,000
(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.
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.
Capacity in Form of Cash
Recipient Which Served Compensation Compensation
Spanos General General Partner Supervisory $313,155
Partner Management Fee(1)
Bache General General Partner Special 266,297
Partner Distribution(2)
A.G. Spanos Property Manager Property 469,310
Management Inc. Management Fees(3)
General Partners General Partners Cash from Operations(4) 32,992
Bache General General Partner Expense 46,858
Partner Reimbursements
37
<PAGE>
(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.
38
<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 14.
(2)Financial Statement Schedule:
III. Real Estate and Accumulated Depreciation, page 45.
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
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.
39
<PAGE>
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)
(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.
40
<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: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/Brian J. Martin Date: March 27, 1998
---------------------------------------
Brian J. Martin
Chairman of the Board of Directors 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
By: /s/Brian J. Martin Date: March 27, 1998
---------------------------------------
Brian J. Martin
Chairman of the Board of Directors and Director
(Principal Executive Officer)
By: /s/Barbara J. Brooks Date: March 27, 1998
---------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer)
By: /s/Nathalie P. Maio Date: March 27, 1998
---------------------------------------
Nathalie P. Maio
Director
41
<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
General Partner
By: AGS Financial Corporation, a general partner
By: /s/Arthur J. Cole Date: March 27, 1998
-------------------------------
Arthur J. Cole
President
(Principal Accounting Officer)
By: A.G. Spanos Realty, Inc., a general partner
By: /s/Arthur J. Cole Date: March 27, 1998
-------------------------------
Arthur J. Cole
Vice President
RESIDENTIAL PORTFOLIO DEPOSITORY CORP. (Registrant as to the issuance of
Depository Receipts with respect to the Assigned Limited Partnership
Interests)
By: /s/Arthur J. Cole Date: March 27, 1998
-------------------------------
Arthur J. Cole
Vice President
42
<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 Partners-86, A California Limited Partnership
General Partner
By: AGS Financial Corporation, a general partner
By: /s/Alex G. Spanos Date: March 27, 1998
----------------------------------
Alex G. Spanos
Chairman of the Board of Directors
By: /s/Dean A. Spanos Date: March 27, 1998
----------------------------------
Dean A. Spanos
Vice Chairman and Director
By: /s/Michael A. Spanos Date: March 27, 1998
----------------------------------
Michael A. Spanos
Director
By: /s/Barry L. Ruhl Date: March 27, 1998
----------------------------------
Barry L. Ruhl
Director
By: /s/Arthur J. Cole Date: March 27, 1998
----------------------------------
Arthur J. Cole
President and Director
(Principal Executive Officer)
By: /s/Jeremiah T. Murphy Date: March 27, 1998
----------------------------------
Jeremiah T. Murphy
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
43
<PAGE>
SIGNATURES
By: A.G. Spanos Realty, Inc., a general partner
By: /s/Alex G. Spanos Date: March 27, 1998
----------------------------------
Alex G. Spanos
President and Director (Principal Executive Officer)
By: /s/Dean A. Spanos Date: March 27, 1998
----------------------------------
Dean A. Spanos
Executive Vice President and Director
By: /s/Michael A. Spanos Date: March 27, 1998
----------------------------------
Michael A. Spanos
Executive Vice President and Director
By: /s/Barry L. Ruhl Date: March 27, 1998
----------------------------------
Barry L. Ruhl
Executive Vice President and Director
By: /s/Jeremiah T. Murphy Date: March 27, 1998
----------------------------------
Jeremiah T. Murphy
Vice President (Principal Financial and Accounting Officer)
Residential Portfolio Depository Corp.
By: /s/Alex G. Spanos Date: March 27, 1998
----------------------------------
Alex G. Spanos
Director, President and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
By: /s/Dean A. Spanos Date: March 27, 1998
----------------------------------
Dean A. Spanos
Director
By: /s/Jeremiah T. Murphy Date: March 27, 1998
----------------------------------
Jeremiah T. Murphy
Director
44
<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 Column G
Costs Capitalized Gross Amount at which Carried at
Initial Cost to Subsequent to Close of Period
Partnership Acquisition Notes 2, 3 and 5
Accumulated
Bldgs & Carrying Buildings & Total Depr. Date of Date
Description (Note 1) Land Equip Imps Cost Land Equipment Note 2 (Note 4) Construction Acquired
- ------------------- ---- ------ ----- ---- ---- --------- ------ ------ ------------ --------
<S> <C> <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 06/03/87
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 07/02/87
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 10/01/87
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 10/01/87
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 12/04/87
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 03/25/88
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 08/12/88
San Diego, CA
Land Leases:
Cameron Creek 3,508,024 -0- -0- -0- 1,887,173 -0- 1,887,173 -0- 1985 10/01/87
Fort Worth, TX
Del Rio 2,004,585 -0- -0- -0- 2,004,585 -0- 2,004,585 -0- 1985 12/21/87
Albuquerque, NM
---------- ---------- --------------------------- ---------- ---------- ----------
27,650,818 85,235,939 -0- -0- 21,039,490 82,182,571 103,222,061 33,632,580
---------- ---------- --------------------------- ---------- ---------- ----------
---------- ---------- --------------------------- ---------- ---------- ----------
</TABLE>
See notes.
45
<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: 1997 1996 1995
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
------------ ------------ ------------
------------ ------------ ------------
Note 3 - The aggregate cost of real estate for federal income tax
purposes is $103,816,029.
Note 4 - Reconciliation of
accumulated depreciation: 1997 1996 1995
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
------------ ------------ ------------
------------ ------------ ------------
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.
46
<PAGE>
[ARTICLE] 5
[LEGEND]
The schedule contains summary information extracted from the financial
statements for Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I,
and is qualified entirely by reference to such financial statements.
[/LEGEND]
[CIK] 0000803399
[NAME] PRUDENTIAL-BACHE/AG SPANOS GENESIS INCOME PARTNERS LP I
[MULTIPLIER] 1
<TABLE>
<S> <C>
[PERIOD-TYPE] 12-MOS
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] DEC-31-1997
[CASH] 5323329
[SECURITIES] 0
[RECEIVABLES] 394236
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 5717565
[PP&E] 101809401
[DEPRECIATION] 33632580
[TOTAL-ASSETS] 73894386
[CURRENT-LIABILITIES] 2448481
[BONDS] 57927235
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 13518670
[TOTAL-LIABILITY-AND-EQUITY] 73894386
[SALES] 16317774
[TOTAL-REVENUES] 16507383
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 11351207
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 4867527
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] 288649
[EPS-PRIMARY] 4.37
[EPS-DILUTED] 0
</TABLE>
<PAGE>
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 April __, 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 May , 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:
If delivered by mail or If delivered by fax, to:
by courier, to:
Skinner & Co. Skinner & Co.
660 Market Street, Suite 204 Facsimile Number: (415) 981-0970
San Francisco, CA 94104 Telephone Number: (415) 788-0794
Please sign your name below exactly 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 corporation, please sign in full corporate name by the President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
Dated: _____________, 1998
<PAGE>
Signature
______________________________
Name (Please Print)
______________________________
Signature if held jointly
______________________________
Name (Please Print)
______________________________
2
