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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 [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
- --------------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(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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Realty Partners L.P., I
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(2) Aggregate number of securities to which transaction applies:
316,828 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):
$71.46(1)
-------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
$22,640,000(1)
-------------------------------------------------------------------------
(5) Total fee paid:
$4,528
-------------------------------------------------------------------------
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
-------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
-------------------------------------------------------------------------
Notes:
(1) Estimated solely for purposes of calculating the fee. Based on
estimated total distributions to unitholders, subordinated limited
partners and general partners after application of anticipated proceeds
less applicable expenses.
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
__________, 1997
Dear Unitholders:
As you know, the Partnership was formed in 1988 to acquire, operate
and then ultimately dispose of a portfolio of eight apartment properties located
in five 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.
The Partnership is now in its ninth year of operations, and for some
time now, A.G. Spanos Realty Partners, L.P. ("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. These efforts have culminated in a proposed settlement by Spanos and its
affiliates (the "Settlement") of the class action litigation, providing for an
integrated plan of action (the "Plan") to sell the eight properties and
distribute the net sale proceeds in liquidation of the Partnership. The United
States
<PAGE>
District Court for the Southern District of New York (the "Court") has
preliminarily approved the Settlement as being fair, reasonable, adequate and in
the best interests of the Unitholders. 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 Solicitation Statement.
------------------------
IMPLEMENTATION OF CERTAIN ELEMENTS OF THE PLAN REQUIRES THE CONSENT OF
HOLDERS OF A MAJORITY OF THE UNITS, AND YOUR APPROVAL IS VERY IMPORTANT. Please
return your Consent card as soon as possible, because a failure to return a
Consent card has the same effect as a "No" vote.
------------------------
Under the Plan, the properties will be sold at a public auction (the
"Auction") to be conducted by Ernst & Young LLP, an independent national public
accounting and consulting firm, through its E&Y Kenneth Leventhal Real Estate
Group ("Leventhal"). Pursuant to the demand of the plaintiffs in the class
action litigation, under the proposed Settlement Spanos has
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agreed that it or one of its affiliates will open the Auction by submitting an
initial bid so as to guarantee the Partnership a gross aggregate sales price for
all the properties of at least $22,440,000 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 lawyers representing the plaintiffs in
the class action ("Lead Class Counsel"). (Since Spanos itself is a bidder, it
will not take any part in reviewing the bids or selecting the winner.)
Leventhal will thereafter re-solicit higher bids from the bidders, including
Spanos. 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 early 1998. As soon thereafter as practicable, the
Partnership will pay cash distributions to the Partners from the net sales
proceeds after payment of all expenses and liabilities of the Partnership and
certain attorneys' fees, and the establishment of a reserve account to cover
unexpected claims. Any amount remaining in the reserve account will be
distributed to the Partners within twelve months from the date of the final
property closing, whereupon the Partnership will be dissolved. Overall, the
Plan is anticipated
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to result in liquidating distributions of at least $43.00 per Unit, and would
produce higher distributions if the Auction results in sale prices higher than
the Spanos initial bid.
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 within 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 court-approved Auction process provides a mechanism which
Spanos believes will enable the Partnership to sell the properties for the best
aggregate sale price obtainable at the date of sale under current market
conditions.
. 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.
. 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.
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. 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.
. 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
configuration of many of the apartments in the properties is not as attractive
to prospective tenants as two-bedroom, two-bath configurations often found in
newer competing projects. The properties, therefore, may not be able to sustain
current revenue levels. Further, new apartment project construction has
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 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 one recent tender offer for a
limited number of Units, as described in the enclosed Solicitation Statement.
. Spanos has guaranteed that the Auction will generate an aggregate
gross sales price of at least $22,440,000
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in excess of the Partnership's aggregate mortgage balance, which after payment
of expenses and certain attorneys' fees will be distributed to the Unitholders,
Subordinated Limited Partners and General Partners as provided in the
Partnership Agreement.
. The Partnership's liquidation will eliminate the annual Schedule
K-1 income tax reporting for the Partnership, which is often burdensome to
Unitholders.
The principal disadvantage which would result to Unitholders from the
approval of the Plan is that 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 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 as being fair, reasonable, adequate and in the best interests of the
Unitholders. Neither of the General Partners will receive any fees or
distributions in connection with the sale of the properties or the termination
and liquidation of the Partnership, except as provided in the Partnership
Agreement and described in
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the enclosed Solicitation Statement. In addition, the General Partners will be
adversely affected by the sale of the properties because the management fees and
special distribution which they presently receive will be eliminated.
The Plan will result in the sale of all of the properties within a 12-
month period and the subsequent termination and liquidation of the Partnership,
which is an action that must be approved by the Unitholders. Furthermore, since
it is possible that 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 Spanos or 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.
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 REALTY
PARTNERS, L.P.
General Partner
By AGS Financial Corporation,
General Partner
By:
--------------------------
Arthur J. Cole
President
By A.G. Spanos Realty Capital,
Inc., General Partner
By:
--------------------------
Arthur J. Cole
Vice President
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PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
NOTICE OF CONSENT SOLICITATION
To the Unitholders of Prudential-Bache/A.G. Spanos Realty 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
Realty Partners L.P., I, a Delaware limited partnership (the "Partnership"),
that A.G. Spanos Realty Partners, L.P. ("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 Spanos or an affiliate 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, Subordinated Limited Partners and General
Partners, all as more fully described in the accompanying Solicitation
Statement. The Plan is a single proposal which must be approved by Unitholders
holding a majority of the Units.
Only Unitholders of record at the close of business on July 1, 1997
are entitled to notice of the solicitation of Consents and to give their consent
to the Plan. In order to be
<PAGE>
valid, all Consents must be received before 10:00 a.m. California time on
__________, 1997 (unless such date or time is extended, in the sole discretion
of Spanos). The approval will be obtained through the solicitation of written
Consents, and no meeting of Unitholders will be held. Skinner & Co. has been
retained as a soliciting agent, to assist Spanos in soliciting Consents. A
Consent may be revoked by written notice of revocation or by a later dated
action containing different instructions received by Skinner & Co. at any time
on or before the expiration of the time by which the Consent card must be
received.
YOUR APPROVAL IS IMPORTANT. PLEASE READ THE SOLICITATION STATEMENT
CAREFULLY AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN
IT IN THE SELF-ADDRESSED PREPAID ENVELOPE. Any Consent card which is signed and
does not specifically disapprove the Plan will be treated as approving the Plan.
Your prompt response will be appreciated.
Dated: _____________, 1997 A.G. SPANOS REALTY PARTNERS,
L.P., General Partner
By AGS Financial Corporation,
General Partner
By
---------------------------
Arthur J. Cole
President
2
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By A.G. Spanos Realty Capital,
Inc., General Partner
By
---------------------------
Arthur J. Cole
Vice President
3
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PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
ONE SEAPORT PLAZA
NEW YORK, NEW YORK 10292
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 Realty Partners L.P., I, a Delaware limited partnership (the
"Partnership"), in connection with the solicitation of written consents
("Consents") by A.G. Spanos Realty Partners, L.P. ("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 Spanos or 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--
Description of the Plan." The Auction, the Amendment and the Plan of
Liquidation (collectively, the "Plan") comprise a single
<PAGE>
proposal, and consent to the Plan will constitute consent to each of these
actions. If approved and consummated, the Plan will result in the sale of
substantially all of the Partnership's assets, the termination of the
Partnership's business and the distribution of the net sales proceeds and any
other remaining Partnership assets to the Unitholders, Subordinated Limited
Partners and General Partners of the Partnership, after payment of all
liabilities and expenses and certain attorneys' fees.
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 Court has
preliminarily approved the Settlement Agreement and its terms, including the
terms of the Plan, as being fair, reasonable, adequate and in the best interests
of the Unitholders. See "CERTAIN PENDING LITIGATION."
Prudential-Bache Properties, Inc. ("P-B Properties"), the co-general
partner of the Partnership, 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
2
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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, and P-B Properties makes no recommendation
as to whether the Unitholders should approve or disapprove the Plan.
Neither Spanos nor P-B Properties (collectively, the "General
Partners") intends to call a meeting of the Unitholders in connection with this
solicitation of Consents. Approval or disapproval by a Unitholder of the Plan
is to be indicated by marking and signing the enclosed form of Unitholder
Consent 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 Plan as described herein can be effected only after
Unitholders owning a majority in interest of the outstanding Units have
consented and the Court has issued a final, nonappealable order and judgment
approving the Settlement. The enclosed form of Unitholder Consent permits a
Unitholder to indicate approval, disapproval or abstention with respect to the
Plan.
Consents of the Unitholders to the Plan will be solicited until the
earlier of: (a) receipt of Consents from Unitholders owning a majority in
interest of the outstanding Units or (b) _____________, 1997 (subject to
extension to a date not later than _______________, 1997, in Spanos' sole
discretion).
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The close of business on July 1, 1997 (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 316,828 outstanding Units entitled to vote on the Plan held by
approximately 5,000 Unitholders. This Solicitation Statement and the enclosed
form of Unitholder Consent are first being mailed to Unitholders on or about
_______________, 1997.
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
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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 10:00 a.m. California time on __________, 1997 (unless such date or time
is extended), by sending a written notice of revocation or a later dated Consent
containing different instructions to the Soliciting Agent before such date. Any
written notice of revocation or subsequent Consent should be sent to the
Soliciting Agent, Skinner & Co., at 660 Market Street, Suite 204, San Francisco,
CA 94104 (Telephone 415-981-0970).
In addition to solicitation by use of the mails, officers, directors
and employees of Spanos 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
reimbursement of expenses and additional fees based on the number of telephone
calls placed and the number of tabulations made, estimated at approximately
$8,250 in the aggregate. 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
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fiduciaries for reasonable expenses incurred in connection therewith. All costs
and expenses of this solicitation of Consents, including the costs of preparing
and mailing this Solicitation Statement, will be advanced by Spanos or its
affiliates, subject to reimbursement from the Partnership unless the consent of
Unitholders holding a majority of the outstanding Units is not obtained on or
before 5:00 p.m. California time on the third business day before the hearing at
which the parties to the Settlement Agreement will request the Court to enter
its order and judgment finally approving the Settlement. That hearing is
currently scheduled to take place on November __, 1997, but may be postponed by
agreement among the parties to the Settlement Agreement. The aggregate expenses
to be incurred relating to this solicitation are estimated to be approximately
$105,000.
Spanos recommends that Unitholders consent to the Plan. See "THE PLAN
- -- Recommendation of Spanos".
6
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TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Section Page
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<S> <C>
INTRODUCTION.............................................. 1
SUMMARY................................................... 9
THE PLAN.................................................. 15
Background of Proposed Sale of Properties............ 15
Description of the Auction........................... 18
Description of Properties............................ 24
Anticipated Results of Auction, Use of Proceeds and
Cash Distributions..................................
Recommendation of Spanos............................. 28
Disadvantages of Plan................................ 29
Advantages of Plan................................... 30
Failure to Approve Plan.............................. 32
Amendment to Partnership Agreement................... 33
Liquidation.......................................... 33
Distributions and Fees............................... 35
PRO FORMA FINANCIAL INFORMATION........................... 38
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS... 39
Market Prices........................................ 39
Distributions to Unitholders......................... 41
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN............... 43
General 43
Partnership Taxation................................. 44
Sale of Properties................................... 44
Tax Allocations and Distributions.................... 47
Capital Gains Tax.................................... 50
Passive Loss Limitation.............................. 51
Final Partnership Returns and Future Tax Issues...... 52
Certain State Income Tax Considerations.............. 53
NO APPRAISAL RIGHTS....................................... 54
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF........... 54
CERTAIN PENDING LITIGATION................................ 55
AVAILABLE INFORMATION..................................... 60
EXHIBIT A: Proposed Amendment to Amended and Restated
Agreement of Limited Partnership............... A-1
EXHIBIT B: Annual Report of Partnership on SEC Form 10-K
for the year ended December 31, 1996........... B-1
</TABLE>
7
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<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
EXHIBIT C: Quarterly Report of Partnership on SEC Form
10-Q for the quarter ended March 31, 1997...... C-1
</TABLE>
8
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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 Realty
Partners L.P., I......... The Partnership is a Delaware limited partnership
which owns eight real properties (the
"Properties") onsisting of eight garden apartment
complexes with a total of 2,017 apartment units in
five 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 Spanos or an
affiliate 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, Subordinated Limited
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Partners and the General Partners of the net sales
proceeds and other cash held by the Partnership at
the time of distribution, other than certain
amounts set aside to provide for the payment of
all expenses and other liabilities of the
Partnership and payment of certain attorneys' fees
in the Litigation (the "Plan of Liquidation").
Record Date; Units Entitled
to Consent.................. Unitholders of record at the close of business on
July 1, 1997 are entitled to vote by written
Consent. At such date, there were outstanding
316,828 Units, each of which will entitle the
record owner thereof to one vote.
Vote Required............... The Auction, the Amendment and the Plan of
Liquidation are presented as a single proposal
which requires the written Consents of Unitholders
of record holding a majority of all outstanding
Units.
Termination of Consent
Solicitation................ Consents must be received by __________, 1997 at
10:00 a.m. California time (unless such date or
time is extended, in the sole discretion of
Spanos).
THE PLAN
- --------
General..................... The Plan is a single proposal consisting of the
Auction, the Amendment and the Plan of
Liquidation.
Background of the Plan...... See "THE PLAN -- Background of Proposed Sale of
Properties."
Recommendation of Spanos.... Spanos recommends the approval of the Plan. P-B
Properties makes no recommendation regarding the
Plan. See "THE PLAN -- Recommendation of Spanos."
10
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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 Incorporated
("Prudential Securities"), an affiliate of P-B
Properties, beneficially owned approximately 1.5%
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 early 1998.
No Appraisal Rights......... Unitholders have no appraisal rights in connection
with the Plan. See "NO APPRAISAL RIGHTS."
Federal Income
Tax Consequences............ The Partnership will have taxable gain or loss
upon its sale of each Property. Such gain or loss
will be allocated to the Unitholders in accordance
with the Partnership Agreement, and generally will
constitute Section 1231 gain or Section 1231 loss.
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."
11
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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
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
such reserved funds shall not exceed $1,000,000,
and that the reserves 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.
12
<PAGE>
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, Subordinated
Limited Partners and General Partners in
accordance with the Partnership Agreement. Once
all liabilities have been satisfied, the
Partnership will distribute its remaining net
assets and terminate.
13
<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, 1996 and
for each of the quarters ended March 31, 1997 and March 31, 1996, respectively.
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, 1996, a copy of which is
attached hereto as Exhibit B and in the Partnership's Quarterly Report on Form
10-Q for the quarter ended March 31, 1997, a copy of which is attached hereto as
Exhibit C.
<TABLE>
<CAPTION>
For Quarter Ended March 31, For Year Ended December 31,
-------------------------- ---------------------------------------------------
(In thousands, except per 1997 1996 1996 1995 1994 1993 1992
Unit and per Subordinated ------- ------- ------- ------- ------- ------- -------
Interest amounts)
- -------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total Revenues $ 4,035 $ 3,960 $15,931 $15,362 $14,500 $13,424 $12,910
Interest Expense 1,279 1,294 5,177 6,015 6,381 6,835 6,516
Net Income (Loss) 91 (51) (402) (1,752) (2,713) (3,673) (3,585)
Net Income (Loss) to
General Partners 2 (1) (8) (35) (54) (73) (72)
Net Income (Loss) per
Subordinated Interest -0- -0- -0- -0- -0- -0- -0-
Net Income (Loss) per Unit 0.28 (0.16) (1.24) (5.42) (8.39) (11.36) (11.09)
Cash Distributions per
Subordinated Interest -0- -0- -0- -0- -0- -0- 31.22
Cash Distributions per
Unit 1.22 1.22 4.88 -0- -0- -0- 38.00
</TABLE>
<TABLE>
<CAPTION>
At March 31, At December 31,
-------------------- ---------------
1997 1996 1996 1995 1994 1993 1992
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total Assets $81,613 $84,460 $82,001 $84,564 $87,946 $91,804 $95,451
Mortgage Loans Payable 65,046 66,102 65,322 66,362 67,215 68,581 69,232
Unitholders' Equity 6,632 8,433 6,929 8,869 10,586 13,245 16,845
Subordinated Limited 8,878 8,878 8,878 8,878 8,878 8,850 8,700
Partners'
Equity
General Partners' Deficit (1,313) (1,276) (1,307) (1,268) (1,233) (1,179) (1,105)
Total Partners' Equity 14,197 16,035 14,500 16,479 18,231 20,916 24,440
</TABLE>
14
<PAGE>
THE PLAN
The Partnership was formed in June 1988 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 November of 1988 and
December of 1989, the Partnership purchased from affiliates of Spanos eight
garden apartment complexes (the "Properties") with a total of 2,017 apartment
units in five states.
Although the Partnership Agreement provides that the term of the
Partnership will, unless previously terminated, continue until December 31,
2030, the prospectus of the Partnership for its original public offering of
Units stated that the Partnership anticipated that it would dispose of its
Properties within seven to 10 years after acquisition.
Background of Proposed Sale of Properties
- -----------------------------------------
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
15
<PAGE>
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 another public limited partnership of
which P-B Properties and an affiliate of Spanos are the general partners, and,
while the Partnership has sold no properties since its inception, such other
limited partnership has sold four properties since its inception in 1987. The
ability to sell properties generally has been enhanced by improvements in the
national real estate investment market. Pension funds, real estate investment
trusts ("REITs") and other institutional buyers are now actively seeking new
investment properties, as compared to the early 1990's, when these same
institutional buyers were fewer and less active. The emergence of securitized
mortgage financing and lower mortgage interest rates have also contributed to an
improved market for real estate such as the Properties, as entrepreneurial
buyers who require debt financing to purchase properties are able to borrow
funds at attractive rates.
More specifically, with respect to the Partnership's Properties,
improvements in the real estate capital markets and in the operating performance
of the Properties have enhanced the prospects for selling these Properties at
attractive prices. During the early 1990's, the Partnership's Properties
experienced devaluation due to a nationwide slump in real estate values.
Moreover, the Partnership suspended cash distributions to its Partners in 1992,
because cash flow after debt service would not
16
<PAGE>
support such distributions. 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. The Partnership resumed
payment of cash distributions to Unitholders in 1996. See "THE PLAN --
Description of Properties" for additional information regarding these
Properties.
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. 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
17
<PAGE>
of the buyer or buyers due to delays in obtaining the necessary consents of
Unitholders.
If the Plan is approved, 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 below under "Description of the Auction."
Description of the Auction
- --------------------------
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.
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. In
addition, 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.
The Auction will be conducted as follows:
18
<PAGE>
a. Conduct of the Auction. Pursuant to the Settlement Agreement, the
----------------------
Partnership's Properties will be auctioned simultaneously with the real
properties currently owned by Prudential-Bache/A.G. Spanos Genesis Income
Partners L.P., I (the "Genesis Partnership"), a Delaware limited partnership of
which P-B Properties and A.G. Spanos Residential Partners-86, A California
Limited Partnership, an affiliate of Spanos ("Spanos Genesis"), are the general
partners. The Settlement Agreement covers both the Partnership and the Genesis
Partnership, and provides for a combined Auction of the properties of both
partnerships (the "Auction Properties"). Since Spanos and Spanos Genesis
(collectively, the "Spanos General Partners") or their affiliates may bid in the
Auction, the Settlement Agreement provides that the Spanos General Partners
shall have no involvement in conducting the Auction except as set forth therein.
The Partnership and the Genesis 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 Genesis 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, to perform a physical inspection of the
Auction Properties and prepare an engineering report setting forth any material
structural or operational defects and
19
<PAGE>
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 the lead lawyers representing the plaintiffs in the Litigation
("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 Genesis Partnership. Where necessary, these
fees and expenses will be allocated between the Partnership and the Genesis
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 regarding the Auction,
the Auction Properties, the Partnership and the Genesis Partnership, including
bidding instructions, a bid form, a basic sales contract and various due
diligence materials, including the reports of Eckland Consultants, preliminary
title reports and the termite inspection reports (the "Bid Packages") for
distribution to potential bidders. The Agent will then solicit bids from
qualified bidders and will conduct the Auction. To receive a Bid Package, a
potential bidder must execute a confidentiality agreement and demonstrate to the
20
<PAGE>
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.
In the Auction, the Agent will neither favor nor disfavor the Spanos
General Partners or their affiliates, should any of them choose to submit a bid
in excess of the minimum required bid 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 Genesis Partnership (an "Overall Bid") or for any one or more of the Auction
Properties of either the Partnership or the Genesis Partnership (an "Individual
Bid"). A bid may be either an all cash bid or a combined bid of cash plus
assumption of related mortgage debt (if assumable), with the bidder being
responsible for any assumption fees or similar costs. A bidder of all cash will
be responsible for any mortgage prepayment penalties and reconveyance costs, and
must provide evidence of financial ability to support the bid. At the close 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 (including Spanos) 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
21
<PAGE>
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 Genesis 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., the bids
which will, in the judgment of P-B Properties and Lead Class Counsel, produce
the highest gross cash price in excess of existing mortgage debt to each of such
partnerships).
Upon determination of the Successful Bids, the Agent will immediately
notify the makers of those bids (the "Successful Bidders") and seek to obtain
their signatures on the basic sales contract included in the Bid Package.
b. Execution of Sales Contracts. The bid form will ask the
----------------------------
Successful Bidders to execute the basic sales contract immediately and promptly
to deposit the full purchase price into an escrow. However, the Agent will be
authorized to negotiate with each of the Successful Bidders as to the definitive
form of the sales contract, subject to approval by P-B Properties and Lead Class
Counsel. If any Successful Bidder fails or refuses to execute a sales contract
at the price and on the terms included in the Successful Bid (with such
modifications as may be approved as aforesaid), the Agent may, with the
concurrence of P-B Properties and Lead Class Counsel, substitute as the
Successful Bid for the Auction Property or Auction Properties in question the
bid or bids producing the next highest gross cash price in
22
<PAGE>
excess of existing mortgage debt to the Partnership or the Genesis Partnership,
as the case may be.
c. Minimum Spanos Bid; Other Bids and Purchases By Spanos. Under
------------------------------------------------------
the Settlement Agreement, Spanos has agreed that it or one or more of its
affiliates (the "Spanos Bidder") will, at the outset of the Initial Bid Period,
submit preliminary written Overall Bids which will provide to the Partnership a
gross cash price in excess of then-existing mortgage debt of at least
$22,440,000. 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 the
Properties is at least $22,440,000.
Further, the Spanos Bidder may submit an improved Individual Bid for
one or more of the Properties during the re-bid period, and may improve any
Overall Bid previously submitted. If the Spanos Bidder chooses not to increase
any preliminary Overall or Individual Bid, each of the bids previously submitted
by it will be considered a final bid and will remain open through the end of the
re-bid period. If the Spanos Bidder chooses to increase any preliminary bid,
the increased bid or bids will be considered a final bid and will remain open
through the closing of the sales.
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.
23
<PAGE>
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
- -------------------------
All of the Properties are garden apartment complexes, two of which are
located in Tempe, Arizona (a suburb of Phoenix), two in suburbs of Atlanta,
Georgia and one each in San Diego, California, Las Vegas, Nevada, Sparks, Nevada
(near Reno) and a suburb of Denver, Colorado.
The following table sets forth certain information regarding the
Properties as of January 1, 1997:
24
<PAGE>
<TABLE>
<CAPTION>
1996
Average
No. Annual
of Land Occupancy Date of Purchase
Property Location Units (Acres) Rate Purchase Price*
- -------- -------- ----- ----- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Silver Springs Tempe, AZ 198 9.3 94.1% 11/88 $ 8,692,200
Rancho del Sol Las Vegas, NV 376 16.0 94.9% 12/88 20,078,400
Sandpebble Sparks, NV 236 11.5 97.4% 12/88 9,828,000
Regency Square Chamblee, GA 276 9.2 94.4% 1/89 14,955,000
Cameron Creek Tempe, AZ 211 8.7 92.8% 3/89 9,959,400
Harbor Point Dunwoody, GA 366 45.9 92.1% 6/89 20,203,000
Pointe West Aurora, CO 138 5.3 93.9% 9/89 5,100,000
Bernardo Crest San Diego, CA 216 16.6 95.2% 12/89 18,684,000
----- ----- ---------------
2,017 122.5 $107,500,000*
</TABLE>
<TABLE>
<CAPTION>
Mortgage Monthly Est.
Mortgage Mortgage Interest Debt Balloon
Property Debt Maturity Rate Service Payment
- -------- -------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Silver Springs $ 5,500,500 12/2000 6.5% $ 38,006 $5,030,000
Rancho del Sol 11,325,200 10/2019 8.11% 92,172 --
Sandpebble 5,650,600 6/98 8.28% 48,828 5,474,000
Regency Square 8,321,800 2/2001 8.00% 61,269 7,732,000
Cameron Creek 6,530,700 10/2019 8.11% 52,480 --
Harbor Point 13,150,700 10/2019 7.75% 102,635 --
Pointe West 3,138,600 3/2016 7.61% 25,971 --
Bernardo Crest 11,704,000 8/2019 8.12% 94,221 --
----------- -------- ----------
$65,322,200 $515,582 $18,236,00
</TABLE>
- -------------------
* 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 $2,800,000 paid to an affiliate of
Spanos and acquisition expenses of approximately $200,000. In addition,
affiliates of Spanos paid to the Partnership an aggregate of $5,037,000 in
cash flow guaranty payments, which payments have been treated as reductions
pro rata to the purchase prices per Property.
--- ----
25
<PAGE>
Anticipated Results of Auction, Use of Proceeds and Cash Distributions
- ----------------------------------------------------------------------
The following table sets forth the anticipated application of the
proceeds from the Auction, as well as information regarding the estimated loss
to be realized per Unit upon sale of the Properties and termination of the
Partnership. The amount available for distribution to Unitholders shown below
assumes that: (i) the Spanos guaranteed Minimum Overall Bid is the highest bid
for both the Partnership and the Genesis Partnership; (ii) all of the Auction
Properties are purchased by Spanos; and (iii) the costs of the Auction and the
solicitation of Consents are allocated between the Partnership and the Genesis
Partnership in proportion to the amounts of the respective Spanos guaranteed
Minimum Overall Bids. The amount available for distribution to Unitholders
would increase if the aggregate sales price of the Properties exceeds the Spanos
guarantee by more than the increased expenses of the Auction which will result
from multiple purchasers of the Properties.
Application of Proceeds:
Auction Sale Price (Net of Mortgage Debt) $22,440,000
Less: Auction Expenses 695,000/1//
Consent Solicitation Expenses $ 105,000/1//
-----------
Net Sale Price $21,640,000
Plus: Other Partnership Assets 2,100,000/2//
-----------
(Net of Liabilities)
$23,740,000
===========
Less: Liquidation Expenses (est.) 100,000
26
<PAGE>
Attorneys' Fees 1,000,000/3//
-----------
Net Distributable Amount $22,640,000
===========
Distributions to Unitholders 13,612,000/4//
Distributions to Subordinated Limited Partners 8,878,000
Distributions to General Partners 150,000
-----------
Total Distributions $22,640,000
===========
Distribution to Unitholders Per Unit
($250 of Original Capital Contribution):
Prior Cash Distributions Per Unit $ 154.71/5//
Distributions Per Unit from Auction Proceeds 42.96/4/6//
Loss Per Unit $52.33/6//
- ------------------
/1// Auction expenses and Consent solicitation expenses are estimated amounts,
and are allocated between the Partnership and the Genesis Partnership as
indicated in (iii) above. Expenses of the Auction will increase if there are
multiple purchasers of the Properties (i.e., if Spanos is not the sole
Successful Bidder).
/2// Estimated based upon assets and liabilities as of March 31, 1997.
/3// Pursuant to the Settlement Agreement and subject to the approval of the
Court, the Partnership will pay to Lead Class Counsel, on behalf of the
Unitholders, an amount not to exceed 8% of the amount otherwise distributable to
the Unitholders from the Auction Proceeds. In addition, Spanos and its
Affiliates (other than the Partnership and the Genesis Partnership) will pay
$500,000 to Lead Class Counsel.
/4// Of this amount, the General Partners initially will withhold $1,000,000
($3.16 per Unit) for a period of up to one year as a reserve against further
unforeseen contingent obligations of the Partnership.
/5// Assumes Unitholder held Units since first closing of Partnership's offering
in 1988. Further assumes that cash distributions in 1997 will equal those in
1996.
27
<PAGE>
/6// 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."
Recommendation of Spanos
- ------------------------
Spanos believes that the advantages of selling the Properties at this
time exceed any disadvantages of such sales and, therefore, recommends that the
Unitholders approve the Plan. In reaching its conclusions, Spanos considered
the following factors, as more fully described below and under "THE PLAN -
Background of Sale of Properties" and -- "Description of Properties": (i) the
historic levels of cash distributions to the Unitholders, the suspension of cash
distributions in 1992 and the resumption of distributions in 1996 at a
significantly lower level; (ii) the relative illiquidity of the Units; (iii)
increased availability of investor capital and the increased purchasing activity
and favorable interest rate environment; (iv) present vacancies and the presence
of competition; (v) the satisfactory physical condition of the Properties and
the need for expenditures for repairs, replacements and improvements to be
incurred in the future; (vi) the potential for future operating performance
increases and a possible increase in the value of the Properties; (vii) the
potential for an increase in the amounts of distributions; and
28
<PAGE>
(viii) the fact that the Properties have now been held for their originally
anticipated holding periods.
In addition, Spanos took into account the pendency of the Litigation,
including (i) the fact that included in the relief sought by the plaintiffs is
rescission of the original issuance of the Units; (ii) the costs expended to
date and expected to be expended by Spanos and its affiliates in continuing
defense against such Litigation; and (iii) the effects of participation in the
defense of such Litigation upon certain of the key personnel of Spanos.
Spanos, after reviewing all of the above, concluded that these factors
weighed in favor of 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 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.
29
<PAGE>
Advantages of Plan
- ------------------
Spanos has arrived at its recommendation based 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) 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.
30
<PAGE>
(iv) 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.
(v) THE PARTNERSHIP'S ORIGINAL OBJECTIVES AND POLICIES. Sales of the
Properties at this time are compatible with the Partnership's originally
anticipated holding periods.
(vi) 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 one recent tender offer for a limited number of
Units. See "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS -- Market
Prices."
(vii) REALIZATION OF HIGHEST OBTAINABLE PRICES THROUGH THE AUCTION.
The Court-approved Auction process provides a mechanism which Spanos believes
will enable the Partnership to sell the Properties for the best aggregate sale
price obtainable at the time of sale, under current market conditions.
(viii) INCREASED COMPETITION. Spanos believes that older apartment
buildings such as those on the Properties, even though well maintained and in
good condition, can over time suffer a competitive disadvantage in attracting
and retaining tenants, as compared to new apartments with more modern amenities
in newer,
31
<PAGE>
attractive neighborhoods. Further, the two-bedroom, one-bath configuration 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.
(ix) ELIMINATION OF SCHEDULE K-1 REPORTS. The Partnership's litigation
will eliminate the requirement for annual Schedule K-1 income tax reporting for
the Partnership, which Spanos believes is often burdensome for Unitholders.
Failure to Approve Plan
- -----------------------
If the Unitholders fail to approve the Plan, the Partnership will
continue to own the Properties. In such event, Spanos expects that the
Partnership will operate the Properties for an indefinite period, which over
time would likely entail substantial expenditures for repairs and refurbishment.
Consistent with the Partnership Agreement, the General Partners may receive or
solicit offers for the sale of one or more of the Properties as opportunities
arise. In any such sale, the Partnership would benefit from any increase in
value of the affected property over the value at the time of the Auction, and
would suffer a detriment to the extent of decrease in such value.
32
<PAGE>
Failure by the Unitholders to approve the Plan will not affect their rights
under the Partnership Agreement.
Amendment to Partnership Agreement
- ----------------------------------
Pursuant to Section 15.4.20 of the Partnership Agreement, the General
Partners may not purchase or lease real property from the Partnership, other
than in connection with joint ventures with the Partnership. In order for
Spanos or one of its affiliates 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 Properties, as
set forth in Exhibit A hereto.
Liquidation
- -----------
Pursuant to the Settlement Agreement, within ten business days
following the closing of the sale of the last Property, the General Partners
will cause the Partnership (i) to pay all costs associated with the Auction,
including the solicitation of Consents from Unitholders and the preparation and
mailing of the notices required by the Settlement Agreement and the Court to be
sent to Unitholders for which bills have been received; (ii) to estimate and
reserve for all such costs associated with the Auction for which bills have not
yet been received; and (iii) to provide a further contingency reserve for
potential unforeseen costs and liabilities in an amount not to exceed
$1,000,000.00, such reserve to be maintained for a period
33
<PAGE>
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,
Subordinated 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 Genesis Partnership, the costs are to be allocated
between the Partnership and the Genesis Partnership based on the gross cash
amount in excess of existing mortgage debt paid to either of them as a result of
the Auction, unless a more equitable method of allocation is agreed upon by P-B
Properties, Lead Class Counsel and the Spanos General Partners.
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.
34
<PAGE>
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 11.8 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 11.8 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, Subordinated Limited
Partners and General Partners who have negative tax capital account balances.
As of December 31, 1996, only the General Partners had negative tax capital
account balances, in the amount of approximately $399,000 for each of the
General Partners, and so an aggregate of approximately $798,000 of the Net
Income resulting from the Auction will be allocated to the General Partners'
capital accounts, bringing those accounts to a zero balance. The remaining Net
Income will next be allocated 2% to the General Partners and 98% to the
Unitholders and Subordinated Limited Partners until their capital account
balances equal their Adjusted Contributions (i.e., the original capital
contribution of $250 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 Subordinated Limited Partners currently equal their
Adjusted Contributions, the
35
<PAGE>
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 1997 (assuming
all of the Properties are sold in 1997) will be sufficient to restore the
Unitholders' capital account balances to the level of their Adjusted
Contributions.
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 2/3% 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.
The General Partners will not receive any fees or distributions in
connection with the sale of the Properties or the liquidation and dissolution of
the Partnership, except as provided herein. The General Partners will be
adversely affected by the sale of the Properties because the management fees and
special distributions which they presently receive will be eliminated.
Furthermore, Spanos has guaranteed that the Auction will generate gross proceeds
of at least $22,440,000 in excess of
36
<PAGE>
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, Subordinated Limited Partners and General
Partners as provided in the Partnership Agreement. Sales of the Properties and
liquidation of the Partnership will also eliminate any liability of the General
Partners for future Partnership obligations and risk to the Partnership which
might arise from continued operation of the Partnership.
37
<PAGE>
PRO FORMA FINANCIAL INFORMATION
On a pro forma basis, if the Plan had been consummated on January 1,
1996 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, 1996 would have reflected cash of approximately
$22,640,000, limited partners' equity of approximately $13,612,000, subordinated
limited partners' equity of approximately $8,878,000 and general partners'
equity of approximately $150,000. A Statement of Operations for the year ended
December 31, 1996 would have reflected net income of approximately $7,738,000,
the principal component of which would have been net gain on the disposition of
the Properties. Net income per Unit for such year would have been approximately
$19.85.
38
<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 Incorporated, an affiliate of P-B Properties ("Prudential
Securities"), has facilitated sales to purchasers in a limited secondary market
for the Units. Limited information available to the General Partners from
[secondary market sources] indicates that sale prices in the limited secondary
market have recently ranged from $______ to $______ per Unit.
Prudential Securities was the principal distributor of the Units in
the Partnership's public offering, and continues to provide certain investor
services on a contractual basis, including processing of all transfers of Units,
subject to the approval of the General Partners. Prudential Securities has
advised Spanos that the transfer records for the Partnership reflect the
following aggregate numbers of Units transferred in the past five years:
<TABLE>
<CAPTION>
No. of Units
Year Transferred
---- ------------
<S> <C>
1992 44,217
1993 38,843
1994 37,409
1995 36,516
1996 51,174
</TABLE>
39
<PAGE>
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 information available regarding transfers of
Units and sale 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 November 5, 1996, Prescott Associates, L.L.C., an entity not
affiliated with either of the General Partners, commenced a limited tender offer
for up to 14,260 Units (4.5% of the outstanding Units) at a cash price of $35.00
per Unit, less the transfer fee of $75.00 payable to the Partnership and less
any cash distributions exceeding $1.22 per Unit made by the Partnership to any
tendering Unitholder after the date of the offer. The tender offer was
scheduled to expire on December 6, 1996, and to the knowledge of the General
Partners was not extended. Based upon the Partnership's records, it appears
that a total of 13,002 Units were purchased in this tender offer.
40
<PAGE>
Distributions to Unitholders
- ----------------------------
From the inception of the Partnership through the second quarter of
1992, the Partnership made quarterly cash distributions to the Unitholders.
Such distributions were made from operating cash flow, from proceeds of
refinancing 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 1992. Due to insufficient cash flow, the Partnership suspended cash
distributions in 1992, and did not resume such distributions until 1996. Spanos
expects that cash distributions for 1997 will equal those for 1996. The
following table sets forth the amounts of such distributions per Unit.
<TABLE>
<CAPTION>
Distribution
Period per $250 Unit*
------ --------------
<S> <C>
1988** $ 1.95
1989 35.00
1990 35.00
1991 35.00
1992 38.00
1993 -0-
1994 -0-
1995 -0-
1996 4.88
1997 (1st Qtr.) 1.22
-------
$151.05
</TABLE>
- ------------------------
* Includes distribution of refinancing proceeds of $17.50 in 1989, $18.72 in
1990, $20.04 in 1991 and $31.22 in 1992, respectively.
** Assumes Unitholder held Units since first closing of Partnership's offering
in 1988.
41
<PAGE>
During the same period, the Partnership made cash distributions to the
Subordinated Limited Partners aggregating $87.48 per $250 Unit, which
distributions were made from refinancing proceeds. Pursuant to the Partnership
Agreement, the Partnership has made special distributions to P-B Properties
aggregating $1,597,224 for the period 1988-1996, which distributions were made
from operating cash flow and were treated for financial reporting and tax
purposes as operating expenses.
In addition to distributions from the Partnership, most Unitholders
will be entitled to receive payments with respect to their Units pursuant to the
PSI Settlement Agreement described below under "CERTAIN PENDING LITIGATION."
42
<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
43
<PAGE>
currency, banks or other financial institutions, or Units held as a hedge or as
part of a hedging, straddle or conversion transaction). ACCORDINGLY,
UNITHOLDERS SHOULD CONSULT THEIR OWN TAX ADVISORS CONCERNING THE APPLICATION OF
UNITED STATES FEDERAL INCOME TAX LAWS, AS WELL AS THE LAWS OF ANY STATE, LOCAL
OR FOREIGN TAXING JURISDICTION, TO THEIR PARTICULAR SITUATIONS.
Certain United States federal income tax consequences associated with
an investment in the Units were discussed in the Prospectus, dated October 18,
1988, 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
44
<PAGE>
Partnership's adjusted basis in such Property. The "adjusted basis" of a
Property generally is its cost plus the amount of any capital expenditures (such
as improvements) minus the amount of depreciation and amortization.
Assuming (i) the Spanos guaranteed Minimum Overall Bid is the highest
bid for the Properties, (ii) the selling expenses (including Lead Class
Counsel's legal fees) are $1,695,000 and (iii) the sales are consummated in
1997, Spanos estimates that the total gain resulting from the sale of the
Properties would be approximately $8 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
Property 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,
45
<PAGE>
if any, incurred in the five preceding years. Furthermore, in the event that a
Property is sold at a gain, the depreciation expense may be recaptured as
ordinary income under Section 1245 or Section 1250 of the Code to the extent of
the realized gain. 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 $850,000 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 $1.7 million (approximately $5 per Unit).
Under Section 702(a)(3) of the Code, a partnership is required to
state separately, and the partners are required to account separately for, their
distributive share of all gains and losses of their partnership. Accordingly,
each Unitholder's allocable share of the gains or losses from the sale of the
Properties (including each Unitholder's allocable share of Section 291(a) gain,
Section 1245 gain, Section 1231 gain or Section 1231 loss) will be separately
stated and reflected on the
46
<PAGE>
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. If the Properties are
sold for the estimated total gain of approximately $8 million, Spanos
estimates that the portion of the gain that will be treated as unrelated
business income is $6.9 million (or $19 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 purpose if they have substantial economic
effect or are otherwise made in accordance with the partners' economic interests
in the partnership. This summary assumes, and Spanos believes, that the
allocations of Partnership items of income, gain, loss, deduction and credit to
the Unitholders have
47
<PAGE>
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 1997 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 $29 of the gain, and a Unit acquired on the last
closing date will be allocated approximately $10 of the gain. Approximately $3
of such gain 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
48
<PAGE>
loss) from the sale of Properties will increase (or decrease) a Unitholder's
basis in the Units.
In general, under the Partnership Agreement, loss from the sale of a
Property must be allocated 2% to the General Partners and 98% to the
Unitholders. However, in such circumstances a special allocation of gross
rental income (depending upon the ultimate sales proceeds) would be made to P-B
Properties to reduce its negative capital account by a comparable amount, and an
equal amount of loss will be allocated among the Unitholders. Allocation of
loss will reduce a Unitholder's basis in the Units. However, no loss can be
utilized currently to the extent the loss exceeds the Unitholder's basis in the
Units.
Distributions to a Unitholder will generally not be taxable to the
extent the distributions do not exceed the Unitholder's adjusted tax basis in
the Units. For purposes of determining tax basis in a Unitholder's Units, any
payment received by the Unitholder from the settlement fund established pursuant
to the PSI Settlement Agreement (see "CERTAIN PENDING LITIGATION" below), 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
49
<PAGE>
termination of the Partnership will generally have a capital loss. Such capital
loss can be used to offset any net Section 1231 gains that have not been
otherwise characterized as ordinary income, but only if such capital loss occurs
in the same year as the net Section 1231 gain. Net capital losses of taxpayers
other than corporations may not be carried back to earlier years.
It is not expected that the Partnership will terminate for federal
income tax purposes in the year in which the Properties are sold, because a
reserve for potential unforeseen costs and liabilities will be established and
maintained for a period not to exceed one year from the closing of the sale of
the final Property. Accordingly, a Unitholder will likely be allocated gain
from the sale of the Properties in a different year than termination of the
Partnership, which may result in a capital loss to a Unitholder which cannot be
used to offset the gain from the sale of the Properties.
Based on the estimated gain of $8 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 $43.00 per Unit.
Capital Gains Tax
- -----------------
Net long-term capital gains of Unitholders that are individuals,
trusts and estates will be taxed at a maximum rate of 28%, while ordinary income
(such as Section 1245 gain) will be
50
<PAGE>
taxed at a maximum rate, depending upon that Unitholder's taxable income, of up
to 39.6%. Net capital losses of such a Unitholder can be utilized to offset
ordinary income limited to the sum of net capital gains from other sources
recognized by the Unitholder during the tax year, plus $3,000 ($1,500 in the
case of a married individual filing a separate return). The excess amount of
such net capital loss may be carried forward and utilized in subsequent years
subject to the same limitations but may not be carried back to a prior year.
Unitholders classified as corporations are taxed on capital gains at
the same rates as ordinary income. A corporate Unitholder can deduct capital
losses only to the extent of capital gains, with any unused capital losses
generally being carried back three years and forward five years.
Passive Loss 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
51
<PAGE>
from other passive activity investments. If all of the Properties are sold, a
Unitholder's allocable share of any Partnership loss realized on such sale, or
any loss realized by the Unitholder upon liquidation of his or her Units, will
not be subject to the passive activity loss limitations. In addition, upon the
complete disposition of a Unitholder's entire interest in the Partnership, any
suspended passive activity losses of the Unitholder with respect to his or her
investment in the Partnership could be used to reduce other income of the
Unitholder.
Final Partnership Returns and Future Tax Issues
- -----------------------------------------------
Following the termination of the Partnership, the General Partners, on
behalf of the Partnership, will file a final tax return for the Partnership,
and, on a timely basis will provide Schedule K-1 forms to all Unitholders
setting forth their allocable shares of the Partnership's items of income, gain,
loss, deduction and credit. P-B Properties will also have full responsibility
and authority for any other tax-related matter arising after the termination of
the Partnership, including acting as the "tax matters partner" representing the
Partnership in any federal or other audit of returns of the Partnership for its
final year or any prior year.
Unitholders should understand that while the Partnership will be
terminated, such termination will not eliminate the possibility that the IRS
could challenge the tax treatment of the Partnership's activities for the year
of
52
<PAGE>
termination or any prior year for which the statute of limitations for making
adjustments has not elapsed. If any adjustments are made to the Partnership's
income tax returns, P-B Properties will so notify the Unitholders. Any tax
audit or adjustments could result in assessment of additional tax liabilities
upon the Unitholders which would be payable from their own funds and would not
be reimbursable by the General Partners or the Partnership.
Certain State Income Tax Considerations
- ---------------------------------------
Because each state's tax law varies, it is impossible to predict the
tax consequences to the Unitholders in all the states in which they are already
subject to tax. Accordingly, the following is a general summary of certain
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
53
<PAGE>
that portion of state-modified income assigned to the taxing state under the
state's own apportionment and allocation rules.
NO APPRAISAL RIGHTS
If Unitholders owning a majority of the Units on the Record Date vote
in favor of the Plan, such approval will bind all Unitholders. The Partnership
Agreement and the Delaware Revised Uniform Limited Partnership Act, under which
the Partnership is governed, do not give rights of appraisal or similar rights
to Unitholders who dissent from the vote of the majority in approving or
disapproving the Plan. Accordingly, dissenting Unitholders do not have the
right to have their Units appraised or to have the value of their Units paid to
them if they disapprove of the action of a majority in interest of the
Unitholders.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
On the Record Date, there were 316,828 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 owned any Units. Prudential Securities
beneficially owned [4,663] 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.
54
<PAGE>
CERTAIN PENDING LITIGATION
There is currently pending in the United States District Court for the
Southern District of New York (the "Court") a class action entitled In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
No. 1005, M-21-67 (MP). The consolidated action had its genesis in several
different class actions filed in various courts, all of which were transferred
to a single judge and consolidated for pretrial proceedings under the
aforementioned caption.(*) On June 8, 1994, plaintiffs in the consolidated
action filed a Consolidated Complaint that superseded the individual complaints
previously filed in various courts and that was purportedly brought on behalf of
a class of approximately 350,000 investors who had purchased units in
approximately 700 limited partnerships sponsored or co-sponsored by P-B
Properties or its affiliates (collectively the "Prudential Organization"). The
Consolidated Complaint named as defendants, among others, Prudential Securities,
P-B Properties, certain of the affiliates and present and former officers and
employees of the aforementioned, and the
- -----------------------------
* 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.).
- -----------
55
<PAGE>
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 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 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
56
<PAGE>
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 specific limited partnerships, including the Partnership,
released all settled claims by members of the class against the PSI Settling
Defendants and permanently barred and enjoined class members from instituting,
commencing or prosecuting any settled claim against the released parties.
Pursuant to the PSI Settlement Agreement, PSI and its affiliates 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 remains 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
57
<PAGE>
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 Settlement
Agreement provides that Spanos and its affiliates will pay $1,175,000 into a
settlement fund, to be distributed to members of the plaintiff class, including
Unitholders who purchased their Units prior to June 8, 1994. On May 19, 1997,
the Court preliminarily certified two settlement classes and preliminarily
approved the Settlement Agreement, and the terms therein (including the terms of
the Plan), as fair, reasonable, adequate and in the best interests of the class
members, including the Unitholders. 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.
58
<PAGE>
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 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.
59
<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 Exhibits B and C, respectively, are the
Partnership's Annual Report on SEC Form 10-K for the year ended December 31,
1996, and its Quarterly Report on SEC Form 10-Q for the quarter ended March 31,
1997, which provide 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 either the Form 10-K or
the Form 10-Q, 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
60
<PAGE>
incorporated by reference in this Solicitation Statement shall be deemed to be
modified or superseded for purposes of this Solicitation Statement to the extent
that a statement contained in this Solicitation Statement (or in any other
subsequently filed document that also is or is deemed to be incorporated by
reference in this Solicitation Statement) modifies or supersedes such statement.
Any statement so modified or superseded shall not be deemed, except as so
modified or superseded, to constitute a part of this Solicitation Statement.
61
<PAGE>
EXHIBIT A
EXHIBITS
EXHIBIT A: Proposed Amendment to Amended and Restated Agreement of Limited
---------------------------------------------------------------
Partnership of Prudential-Bache/A.G. Spanos Realty Partners L.P.,
-----------------------------------------------------------------
I
-
Section 15.4.20 of the Amended and Restated Agreement of Limited
Partnership of Prudential-Bache/A.G. Spanos Realty 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 Paragraph 15.4.4, purchase or lease real
property from the Partnership or except with respect to the Properties
and as set forth in Paragraphs 15.4.4 and 15.4.25, sell or lease real
property to the Partnership; provided, however, that the Spanos
----------------------------------
General Partner or an Affiliate 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 Subordinated Limited Partners,
---------------------------------------------------------------------
the Limited Partners and the Unitholders.
----------------------------------------
A-1
<PAGE>
EXHIBIT B
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, 1996
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: 0-17683
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
- ----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 94-3069380
- ----------------------------------------------------------------------------
(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 _CK_ 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. [ CK ]
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 32
Part III
Item 10. Directors and Executive Officers of the Registrant 33
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and
Management 36
Item 13. Certain Relationships and Related Transactions 37
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 Realty Partners L.P., I (the
"Partnership"), is a limited partnership formed on June 3, 1988 under
Delaware law. The business of the Partnership is managed and controlled
by its general partners (the "General Partners"), A.G. Spanos Realty
Partners, L.P. (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 eight properties on which multi-family residential developments
have been constructed (the "Properties"). The Partnership will continue
until December 31, 2030, unless terminated earlier under the provisions of
its Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"). The prospectus ("Prospectus") included with the
Partnership's Registration Statement on Form S-11 under the Securities Act
of 1933 (Registration Statement No. 33-22613) contains a description of
the business of the Partnership in the sections entitled "Property
Acquisitions," pages 59-69, and "Partnership Objectives and Policies,"
pages 86-89, all of which pages are incorporated herein by reference.
The Properties are subject to competition from similar apartment
properties located in close proximity, including properties owned by
affiliates of the Spanos General Partner. The Properties compete for a
variety of tenant groups, including young professionals, retail, service
and trade employees, students and retirees. Competition for tenants is
principally on the basis of location, physical condition, amenities, and
rental rates. The location and condition of the Properties is considered
to be good to above-average. The Properties feature fairly typical
amenity packages, including swimming pools, tennis courts, fitness
facilities, microwave ovens and guarded entrances, and are generally able
to compete adequately with other projects in their respective markets.
Many areas, including Phoenix, Denver, Las Vegas, Sparks 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
3
<PAGE>
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.
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. The Properties that accounted for more than 15% of revenue
during any of the past three years are Rancho del Sol (17%), Harbor Pointe
(18% to 19%) and Regency Square (15% in 1995 and 1996). No single tenant
accounted for 10% or more of the revenue for any of the three years ended
December 31, 1996. 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
Spanos General Partner and the Bache General Partner, and their
affiliates, perform services for the Partnership pursuant to the
Partnership Agreement.
The Partnership resumed paying Distributions in 1996. Distributions had
been suspended beginning with the third quarter of 1992. See Item 7,
Management's Discussion and Analysis of Financial Condition and Results of
Operations, for a discussion of the factors affecting Distributions.
The General Partners are presently conducting negotiations regarding a
potential auction sale of the Properties in connection with the potential
settlement of certain of the litigation described below in Note E to the
financial statements. There is no assurance that these negotiations will
result in an agreement to sell the Properties.
4
<PAGE>
Item 2. Properties
<TABLE>
<CAPTION>
The Partnership owned the eight Properties described below at March 1, 1997:
<S> <C> <C> <C>
Purchase
Location Date Mortgage Holder
Silver Springs Apartments: Tempe, Arizona 11/18/88 MDS Loan Services (2)
a 198-unit midrise apartment complex (suburb of Phoenix)
located on approximately 9.28 acres.
Rancho del Sol Apartments: Las Vegas, Nevada 12/30/88 Great Western Bank (3)
a 376-unit garden apartment complex
located on approximately 16 acres.
Sandpebble Village Apartments: Sparks, Nevada 12/30/88 Wells Fargo Realty (4)
a 236-unit garden apartment complex
located on approximately 11.5 acres.
Regency Square Apartments: Chamblee, Georgia 01/31/89 Mellon Mortgage (5)
a 276-unit garden apartment complex (suburb of Atlanta) (successor to American
located on approximately 9.2 acres. Savings Bank)
Cameron Creek Apartments: Tempe, Arizona 03/31/89 Great Western Bank (3)
a 211-unit garden apartment complex (suburb of Phoenix)
located on approximately 8.7 acres.
Harbor Pointe Apartments: Dunwoody, Georgia 06/30/89 Great Western Bank (3)
a 366-unit garden apartment complex (suburb of Atlanta)
located on approximately 45.9 acres.
Bernardo Crest Apartments: San Diego, California 12/01/89 Great Western Bank (3)
a 216-unit garden apartment complex
located on approximately 16.6 acres.
Pointe West Apartments: Aurora, Colorado 09/30/89 Great Western Bank (6)
a 138-unit garden apartment complex (suburb of Denver)
located on approximately 5.27 acres.
</TABLE>
5
<PAGE>
Item 2. Properties (continued)
<TABLE>
<CAPTION>
Average Annual Occupancy Average Annual Revenue Per Apt. Unit (7) 1996 Realty Tax Data
1996 1995 1994 1993 1992 1996 1995 1994 1993 1992 Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Silver Springs 94.1% 95.1% 95.2% 95.0% 92.5% $7,029 $6,832 $6,183 $5,844 $5,310 $64,725 1.2959%
Rancho del Sol 94.9% 93.6% 95.7% 94.7% 93.5% $7,099 $6,921 $6,850 $6,177 $5,989 $141,647 0.9146%
Sandpebble Village 97.4% 95.8% 96.0% 94.7% 93.2% $7,519 $7,142 $6,875 $6,369 $6,159 $109,552 1.1272%
Regency Square 94.4% 96.2% 94.8% 94.5% 94.5% $8,582 $8,219 $7,452 $6,991 $6,827 $222,827 1.6604%
Cameron Creek 92.8% 93.0% 94.4% 92.9% 90.4% $7,544 $7,187 $6,816 $6,058 $5,596 $94,279 1.1815%
Harbor Pointe 92.1% 94.5% 97.2% 96.1% 95.2% $7,951 $7,828 $7,433 $6,822 $6,465 $209,456 1.6112%
Bernardo Crest 95.2% 94.4% 91.5% 92.4% 91.0% $10,215 $9,736 $9,167 $9,201 $9,163 $138,733 1.0234%
Pointe West 93.9% 95.7% 94.7% 95.2% 95.4% $6,514 $6,348 $5,903 $5,463 $4,910 $53,063 1.0119%
<CAPTION>
(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) Loan may be prepaid without charge.
(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 (with "control" defined as a
50% beneficial interest) by A.G. Spanos Construction or by Alex G. Spanos remains liable on the loan.
(4) Loan may be prepaid upon payment of a 4.14% prepayment charge.
(5) Loan may be prepaid upon payment of prepayment charge of 1% for prepayment occuring prior to February 1, 1998.
Thereafter, loan may be prepaid without charge.
(6) 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.
(7) Average annual revenue per apartment unit is determined by dividing total operating revenues for the Property by
the number of apartment units.
</TABLE>
6
<PAGE>
Item 3. Legal Proceedings
This information is incorporated by reference to Note E 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 three limited partners as of March 3, 1997: AGS
Depository Corp. (the "Assignor Limited Partner"), a wholly owned
subsidiary of AGS Financial Corporation, and two affiliates of the Spanos
General Partner which are holders of Subordinated Limited Partnership
Interests ("Subordinated 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 5,102 Unitholders as of March 3, 1997.
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.
The Partnership resumed paying Distributions to the Unitholders in 1996.
Distributions had been suspended beginning with the third quarter of 1992.
Distributions were paid approximately 45 days after the end of the
specified quarter as follows:
Quarter Ended Distribution
March 31, 1996 $1.22
June 30, 1996 $1.22
September 30, 1996 $1.22
December 31, 1996 $1.22
All $1,546,000 of the distributions paid to Unitholders for 1996
represents 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,
1996 1995 1994 1993 1992
<S> <C> <C> <C> <C> <C>
Total revenues $15,930,615 $15,362,108 $14,499,788 $13,424,097 $12,909,954
Interest expense $5,176,971 $6,014,655 $6,381,294 $6,835,318 $6,516,313
Net loss ($402,122) ($1,752,058) ($2,713,210) ($3,672,977) ($3,585,433)
Net loss per Unit ($1.24) ($5.42) ($8.39) ($11.36) ($11.09)
Net loss per Subordinated
Interest -- -- -- -- --
Cash distributions per Unit (b) $4.88 -- -- -- $38.00
Cash distributions per
Subordinated Interest -- -- -- -- $31.22
Total assets $82,001,149 $84,563,942 $87,946,202 $91,804,442 $95,451,032
Mortgage loans payable $65,322,170 $66,361,897 $67,215,017 $68,580,958 $69,231,923
<CAPTION>
(a) The above selected financial data should be read in conjunction with the financial statements
and the related notes (see Item 8).
(b) Cash distributions were paid from operating cash flow, payments received under a cash flow
guaranty and from refinancing proceeds . 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.
</TABLE>
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 $3,947,000 at December 31, 1996 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.
The Partnership's operating activities provided cash of $2,907,000 in
1996, of which $85,000 reflects timing differences related to current
assets and liabilities. Of the balance, $1,040,000 was applied to
scheduled principal amortization on the Partnership's mortgage debt,
$1,578,000 was paid in cash distributions, and $204,000 was retained.
Cash provided by operating activities in 1995 reflects the payment of
$795,000 of fees incurred in prior years and is not directly comparable
with cash provided by operating activities in 1996. As adjusted for the
effect of the fee deferral and the other timing differences related to
prepaid and accrued expense items, cash provided by operating activities
improved from $2,097,000 in 1995 to $2,822,000 in 1996, reflecting the
Properties' improved operating performance as described below. Cash flows
from financing activities reflects the resumption of distributions paid to
the partners. (Fourth quarter 1996 distributions of $394,000 were paid
subsequent to the balance sheet date.) Scheduled principal amortization
increased in 1996, reflecting the fact that the principal portion of the
monthly mortgage payments increases over time.
The Partnership's long term debt, which consists of eight real estate
mortgages with respect to the Properties, was $65,322,000 at December 31,
1996. This debt requires monthly installments of principal and interest
of $516,000. The Properties are currently generating aggregate revenue to
cover operating expenses and debt service. Five of the mortgages are
fully self-amortizing. The other three require balloon payments as
follows: $5,474,000 in 1998, $5,030,000 in 2000, and $7,732,000 in 2001.
The General Partners anticipate that the Properties securing the balloon
payment mortgages will be sold or refinanced before the balloon payment
due dates. If the Properties are not sold or refinanced beforehand, the
Partnership would be required to refinance them when the balloon payments
become due subject to then existing conditions in the real estate and
mortgage financing markets or to sell the properties under terms which may
not be the most favorable to the Partnership. If the Partnership were
unable to complete sales or refinancings, then the lenders could institute
foreclosure proceedings against the Properties.
11
<PAGE>
The interest rates on five of the mortgage loans (Rancho del Sol, Cameron
Creek, Harbor Pointe, Pointe West and Bernardo Crest) adjusted downward
during 1995, resulting in monthly debt service savings of $62,000. The
new interest rates are fixed for five years. The debt service savings
coupled with the Properties' improved operating performance during the
past two years enabled the Partnership to resume paying cash distributions
to the Unitholders in 1996. The Partnership had suspended distributions
to the Unitholders beginning with the third quarter of 1992.
The Partnership deferred payment of $795,000 of certain fees payable to
the General Partners for the period July 1, 1992 through December 31, 1993
because property income after debt service was insufficient to pay them.
Operating results improved in 1994, and payment of these items resumed on
a current basis. The deferrals were paid in 1995 without interest.
The General Partners are presently conducting negotiations regarding a
potential auction sale of the Properties in connection with the potential
settlement of certain of the litigation described below in Note E to the
financial statements. There is no assurance that these negotiations will
result in an agreement to sell the Properties.
Results of Operations
1996 Compared to 1995. Rental revenue was $15,811,000 in 1996, an
increase of 3.6% from 1995. Revenue increased at all eight properties,
with the increases ranging from 5.3% at Sandpebble Village to 1.6% at
Harbor Pointe. Revenue increases resulted primarily from increased
effective rental rates. Overall, the weighted average occupancy of the
Apartment Projects was 94.3% in 1996 compared to 94.7% in 1995.
Property operating expenses were $5,716,000 in 1996 compared to $5,222,000
for 1995. Major repairs (i.e., exterior painting, asphalt work and other
expensive repairs that do not recur on an annual basis) increased to
$541,000 in 1996 compared to $371,000 for 1995. Furnished unit expense
was up $22,000 over 1995, reflecting the increased furnished unit rentals,
but this expense was offset by the higher rents received for those
apartments. Operating expenses excluding major repairs and furnished unit
expense increased $303,000 or approximately 6.4% over 1995. Expense
categories showing the greatest increases were maintenance, up $177,000 or
12% reflecting the generally higher costs of operating an aging property
portfolio; utilities, up $50,000 or 4.5%; and advertising, up $47,000 or
16%. Property taxes declined $51,000 because of lower assessed valuations
at Harbor Pointe and Bernardo Crest. Property management fees, which are
3% of property revenue, increased with the increase in revenue. Interest
expense declined $838,000, reflecting the lower interest rates now
12
<PAGE>
applicable on five of the Partnership mortgage loans. In addition,
interest expense in 1995 included $201,000 of loan fee amortization not
charged in 1996 because the fees became fully amortized in 1995.
Depreciation expense declined $424,000 because certain personal property
assets became fully depreciated in 1995.
1995 Compared to 1994. Rental revenue was $15,269,000 in 1995, an
increase of 5.8% from 1994. Revenue increased at all eight properties,
with the increases ranging from 10% at Silver Springs and Regency Square
to only 1% at Rancho del Sol, which was impacted by the number of new
apartment completions in the Las Vegas market last year. Revenue
increases resulted primarily from increased effective rental rates.
Revenue at Bernardo Crest, which had been flat for the prior three years
reflecting the weak economic conditions in San Diego, posted a 6% increase
over 1994. Overall, the weighted average occupancy of the Apartment
Projects was 94.7% in 1995 compared to 95.2% in 1994.
Property operating expenses were $5,222,000 in 1995 compared to $5,044,000
for 1994. Major repairs declined to $371,000 in 1995 compared to $671,000
for 1994. Furnished unit expense was up $42,000 over 1994, reflecting the
increased furnished unit rentals, but this expense was offset by the
higher rents received for those apartments. Operating expenses excluding
major repairs and furnished unit expense increased $436,000 or
approximately 10% over 1994. Expense categories showing the greatest
increases were maintenance, up $247,000 or 20% reflecting the generally
higher costs of operating an aging property portfolio; payroll, up $89,000
or 8% reflecting higher compensation and fringe benefit costs; and
insurance, up $35,000 or 25% reflecting a trend toward higher property
insurance costs. Property management fees, which are 3% of property
revenue, increased with the increase in revenue. Interest expense
declined to $6,015,000 from $6,381,000 in 1994 as a result of the
restructuring of the Regency Square mortgage loan and the scheduled
adjustment to the interest rates on five of the mortgage loans.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data Page
Independent Auditors' Report 15
Balance sheets at December 31, 1996 and 1995 16
Statements of operations for the years ended
December 31, 1996, 1995 and 1994 17
Statements of changes in partners' equity (deficit)
for the years ended December 31, 1996, 1995 and 1994 18
Statements of cash flows for the years ended
December 31, 1996, 1995 and 1994 19
Notes to financial statements 20-31
Schedule to financial statements 45
14
<PAGE>
INDEPENDENT AUDITORS' REPORT
General and Limited Partners
Prudential-Bache/A.G. Spanos
Realty Partners, L.P., I:
We have audited the accompanying balance sheets of Prudential-Bache/A.G.
Spanos Realty Partners L.P., I (a limited partnership) (the "Partnership")
as of December 3 1, 1996 and 1995, 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, 1996. 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 Realty
Partners L.P., I as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1996 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
February 21, 1997
15
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
ASSETS
Property, net $77,633,657 $80,837,637
Cash and cash equivalents 3,946,802 3,262,675
Other assets (net of accumulated amortization
of $1,276,744 and $1,256,116, respectively) 420,690 463,630
---------- ----------
$82,001,149 $84,563,942
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage loans payable $65,322,170 $66,361,897
Accounts payable 603,086 571,286
Accounts payable, affiliate 200,389 197,612
Distributions payable 394,418 -0-
Accrued interest 428,040 434,618
Unearned rent and tenant deposits 553,085 518,766
---------- ----------
67,501,188 68,084,179
---------- ----------
Partners' equity (deficit):
Limited partners' equity (316,828 units
authorized and outstanding) 6,929,279 8,869,479
Subordinated limited partners' equity (46,364 units
authorized and outstanding) 8,878,175 8,878,175
General partners' deficit (1,307,493) (1,267,891)
---------- ----------
14,499,961 16,479,763
---------- ----------
$82,001,149 $84,563,942
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
16
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1994
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental $15,811,247 $15,269,148 $14,432,479
Interest 119,368 92,960 67,309
---------- ---------- ----------
15,930,615 15,362,108 14,499,788
---------- ---------- ----------
Expenses:
Property operating expenses 5,716,463 5,221,536 5,044,387
Property taxes 1,033,812 1,084,608 1,024,012
Property management fees to affiliates 474,158 458,074 432,974
General and administrative expense 94,903 96,939 102,511
Interest expense 5,176,971 6,014,655 6,381,294
Management fees to General Partners 632,450 610,766 577,300
Depreciation 3,203,980 3,627,588 3,650,520
---------- ---------- ----------
16,332,737 17,114,166 17,212,998
---------- ---------- ----------
Net loss $ (402,122) $(1,752,058) $(2,713,210)
---------- ---------- ----------
---------- ---------- ----------
Net loss allocated to General Partners $ (8,042) $ (35,041) $ (54,264)
---------- ---------- ----------
---------- ---------- ----------
Net loss allocated to Limited Partners $ (394,080) $(1,717,017) $(2,658,946)
---------- ---------- ----------
---------- ---------- ----------
Net loss allocated to Subordinated Limited
Partners $ -0- $ -0- $ -0-
---------- ---------- ----------
---------- ---------- ----------
Net loss per unit of limited partnership
interest $ (1.24) $ (5.42) $ (8.39)
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
17
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
Subordinated
Limited Limited General
Total Partners Partners Partners
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' equity
(deficit)-
December 31, 1993 $20,916,832 $13,245,442 $ 8,849,976 $(1,178,586)
Capital contributions
for subordinated
interests under
cash flow guaranty 28,199 -0- 28,199 -0-
Net loss (2,713,210) (2,658,946) -0- (54,264)
---------- ---------- ---------- ----------
Partners' equity
(deficit)-
December 31, 1994 18,231,821 10,586,496 8,878,175 (1,232,850)
Net loss (1,752,058) (1,717,017) -0- (35,041)
---------- ---------- ---------- ----------
Partners' equity
(deficit)-
December 31, 1995 16,479,763 8,869,479 8,878,175 (1,267,891)
Net loss (402,122) (394,080) -0- (8,042)
Distributions (1,577,680) (1,546,120) -0- (31,560)
---------- ---------- ---------- ----------
Partners' equity
(deficit)-
December 31, 1996 $14,499,961 $ 6,929,279 $ 8,878,175 $(1,307,493)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to financial statements.
18
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the years ended December 31, 1996, 1995 and 1994
<TABLE>
<CAPTION>
1996 1995 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (402,122) $(1,752,058) $(2,713,210)
---------- ---------- ----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 3,203,980 3,627,588 3,650,520
Amortization of loan fees included in
interest expense 20,628 221,744 220,524
Decrease (increase) in other assets 22,312 18,390 (20,375)
Increase in accounts payable 31,800 37,400 51,856
Increase (decrease) in accounts payable,
affiliate 2,777 (783,498) 150,728
Decrease in accrued interest (6,578) (57,123) (50,189)
Increase in unearned rent and tenant deposits 34,319 26,139 40,317
---------- ---------- ----------
Total adjustments 3,309,238 3,090,640 4,043,381
---------- ---------- ----------
Net cash provided by operating activities 2,907,116 1,338,582 1,330,171
---------- ---------- ----------
Cash flows from financing activities:
Payments under cash flow guaranty contribution -0- -0- 28,199
Mortgage loan principal amortization (1,039,727) (853,120) (732,751)
Other mortgage loan repayments -0- -0- (633,190)
Distributions to partners (1,183,262) -0- -0-
---------- ---------- ----------
(2,222,989) (853,120) (1,337,742)
---------- ---------- ----------
Net increase in cash and cash equivalents 684,127 485,462 (7,571)
Cash and cash equivalents, beginning of period 3,262,675 2,777,213 2,784,784
---------- ---------- ----------
Cash and cash equivalents, end of period $ 3,946,802 $ 3,262,675 $ 2,777,213
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See notes to financial statements.
19
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS
REALTY PARTNERS L.P., I
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1996, 1995 and 1994
NOTE A - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Prudential-Bache/A.G. Spanos Realty Partners L.P., I (the "Partnership")
is a Delaware limited partnership organized for the purpose of acquiring
and operating eight specified apartment properties (the "Properties").
The General Partners of the Partnership are Prudential-Bache Properties,
Inc. (the "Bache General Partner") and A.G. Spanos Realty Partners, L.P.,
(the "Spanos General Partner"). The Partnership will continue until
December 31, 2030, unless previously terminated in accordance with the
provisions of its Amended and Restated Agreement of Limited Partnership
(the "Partnership Agreement").
The Partnership sold 316,828 depository units of limited partnership
interest ("Units") between October 1988 and December 1989 for aggregate
capital contributions (net of certain volume selling commission discounts)
of $79,194,827. The Partnership has also issued non-voting Subordinated
Limited Partnership Interests ("Subordinated Interests") to affiliates of
the Spanos General Partner in consideration for capital contributions and
payments under a cash flow guaranty.
Financial Statement Preparation
The Partnership has a fiscal year ending December 31. The books and
records of the Partnership are maintained on the accrual basis of
accounting in accordance with generally accepted accounting principles.
Certain reclassifications have been made to prior year amounts in order to
be in conformity with the current year presentation.
Accounting Estimates
In preparing the financial statements, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities (see Note E) 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.
20
<PAGE>
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 the amount estimated to be recoverable
through future cash flows from property operations and dispositions on an
undiscounted basis. Depreciated cost is 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.
Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to be
Disposed Of," was adopted by the Partnership as of January 1, 1996 for
its financial statements for the year ended December 31, 1996. Under SFAS
No.121, impairment for properties to be held and used is determined to
exist when estimated amounts recoverable through future operations on an
undiscounted basis are below the properties' carrying value. If a
property is determined to be impaired, it should be recorded at the lower
of its carrying value or its estimated fair value. For properties that
are held for sale, SFAS No. 121 states that they should be reported at the
lower of carrying amount or estimated fair value less cost to sell. The
implementation of SFAS No. 121 did not affect the Partnership's results of
operations or financial position for the year ended December 31, 1996.
Prior to 1996, property investments were carried at the lower of
depreciated cost or estimated amounts recoverable through future
operations and ultimate disposition of the property. A provision for loss
on impairment of assets would be recorded when the property carrying
amounts exceeded the amounts estimated to be recoverable through
future cash flows from property operations (before debt service) and
disposition proceeds on an undiscounted basis.
Other Assets
Other assets include loan fees with a net book value of $287,144 and
$307,772 at December 31, 1996 and 1995, respectively. Such loan fees are
generally amortized to interest expense over the life of the related
loans.
21
<PAGE>
Income Taxes
No provision has been made for federal or state income taxes (or benefits)
since such items are the responsibility of the partners. A reconciliation
of the net loss in the financial statements to the net taxable loss is set
forth below:
1996 1995 1994
Net loss per financial statements $ (402,122) $(1,752,058) $(2,713,210)
Financial statement depreciation
in excess of tax depreciation 175,997 269,972 263,261
Cancellation of debt recognized as
income for tax purposes, net of
interest expense adjustment -0- -0- 264,176
Loan fee amortization and interest
expense adjustment -0- (10,051) -0-
Unearned rent and non refundable
deposits recognized as income for
tax purposes when received 148 618 28,479
---------- ---------- ----------
Net taxable loss $ (25,977) $(1,491,519) $(2,157,294)
---------- ---------- ----------
---------- ---------- ----------
The book and tax bases of partners' equity differ by the cumulative effect
of the book to tax income adjustments.
Allocations and Distributions
Pursuant to the Partnership Agreement, operating income, losses and cash
distributions are generally allocated 98% to the Unitholders and 2% to the
General Partners. Taxable income and losses are allocated in the same
manner. Cash distributions resulting from sales or refinancings of the
Properties are generally allocable as follows: First, 98% to the limited
partners and 2% to the General Partners until (i) the aggregate of all
such distributions equals the limited partners' aggregate capital
contributions and (ii) the aggregate of all other cash distributions
(including operating cash distributions, but excluding distributions in
repayment of capital contributions) equals the limited partners' 10% per
annum cumulative noncompounded return on their adjusted capital
contributions (the "First Level Sale or Refinance Distributions").
Thereafter, cash distributions resulting from a sale or refinancing are
generally allocable 85% to the Unitholders and 15% to the General Partners
22
<PAGE>
(the "Second Level Sale or Refinance Distributions"). Income from sales
of the Properties is generally allocable in the same manner as cash
distributions resulting from such sales, after taking into account the
depreciation expense with respect to the Properties sold.
The Subordinated 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. In February 1997, the
Partnership paid fourth quarter 1996 distributions of $394,418 which were
accrued at December 31, 1996. No distributions were paid in 1995 or 1994.
Revenue Recognition
Rental income is accrued as rents are due.
Fair Value of Financial Instruments
SFAS 107, "Disclosures about Fair Value of Financial instruments,"
requires the determination of fair value for certain of the Partnership's
assets and liabilities. The following methods and assumptions were used
to estimate the fair value of those financial instruments included in the
following categories:
Cash and Cash Equivalents - The carrying amount approximates fair value
based on the liquidity of the assets.
Mortgage Loans Payable (see Note C) - The carrying value approximates fair
value based on interest rates available to the Partnership on debt
instruments with similar terms.
23
<PAGE>
NOTE B - PROPERTY
Property is comprised of the following at December 31, 1996 and 1995:
1996 1995
Apartment buildings $ 83,030,825 $ 83,030,825
Equipment 4,369,974 4,369,974
Land 18,053,226 18,053,226
----------- -----------
105,454,025 105,454,025
Less: Accumulated depreciation (27,820,368) (24,616,388)
----------- -----------
$ 77,633,657 $ 80,837,637
----------- -----------
----------- -----------
The Partnership leases apartments under lease agreements with terms
ranging from one to twelve months.
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 12/31/96 at 12/31/95 Rate Date Terms 1997 Payment
---------- ---------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Silver Springs Village
Tempe, Arizona 5,500,487 5,592,637 6.50% 12/01/00 38,006 102,052 5,030,000
Rancho del Sol
Las Vegas, Nevada 11,325,219 11,505,293 8.11% 10/01/19 92,172 195,235 N/A
Sandpebble Village
Sparks, Nevada 5,650,644 5,763,581 8.28% 06/01/98 48,828 122,651 5,474,000
Regency Square
Chamblee, Georgia 8,321,802 8,447,528 8.00% 02/01/01 61,269 88,016 7,732,000
Cameron Creek
Tempe, Arizona 6,530,719 6,626,568 8.11% 10/01/19 52,480 103,919 N/A
Harbor Pointe
Dunwoody, Georgia 13,150,748 13,354,526 7.75% 10/01/19 102,635 220,144 N/A
Pointe West
Aurora, Colorado 3,138,599 3,208,553 7.61% 03/01/16 25,971 75,394 N/A
Bernardo Crest
San Diego, California 11,703,952 11,863,211 8.12% 08/01/19 94,221 188,899 N/A
----------- ----------- -------- -----------
65,322,170 66,361,897 515,582 1,096,310
----------- ----------- -------- -----------
----------- ----------- -------- -----------
</TABLE>
Interest paid in 1996, 1995 and 1994 was $5,150,209, $5,850,034 and
$6,199,864, respectively.
25
<PAGE>
In February 1994, the Partnership completed a restructuring of the Regency
Square mortgage loan pursuant to which the lender wrote down $296,398 of
the outstanding principal in exchange for a $633,190 principal payment by
the Partnership. No gain or loss was recognized on the debt
restructuring; the discount is accounted for as a reduction of interest
expense over the new loan term.
Aggregate maturities of mortgage loans payable for each of the five years
ending December 31, 2001 and thereafter are as follows:
1997 $ 1,096,310
1998 6,584,646
1999 1,146,784
2000 6,266,309
2001 8,999,824
Thereafter 41,228,297
----------
$65,322,170
----------
----------
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 Properties as a group did not meet certain
annual net cash flow levels between their acquisition dates and June 30,
1992, then the Sellers would make up any deficiency by periodic cash
payments ("Support Payments") to the Partnership. The first $4,500,000 of
Support Payments were non-refundable, and the Partnership accounted for
them as a reduction of the purchase price of the Properties. The
Partnership issued Subordinated Interests in exchange for Support Payments
in excess of that amount; however, the Subordinated Interests were
cancelable by the Partnership to the extent that the aggregate net cash
flow from any of the Properties (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
Properties.
Support Payments of $11,083,798 accrued to the Partnership based upon the
operating results of the Properties from inception of the Partnership
through the conclusion of the guaranty. The Partnership issued 26,335
Subordinated Interests (at $250 each) to a Seller in exchange for
$6,583,798 of Support Payments in excess of the $4,500,000 non-refundable
amount. The Silver Springs property had aggregate negative net cash flow
of $537,220; accordingly, the Partnership canceled 2,149 Subordinated
Interests.
26
<PAGE>
An affiliate of the Spanos General Partner manages the Apartment Projects.
Property management fees totalled $474,158, $458,074 and $432,974 in 1996,
1995 and 1994, respectively. 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 $1,301,000,
$1,262,000 and $1,193,000 in 1996, 1995 and 1994, respectively. Accruals
of $41,315 and $42,142 for property management fees and $104,347 and
$107,861 for salary expense reimbursements were outstanding at
December 31, 1996 and 1995, 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 Properties. 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.
1996 1995 1994
Supervisory management fee $316,225 $305,383 $288,650
Special distribution 260,697 249,855 233,122
Administrative expense reimbursements 55,528 55,528 55,528
------- ------- -------
$632,450 $610,766 $577,300
------- ------- -------
------- ------- -------
Accruals of $159,074 and $155,470 for management fees payable to the
General Partners were outstanding at December 31, 1996 and 1995,
respectively.
The General Partners deferred payment of a total of $795,432 of
supervisory management fees, special distributions and administrative
expense reimbursements accrued for the period July 1, 1992 through
December 31, 1993. The deferrals were paid in 1995 without interest.
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 4,663 Units at December 31, 1996.
27
<PAGE>
NOTE E - 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 July
23, 1993 a putative class action, captioned Kahn v. Prudential-Bache
Properties, Inc. et al. (Index No. 11867/93) was filed in the Supreme
Court of the State of New York, County of New York, purportedly on behalf
of investors in the Partnership against the General Partners, PSI, The
Prudential Insurance Company of America and certain of their affiliates
and officers. The case was subsequently removed to the United States
District Court for the Southern District of New York (93 Civ. 5976).
On or about May 11, 1994 a policyholder derivative action and putative
class action, captioned Romano et al. v. The Prudential Insurance Company
of America et at. (94 Civ.3527), was filed in the United States District
Court for the Southern District of New York, purportedly on behalf of
policyholders of The Prudential Insurance Company of America ("The
Prudential") against The Prudential and PSI as nominal defendants and
against certain officers of The Prudential and its affiliates, including
the present and former chief executive officers of PSI, and present and
former members of The Prudential's board of directors, the Spanos General
Partner and certain of its affiliates as defendants. In substance the
suit alleged that the wrongful acts of the defendants (essentially the
same conspiracy regarding the sales of limited partnership interests
alleged in the consolidated complaint discussed below) have resulted in
substantial losses to PSI as a consequence of fines and litigation
settlements. Because PSI is a wholly owned subsidiary of The Prudential,
its losses allegedly diminished the value of plaintiffs' interests in The
Prudential as policyholders. The complaint contains counts based upon
RICO, intentional and negligent misrepresentation, and unjust enrichment.
Plaintiffs sought unspecified compensatory, general, consequential,
incidental and punitive damages as well as interest, costs and attorneys'
fees. A motion to dismiss the case was filed January 20, 1995 on behalf
of The Prudential and the outside directors. On October 2, 1996, The
Prudential and PSI entered into a stipulation of settlement with legal
counsel representing plaintiffs. By order dated October 16, 1996 the
court certified a settlement class, preliminarily approved the class and
28
<PAGE>
derivative action settlement agreement and notice, scheduled a hearing on
the fairness and adequacy of the settlement and on the application for
awards of attorneys' fees and disbursements. Following a hearing on
December 4, 1996 the court approved the settlement as being fair,
reasonable and adequate and by order dated December 18, 1996, dismissed
the case with prejudice as to all the settling defendants.
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 Kahn cases, by order dated June 8, 1994, the Connelly
case, by order dated June 27, 1994, the Romano 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,
except for Romano, consolidated for pretrial proceedings under the caption
In re Prudential Securities Incorporated Limited Partnerships Litigation
(MDL Docket 1005). The Romano case was coordinated for pretrial discovery
purposes. 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;
29
<PAGE>
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 Kahn) 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. The court preliminarily approved
the settlement agreement by order dated August 29, 1995 and, following a
hearing held November 17, 1995, found that the 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 specific limited partnerships, including the Partnership,
released all settled claims by members of the class against the PSI
settling defendants and permanently barred and enjoined class members from
instituting, commencing or prosecuting any settled claim against the
released parties. The full amount due under the settlement agreement has
been paid. The consolidated action remains pending against the Spanos
General Partner and certain of its affiliates. Although the order
approving the partial settlement agreement dismissed the consolidated
complaint on the merits and with prejudice as against the PSI settling
defendants, it expressly continued the action against all nonsettling
defendants, including the Spanos General Partner, and preserved all claims
against them. 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 this matter has been made
in the accompanying financial statements.
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 attorneys' fees. The
ultimate outcome of this action as well as the impact on the Partnership
30
<PAGE>
cannot presently be determined. Accordingly, no provision for any loss
that may result upon resolution of this matter has been made in the
accompanying financial statements. The General Partners, PSI and the
Partnership, where applicable, believe they have meritorious defenses to
this complaint and intend to vigorously defend themselves in this action.
The General Partners are presently conducting negotiations regarding a
potential auction sale of the Properties in connection with the potential
settlement of certain of the litigation described above. There is no
assurance that these negotiations will result in an agreement to sell the
Properties.
31
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
32
<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 Capital, Inc. AGS Financial
Corporation is the managing general partner of the Spanos General Partner.
The directors and executive officers of AGS Financial Corporation and 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, Barry L. Ruhl,
Michael A. Spanos, Dea Spanos and a Spanos family trust. Dean A. Spanos,
Michael A. Spanos and Dea Spanos 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.
33
<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 73 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 50,000 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 46, 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 37, has served as a Director of AGS Financial
Corporation since its founding in 1981. He is Executive Vice President of
A.G. Spanos Construction, Inc. He holds a bachelor's degree from the
University of the Pacific.
BARRY L. RUHL, age 45, 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.
34
<PAGE>
ARTHUR J. COLE, age 42, 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 52, 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
Thomas F. Lynch, III 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
THOMAS F. LYNCH, III, age 38, 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. Lynch
also serves in various capacities for other affiliated companies. Mr.
Lynch joined PSI in November 1989.
BARBARA J. BROOKS, age 48, 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.
35
<PAGE>
EUGENE D. BURAK, age 51, 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 53, 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 54, 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 46, is a Director of the Bache General Partner. She
is a Senior Vice President and Deputy General Counsel of PSI and
supervises non-litigation legal work for PSI. She joined PSI's Law
Department in 1983; presently, she also serves in various capacities for
other affiliated companies.
Item 11. Executive Compensation
The Partnership is not required to and did not pay remuneration to the
officers and directors of the General Partners. Certain officers and
directors of the General Partners receive compensation from the General
Partners and/or their affiliates (but not from the Partnership) for
services performed for various affiliated entities, which may include
services performed for the Partnership; however, the General Partners
believe that any compensation attributable to services performed for the
Partnership is immaterial. See Item 13, "Certain Relationships and
Related Transactions," for a discussion of compensation and fees to which
the General Partners and their affiliates are entitled.
Item 12. Security Ownership of Certain Beneficial Owners and Management
No Unitholder is known by the Partnership to own beneficially more than 5%
of the outstanding Units. The percentage of outstanding Units held by all
directors and officers of the General Partners is less than 1%.
36
<PAGE>
The Partnership has issued 48,513 Subordinated Interests (of which 46,364
remain outstanding at March 3, 1997) to affiliates of the Spanos General
Partner, all of which Subordinated 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 3, 1997, the individual directors and the directors and
officers, as a group, of AGS Financial Corporation and A.G. Spanos Realty
Capital, 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 Capital, 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.
The General Partners and certain affiliates thereof have, during the
Partnership's year ended December 31, 1996, earned or received
compensation or payments for services from the Partnership as follows.
37
<PAGE>
Capacity in Form of Cash
Recipient Which Served Compensation Compensation
Spanos General General Partner Supervisory $316,225
Partner Management Fee(1)
Bache General General Partner Special 260,697
Partner Distribution(2)
A.G. Spanos Property Manager Property 474,158
Management Inc. Management Fees(3)
General Partners General Partners Cash from Operations(4) 31,560
Bache General General Partner Expense 55,528
Partner Reimbursements
(1) Supervisory Property Management Fee for supervising the management of the
Properties equal to 2% of gross receipts from the Properties.
(2) Special Distribution for services in managing and administering the
Partnership equal to 2% of gross receipts from the Properties, 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 Properties.
(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 __.
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
Registration Statement on Form S-11, File No. 33-22613,
filed with the Securities and Exchange Commission on
October 14, 1988.
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. 1 to Registration Statement on Form S-11,
File No. 33-22613, filed with the Securities and
Exchange Commission on October 14, 1988.
4(c) Amended and Restated Agreement of Limited Partnership of
Registrant, incorporated by reference to Exhibit 4(c) to
Amendment No. 1 to Registration Statement on Form S-11,
File No. 33-22613, filed with the Securities and
Exchange Commission on October 14, 1988.
4(d) Amendments No. 1 through 7 dated November 21, and
December 30, 1988 and January 31, February 28, March 31,
April 28, and May 31, 1989 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. 33-22613, filed with the
Securities and Exchange Commission on June 30, 1989.
39
<PAGE>
4(e) Amendments No. 8 through 14 dated June 30, August 11
and 31, September 29, October 31, and December 1 and 22,
1989 to the Amended and Restated Agreement of Limited
Partnership of Registrant, incorporated by reference to
Exhibit 4(e) to Annual Report on Form 10-K, File No.
0-17683, filed with the Securities and Exchange
Commission on March 28, 1991.
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 REALTY PARTNERS L.P., I (Registrant)
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/Thomas F. Lynch, III Date: March 31, 1997
---------------------------------------
Thomas F. Lynch, III
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 person 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/Thomas F. Lynch, III Date: March 31, 1997
---------------------------------------
Thomas F. Lynch, III
Chairman of the Board of Directors and Director
(Principal Executive Officer)
By: /s/Barbara J. Brooks Date: March 31, 1997
---------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer)
By: /s/Nathalie P. Maio Date: March 31, 1997
---------------------------------------
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 REALTY PARTNERS L.P., I (Registrant)
By: A.G. Spanos Realty Partners, L.P.
General Partner
By: AGS Financial Corporation, a general partner
By: /s/Arthur J. Cole Date: March 31, 1997
-------------------------------
Arthur J. Cole
President
(Principal Accounting Officer)
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Arthur J. Cole Date: March 31, 1997
-------------------------------
Arthur J. Cole
Vice President
AGS 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 31, 1997
-------------------------------
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 person on behalf of the
Registrant in the capacities (with respect to the General Partners) and on
the dates indicated.
By: A.G. Spanos Realty Partners, L.P.
General Partner
By: AGS Financial Corporation, a general partner
By: /s/Alex G. Spanos Date: March 31, 1997
----------------------------------
Alex G. Spanos
Chairman of the Board of Directors
By: /s/Dean A. Spanos Date: March 31, 1997
----------------------------------
Dean A. Spanos
Vice Chairman and Director
By: /s/Michael A. Spanos Date: March 31, 1997
----------------------------------
Michael A. Spanos
Director
By: /s/Barry L. Ruhl Date: March 31, 1997
----------------------------------
Barry L. Ruhl
Director
By: /s/Arthur J. Cole Date: March 31, 1997
----------------------------------
Arthur J. Cole
President and Director
(Principal Executive Officer)
By: /s/Jeremiah T. Murphy Date: March 31, 1997
----------------------------------
Jeremiah T. Murphy
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
43
<PAGE>
SIGNATURES
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Alex G. Spanos Date: March 31, 1997
----------------------------------
Alex G. Spanos
President and Director (Principal Executive Officer)
By: /s/Dean A. Spanos Date: March 31, 1997
----------------------------------
Dean A. Spanos
Executive Vice President and Director
By: /s/Michael A. Spanos Date: March 31, 1997
----------------------------------
Michael A. Spanos
Executive Vice President and Director
By: /s/Barry L. Ruhl Date: March 31, 1997
----------------------------------
Barry L. Ruhl
Executive Vice President and Director
By: /s/Jeremiah T. Murphy Date: March 31, 1997
----------------------------------
Jeremiah T. Murphy
Vice President (Principal Financial and Accounting Officer)
AGS Depository Corp.
By: /s/Alex G. Spanos Date: March 31, 1997
----------------------------------
Alex G. Spanos
Director, President and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
By: /s/Dean A. Spanos Date: March 31, 1997
----------------------------------
Dean A. Spanos
Director
By: /s/Jeremiah T. Murphy Date: March 31, 1997
----------------------------------
Jeremiah T. Murphy
Director
44
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<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>
Silver Springs Village 1,842,000 6,977,200 -0- -0- 1,417,226 6,380,215 7,797,441 2,194,957 1985 11/18/88
Tempe, Arizona
Rancho del Sol 3,019,000 17,919,645 -0- -0- 2,358,000 18,007,683 20,365,683 5,899,767 1988 12/30/88
Las Vegas, Nevada
Sandpebble Village 1,409,000 8,615,000 -0- -0- 1,055,000 8,418,056 9,473,056 2,766,059 1983 12/30/88
Sparks, Nevada
Regency Square 2,623,000 12,776,000 -0- -0- 2,115,000 12,730,384 14,845,384 4,138,185 1988 01/31/89
Chamblee, Georgia
Cameron Creek 1,950,000 8,270,400 -0- -0- 1,601,000 8,195,184 9,796,184 2,617,815 1988 03/31/89
Tempe, Arizona
Harbor Pointe 3,845,000 16,896,000 -0- -0- 3,147,000 16,777,942 19,924,942 5,212,537 1988 06/30/89
Dunwoody, Georgia
Bernardo Crest 6,337,000 12,901,000 -0- -0- 5,670,000 12,808,626 18,478,626 3,756,593 1988 12/04/89
San Diego, California
Pointe West 885,000 4,226,000 -0- -0- 690,000 4,082,709 4,772,709 1,234,455 1985 09/29/89
Aurora, Colorado
---------- ---------- --- --- ---------- ---------- ---------- ----------
21,910,000 88,581,245 -0- -0- 18,053,226 87,400,799 105,454,025 27,820,368
---------- ---------- --- --- ---------- ---------- ---------- ----------
---------- ---------- --- --- ---------- ---------- ---------- ----------
</TABLE>
See notes.
45
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY 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: 1996 1995 1994
Balance at beginning of period $105,454,025 $105,454,025 $105,454,025
Deductions during period:
Payments received under cash
flow guaranty adjustment -0- -0- -0-
------------ ------------ ------------
Balance at close of period 105,454,025 105,454,025 105,454,025
------------ ------------ ------------
------------ ------------ ------------
The sellers guaranteed that if the Properties do not meet certain
targeted net cash flow levels between their acquisition dates and June
30, 1992, then the sellers would make payments necessary to meet those
targets. Nonrefundable payments of $4,500,000 received under the
guaranty are accounted for as an adjustment to the purchase prices of
the Properties. Payments totalling $537,220 received under the cash
flow guaranty contribution are also accounted for as an adjustment to
the purchase price of the Properties. Amounts shown as initial cost to
Partnership on the accompanying schedule do not reflect such cash flow
guaranty adjustments.
Note 3 - The aggregate cost of real estate for federal income tax
purposes is $105,454,025.
Note 4 - The Partnership acquired the Properties from affiliates of the
Spanos General Partner. The |amount of affiliate profit included in the
amounts in column E is approximately $14,004,000.
Note 5 - Reconciliation of 1996 1995 1994
accumulated depreciation:
24,616,388 20,988,800 17,338,280
Balance at beginning of period
Additions during period: 3,203,980 3,627,588 3,650,520
Depreciation ------------ ------------ ------------
27,820,368 24,616,388 20,988,800
------------ ------------ ------------
------------ ------------ ------------
46
<PAGE>
EXHIBIT C
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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: 0-17683
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
- -----------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
Delaware 94-3069380
- -----------------------------------------------------------------------------
(State or other jurisdiction of I.R.S. Employer Identification No.)
incorporation or organization)
1341 West Robinhood, B-9, Stockton, CA 95207
- -----------------------------------------------------------------------------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code (209) 478-0140
N/A
- -----------------------------------------------------------------------------
Former name, former address and former fiscal year, if changed since
last report
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 _CK_ No__
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
------
<S> <C> <C>
Part I. Financial Information
Item 1: Balance Sheets - March 31, 1997 and
December 31, 1996 . . . . . . . . . . . . . . . . . 3
Statements of operations for the three months ended
March 31, 1997 and 1996 . . . . . . . . . . . . . . 4
Statement of changes in partners' equity (deficit)
for the three months ended March 31, 1997 . . . . . 5
Statements of cash flows for the three months
ended March 31, 1997 and 1996 . . . . . . . . . . . 6
Notes to Financial Statements . . . . . . . . . . . 7
Item 2: Management's Discussion and Analysis of Financial
Condition and Results of Operations . . . . . . . 12
Part II. Other Information . . . . . . . . . . . . . . . . . 13
</TABLE>
2
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
BALANCE SHEETS
(Unaudited)
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Property, net $76,877,447 $77,633,657
Cash and cash equivalents 4,300,568 3,946,802
Other assets (net of accumulated amortization
of $1,281,901 and $1,276,744, respectively) 434,614 420,690
---------- ----------
$81,612,629 $82,001,149
---------- ----------
---------- ----------
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage loans payable $65,046,212 $65,322,170
Accounts payable 796,264 603,086
Accounts payable, affiliate 200,138 200,389
Accrued distributions 394,418 394,418
Accrued interest 429,489 428,040
Unearned rent and tenant deposits 549,463 553,085
---------- ----------
67,415,984 67,501,188
---------- ----------
Partners' equity (deficit):
Limited partners' equity (316,828 units
authorized and outstanding) 6,632,029 6,929,279
Subordinated limited partners' equity (46,364 units
authorized and outstanding) 8,878,175 8,878,175
General partners' deficit (1,313,559) (1,307,493)
---------- ----------
14,196,645 14,499,961
---------- ----------
$81,612,629 $82,001,149
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
3
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
STATEMENTS OF OPERATIONS
For the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Revenues:
Rental $ 4,003,273 $ 3,935,491
Interest 32,021 24,982
---------- ----------
4,035,294 3,960,473
---------- ----------
Expenses:
Property operating expenses 1,327,288 1,335,349
Property taxes 264,749 267,811
Property management fees to affiliates 119,817 117,142
General and administrative expense 37,230 38,625
Interest expense 1,278,768 1,294,298
Management fees to General Partners 160,130 157,420
Depreciation 756,210 800,995
---------- ----------
3,944,192 4,011,640
---------- ----------
Net income (loss) $ 91,102 $ (51,167)
---------- ----------
---------- ----------
Net income (loss) allocated to General Partners $ 1,822 $ (1,023)
---------- ----------
---------- ----------
Net income (loss) allocated to Limited Partners $ 89,280 $ (50,144)
---------- ----------
---------- ----------
Net income (loss) allocated to Subordinated
Limited Partners $ -0- $ -0-
---------- ----------
---------- ----------
Net income (loss) per unit of limited partnership
interest $ 0.28 $ (0.16)
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
4
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
STATEMENT OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
For the three months ended March 31, 1997
(Unaudited)
<TABLE>
<CAPTION>
Subordinated
Limited Limited General
Total Partners Partners Partners
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Partners' equity
(deficit)-
December 31, 1996 $14,499,961 $ 6,929,279 $ 8,878,175 $(1,307,493)
Net income 91,102 89,280 -0- 1,822
Distributions (394,418) (386,530) -0- (7,888)
---------- ---------- ---------- ----------
Partners' equity
(deficit)-
March 31, 1997 $14,196,645 $ 6,632,029 $ 8,878,175 $(1,313,559)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
See notes to financial statements.
5
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
STATEMENTS OF CASH FLOWS
For the three months ended March 31, 1997 and 1996
(Unaudited)
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 91,102 $ (51,167)
---------- ----------
Adjustments to reconcile net income (loss) to
net cash provided by operating activities:
Depreciation 756,210 800,995
Amortization of loan fees included in
interest expense 5,157 5,157
Change in other assets (19,081) (18,779)
Change in accrued liabilities 194,627 209,414
Change in accounts payable, affiliate (251) (1,217)
Change in unearned rent and tenant deposits (3,622) (1,457)
---------- ----------
Total adjustments 933,040 994,113
---------- ----------
Net cash provided by operating activities 1,024,142 942,946
---------- ----------
Cash flows from financing activities:
Mortgage loan principal amortization (275,958) (259,557)
Distributions to partners (394,418) -0-
---------- ----------
Net cash used in financing activities (670,376) (259,557)
---------- ----------
Net increase in cash and cash equivalents 353,766 683,389
Cash and cash equivalents, beginning of period 3,946,802 3,262,675
---------- ----------
Cash and cash equivalents, end of period $ 4,300,568 $ 3,946,064
---------- ----------
---------- ----------
</TABLE>
See notes to financial statements.
6
<PAGE>
PRUDENTIAL-BACHE/A. G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
NOTES TO FINANCIAL STATEMENTS(Unaudited)
NOTE A - FINANCIAL STATEMENT PREPARATION
The March 31, 1997 financial statements have been prepared without audit.
In the opinion of management, the financial statements contain all
adjustments (consisting of normal recurring accruals) necessary to present
fairly the Partnership's financial position, results of operations and cash
flows. The operating results for the three months ended March 31, 1997 may
not necessarily be indicative of the results expected for the full year.
Certain information and footnote disclosures normally included in annual
financial statements prepared in accordance with generally accepted
accounting principles have been omitted. These financial statements must
be read in conjunction with the financial statements and notes thereto
included in the Partnership's annual report for the year ended December 31,
1996.
NOTE B - PROPERTY
Property is comprised of the following:
<TABLE>
<CAPTION>
March 31,1997 December 31, 1996
-----------------------------------
<S> <C> <C>
Apartment buildings $ 83,030,825 $ 83,030,825
Equipment 4,369,974 4,369,974
Land 18,053,226 18,053,226
----------- -----------
105,454,025 105,454,025
Less: Accumulated depreciation (28,576,578) (27,820,368)
----------- -----------
$ 76,877,447 $ 77,633,657
----------- -----------
----------- -----------
</TABLE>
7
<PAGE>
NOTE C - RELATED PARTY TRANSACTIONS
Set forth below are the fees and other amounts relating to transactions
between the Partnership and the General Partners and their affiliates for
the three months ended March 31, 1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
-----------------------
<S> <C> <C>
Expensed to the General Partners:
Supervisory management fee $ 80,065 $ 78,710
Special distribution 66,230 64,875
Administrative expense reimbursements 13,835 13,835
------- -------
$160,130 $157,420
------- -------
------- -------
Expensed to A.G. Spanos Management, Inc.:
Property management fees $119,817 $117,142
------- -------
------- -------
</TABLE>
Accruals of $40,008 and $41,315 for property management fees and $160,130
and $159,074 for General Partner fees were outstanding at March 31, 1997
and December 31, 1996, respectively. 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 4,663 Units at March 31, 1997.
8
<PAGE>
NOTE D - 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 July
23, 1993 a putative class action, captioned Kahn v. Prudential-Bache
Properties, Inc. et al. (Index No. 11867/93) was filed in the Supreme Court
of the State of New York, County of New York, purportedly on behalf of
investors in the Partnership against the General Partners, PSI, The
Prudential Insurance Company of America and certain of their affiliates and
officers. The case was subsequently removed to the United States District
Court for the Southern District of New York (93 Civ. 5976).
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 Kahn 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
9
<PAGE>
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 Kahn) 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. The court
preliminarily approved the settlement agreement by order dated August 29,
1995 and, following a hearing held November 17, 1995, found that the
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 specific limited partnerships, including
the Partnership, released all settled claims by members of the class
against the PSI settling defendants and permanently barred and enjoined
class members from instituting, commencing or prosecuting any settled claim
against the released parties. The full amount due under the settlement
agreement has been paid. The consolidated action remains pending against
the Spanos General Partner and certain of its affiliates. Although the
order approving the partial settlement agreement dismissed the consolidated
complaint on the merits and with prejudice as against the PSI settling
defendants, it expressly continued the action against all nonsettling
defendants, including the Spanos General Partner, and preserved all claims
against them. 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 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. If the settlement agreement is preliminarily approved
by the Court, 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.
10
<PAGE>
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 attorneys' 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.
NOTE E - SUBSEQUENT EVENT
The Partnership paid accrued first quarter cash distributions of $386,530
to the Unitholders and $7,888 to the General Partners in May 1997.
11
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Capital Resources and Liquidity
The Partnership had cash of $4,301,000 at March 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.
The Partnership's operating activities provided cash of $1,024,000 in the
first quarter of 1997, of which $172,000 reflects timing differences
related to current assets and liabilities. Of the balance, $276,000 was
applied to scheduled principal amortization on the Partnership's mortgage
debt, $394,000 was paid in cash distributions, and $182,000 was retained.
The Partnership resumed paying distributions in May 1996. Distributions
had been suspended following the second quarter of 1992. Future
distributions will be dependent on the operations of the Partnership.
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. If the settlement agreement is preliminarily approved
by the Court, 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.
Results of Operations
Rental revenue was $4,003,000 for the first three months of 1997, an
increase of 1.7% over the same period last year, primarily due to increased
effective rental rates. Average occupancy was 94.5% for the first three
months of 1997 compared to 94.8% for the same period last year.
Property operating expenses were $1,327,000 for the first three months of
1997, virtually unchanged from the comparable period last year. Property
management fees, which are 3% of property revenue, increased with the
increase in revenue. Depreciation expense declined $45,000 because certain
personal property assets became fully depreciated in 1996.
12
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
This information is incorporated by reference to Note D to the financial
statements filed herewith in Item 1 of Part I of the Partnership's
Quarterly Report.
Item 2. Changes in Securities
(None)
Item 3. Defaults Upon Senior Securities
(None)
Item 4. Submission of Matters to a Vote of Security Holders
(None)
Item 5. Other Information
Thomas F. Lynch, III ceased to serve as President, Chief Executive Officer,
Chairman of the Board of Directors and Director of Prudential-Bache
Properties, Inc. 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 Prudential-Bache Properties, Inc.
Item 6. Exhibits and Reports on Form 8-K
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
Registration Statement on Form S-11, File No. 33-22613,
filed with the Securities and Exchange Commission on
October 14, 1988.
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. 1 to Registration Statement on Form S-11,
File No. 33-22613, filed with the Securities and
Exchange Commission on October 14, 1988.
4(c) Amended and Restated Agreement of Limited Partnership of
Registrant, incorporated by reference to Exhibit 4(c) to
Amendment No. 1 to Registration Statement on Form S-11,
File No. 33-22613, filed with the Securities and
Exchange Commission on October 14, 1988.
13
<PAGE>
4(d) Amendments No. 1 through 7 dated November 21, and
December 30, 1988 and January 31, February 28, March 31,
April 28, and May 31, 1989 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. 33-22613, filed with the
Securities and Exchange Commission on June 30, 1989.
4(e) Amendments No. 8 through 14 dated June 30, August 11
and 31, September 29, October 31, and December 1 and 22,
1989 to the Amended and Restated Agreement of Limited
Partnership of Registrant, incorporated by reference to
Exhibit 4(e) to Annual Report on Form 10-K, File No.
0-17683, filed with the Securities and Exchange
Commission on March 28, 1991.
27 Financial Data Schedule (filed herewith)
Reports on Form 8-K
(None)
14
<PAGE>
SIGNATURES
Pursuant to the requirements 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 REALTY PARTNERS, L.P., I (Registrant)
By: A.G. Spanos Realty Partners, L.P., General Partner
By: AGS Financial Corporation, a general partner
By: /s/Arthur J. Cole Date: May 15, 1997
---------------------------------
Arthur J. Cole
President and Chief Accounting Officer
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Arthur J. Cole Date: May 15, 1997
---------------------------------
Arthur J. Cole
Vice President and Chief Accounting Officer
15
