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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [_]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
(revised) 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
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(Name of Registrant as Specified In Its Charter)
A.G. SPANOS REALTY PARTNERS, L.P.
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(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)
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(4) Proposed maximum aggregate value of transaction:
$22,640,000(1)
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(5) Total fee paid:
$4,528
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[X] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
-------------------------------------------------------------------------
(3) Filing Party:
-------------------------------------------------------------------------
(4) Date Filed:
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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>
A.G. SPANOS REALTY PARTNERS, L.P.
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
APRIL __, 1998
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 tenth 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. Although the Partnership is not named as a defendant in this litigation,
it is included among numerous limited partnerships which are at issue in the
litigation. These discussions have culminated in a proposed settlement by
Spanos
<PAGE>
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 District Court for the Southern District of New York (the "Court") has
preliminarily approved the Settlement. Accompanying this letter is a copy of
the Notice to Equitable Class of Pendency of Class Action, Proposed Partial
Settlement of Class Action by the Spanos Defendants, Requirement for Majority
Consent to the Auction of the Properties of Certain Partnerships as Part of the
Spanos Settlement, Settlement Fairness Hearing, Right to Appeal at Hearing and
Right to Object to the Settlement (the "Class Notice"). Unitholders should
review carefully the Class Notice, in conjunction with this letter and the
enclosed Notice of Consent Solicitation and Statement Furnished in Connection
with the Solicitation of Consents (the "Solicitation Statement"). A copy of the
agreement regarding the Settlement will be sent without charge to any Unitholder
who so requests.
------------------------
IMPLEMENTATION OF CERTAIN ELEMENTS OF THE PLAN REQUIRES THE CONSENT OF
HOLDERS OF A MAJORITY OF THE UNITS, AND YOUR APPROVAL IS VERY IMPORTANT. Please
return your Consent card as soon as possible, because a failure to return a
Consent card has the same effect as a "No" vote.
------------------------
<PAGE>
Under the Plan, the properties will be sold at a public auction (the
"Auction") to be conducted by Ernst & Young LLP, an independent national public
accounting and consulting firm, through its E&Y Kenneth Leventhal Real Estate
Group ("Leventhal"). Pursuant to the demands of the plaintiffs in the
negotiations, under the proposed Settlement Spanos has agreed that it or one of
its affiliates will open the Auction by submitting an initial minimum bid so as
to guarantee the Partnership a gross aggregate sales price for all the
properties of at least $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 lead lawyers representing the plaintiffs in the class
action ("Lead Class Counsel"). (Since an affiliate of Spanos will be a bidder,
Spanos will not take any part in reviewing the bids or selecting the winner.)
Leventhal will thereafter re-solicit higher bids from the bidders, other than
Spanos or its affiliate. Following the re-bid period, Leventhal will report the
final bid results to P-B Properties and Lead Class Counsel, who will jointly
determine the successful bid or bids. Leventhal and P-B Properties will then
work toward consummating the sales with the successful bidder or bidders.
If the Plan is approved, it is anticipated that the property sales
will be consummated by mid-1998. As soon thereafter as practicable, the
Partnership will pay cash
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distributions to the Partners from the net sales proceeds after payment of all
expenses and liabilities of the Partnership and certain attorneys' fees, and the
establishment of a reserve account to cover unexpected claims. Any amount
remaining in the reserve account will be distributed to the Partners within
twelve months from the date of the final property closing, whereupon the
Partnership will be dissolved. Overall, the Plan is anticipated to result in
minimum liquidating distributions of approximately $13,520,000, or approximately
$43.00 per Unit, and would produce higher distributions if the Auction results
in sale prices higher than the Spanos initial minimum bid. For further
information, see the discussion under "THE PLAN -- Anticipated Results of
Auction, Use of Proceeds and Cash Distributions" in the enclosed Solicitation
Statement.
Spanos believes that the sale of the properties at this time would be
in the best interests of the Unitholders and recommends that you complete and
return the Consent card. Spanos bases its recommendation on, among other
things, the following factors:
. The Plan permits the properties to be sold 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.
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. The properties generally have shown a trend of improved
occupancies, revenues and net operating income over the past few years, which
Spanos believes enhances their salability.
. The court-approved Auction process provides a mechanism which
Spanos believes will enable the Partnership to sell the properties for the best
aggregate sale price obtainable at the date of sale under current market
conditions. Spanos has guaranteed that the Auction will generate an aggregate
gross sales price of at least $22,440,000 in excess of the Partnership's
aggregate mortgage balance, which after payment of expenses and certain
attorneys' fees will be distributed to the Unitholders, Subordinated Limited
Partners and General Partners as provided in the Partnership Agreement.
. By selling the properties now, the Partnership will eliminate the
risks inherent in the ownership of real property, including, among other things,
the decline in value that can occur as a result of rising interest rates,
increasing real estate investor expectations and changing competition factors in
local rental markets.
. The sale of the properties will provide liquidity to the
Unitholders. At present, there is no established public trading market for the
Partnership's Units, and liquidity has been limited to sporadic sales which
occur within an informal secondary market and two recent tender offers, each for
a limited number of Units, as described in the enclosed Solicitation Statement.
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. Spanos believes that older apartment buildings, even though well
maintained, can over time suffer a competitive disadvantage in attracting and
retaining tenants, as compared to new apartments with more modern amenities in
newer, attractive neighborhoods. For example, the two-bedroom, one-bath
configurations of many of the apartments in the properties is not as attractive
to prospective tenants as two-bedroom, two-bath configurations often found in
newer competing projects. The properties, therefore, may not be able to sustain
current revenue levels. Further, new apartment project construction has
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.
. In the opinion of Spanos, the properties are presently in good
repair, and it is advantageous to sell them before further aging and wear in the
ordinary course of business occurs, thereby requiring substantial cash
expenditures for costly repairs and refurbishments.
. The Partnership's liquidation will eliminate the annual Schedule
K-1 income tax reporting for the Partnership, which is often burdensome to
Unitholders.
Among the disadvantages which would result to Unitholders from the
approval of the Plan are the following:
. The Partnership will not benefit from possible future
improvements in economic and market conditions, which
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possibly could produce increased cash flow and enhance the sales price of the
properties.
. It is not anticipated that, upon receipt of the final liquidating
distributions, the Unitholders will have received aggregate distributions from
the Partnership which will equal the amounts originally invested in the
Partnership.
. No current independent appraisals of the Partnership's properties
have been obtained.
. No independent opinion or evaluation of the fairness of the Plan
has been obtained from any third party.
It should be noted that sale of the properties will eliminate any
future liability of the General Partners for Partnership liabilities and risks
to the Partnership which could arise from continued operation of the
Partnership. Moreover, the Plan is part of a Settlement by Spanos and its
affiliates of certain class action litigation brought against the General
Partners and others. P-B Properties previously settled the claims against it
and its affiliates. The current Settlement has been preliminarily approved by
the Court, and the Plan will not be implemented unless the Court issues a final
order finding that the Settlement is fair, reasonable, adequate and in the best
interests of the Unitholders. Neither of the General Partners will receive any
fees in connection with the sale of the properties or the termination and
liquidation of the Partnership. However, as provided in the Partnership
Agreement, the General Partners will be entitled to receive distributions of
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<PAGE>
approximately $75,000 each, and the Subordinated Limited Partners, who are
affiliates of Spanos, will receive distributions of approximately $8,878,000.
The sale of the properties will result in elimination of the management fees and
special distributions which the General Partners presently receive.
The Plan will result in the sale of all of the properties within a 12-
month period and the subsequent termination and liquidation of the Partnership,
which is an action that must be approved by the Unitholders. Furthermore, since
it is possible that an affiliate of Spanos will be the successful bidder for one
or more of the properties in the Auction, the Plan requires an amendment to the
Partnership Agreement to permit such an affiliate to purchase the properties
from the Partnership. Accordingly, Spanos is soliciting the written consent of
each Unitholder to these elements of the Plan, which are more fully described in
the enclosed Solicitation Statement. Under the Partnership Agreement and
Delaware law, Unitholders do not have rights of appraisal or similar rights if
the Plan is approved.
P-B Properties, having previously settled the claims against it, is
not a party to the Settlement of the litigation described above, but it has
acknowledged the Settlement and agreed to be bound by certain provisions of the
Settlement which require that P-B Properties take, or forebear from taking,
certain actions in connection with the Plan. HOWEVER, P-B
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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.
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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A.G. SPANOS REALTY PARTNERS, L.P.
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
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 an affiliate of Spanos to bid for, and if
successful to purchase, one or more of the Partnership's real properties and
(iii) the complete termination and liquidation of the Partnership, resulting in
cash distributions to the Unitholders, Subordinated Limited Partners and General
Partners, all as more fully described in the accompanying Solicitation
Statement. Although the Plan is a single proposal which must be approved by
Unitholders holding a majority of the Units, Unitholders may indicate approval,
disapproval or abstention with respect to each of the three elements of the
Plan. However, the
<PAGE>
Plan will not be implemented unless Unitholders holding a majority of the Units
approve all three elements.
Only Unitholders of record at the close of business on April 1, 1998
are entitled to notice of the solicitation of Consents and to give their consent
to the Plan. In order to be valid, all Consents must be received before the
earlier of (a) the date upon which Spanos has received Consents from Unitholders
owning a majority of the outstanding Units or (b) 10:00 a.m. California time on
June 30, 1998 (unless such date or time is extended, in the sole discretion of
Spanos, by notice to all Unitholders). The approval will be obtained through
the solicitation of written Consents, and no meeting of Unitholders will be
held. Skinner & Co. has been retained as a soliciting agent, to assist Spanos
in soliciting Consents. A Consent may be revoked by written notice of
revocation or by a later dated action containing different instructions received
by Skinner & Co. at any time on or before the expiration of the time by which
the Consent card must be received.
2
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YOUR APPROVAL IS IMPORTANT. PLEASE READ THE SOLICITATION STATEMENT
CAREFULLY AND THEN COMPLETE, SIGN AND DATE THE ENCLOSED CONSENT CARD AND RETURN
IT IN THE SELF-ADDRESSED PREPAID ENVELOPE. Any Consent card which is signed and
does not specifically disapprove the Plan will be treated as approving the Plan.
Your prompt response will be appreciated.
Dated: April __, 1998 A.G. SPANOS 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
3
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A.G. SPANOS REALTY PARTNERS, L.P.
1341 WEST ROBINHOOD DRIVE, SUITE B-9
STOCKTON, CALIFORNIA 95207
STATEMENT FURNISHED IN CONNECTION WITH THE
SOLICITATION OF CONSENTS
INTRODUCTION
- ------------
This Statement Furnished in Connection with the Solicitation of
Consents ("Solicitation Statement") is furnished to the holders ("Unitholders")
of units of limited partnership interest (the "Units") in Prudential-Bache/A.G.
Spanos 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 an affiliate of Spanos to bid for and, if
the successful bidder, to purchase one or more of the Partnership's real
properties (the "Amendment") and (iii) the subsequent termination and
liquidation of the Partnership pursuant to paragraph 19.2 of the Partnership
Agreement (the "Plan of Liquidation"), as more fully described under "THE PLAN."
Approval by Unitholders of each of the Auction, the Amendment and the Plan of
Liquidation (collectively, the "Plan") is required to implement the Plan. If
<PAGE>
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. Under the Partnership Agreement and Delaware law, Unitholders
do not have appraisal or similar rights if the Plan is approved. See "NO
APPRAISAL RIGHTS."
The Plan is being proposed by Spanos in connection with, and pursuant
to the terms of, a proposed settlement by Spanos and its affiliates (the
"Settlement") of certain class action litigation (the "Litigation") now pending
in the United States District Court for the Southern District of New York (the
"Court"). The Settlement is set forth in a Stipulation of Settlement with
Spanos Defendants (the "Settlement Agreement"), executed by plaintiffs in the
Litigation and by Spanos and certain of its affiliates (the "Spanos
Defendants")./1/ The Court has preliminarily approved the Settlement. After
approval by the Unitholders of the Plan, but prior to implementation thereof,
the Court must enter an order finding that the Settlement is fair,
- -------------------
/1/ The Spanos Defendants are: Alex G. Spanos, AGS Financial Corporation, A.
G. Spanos Realty Partners, L.P., A. G. Spanos Residential Partners-86, A. G.
Spanos Realty Capital, Inc., A. G. Spanos Realty, Inc., A. G. Spanos
Construction, Inc. and AGS Securities Corporation, together with their
respective officers, directors, employees, parent and subsidiary corporations,
successors, heirs, representatives and executors.
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reasonable, adequate and in the best interests of the Unitholders, and such
order must have become final and nonappealable. See "SPECIAL FACTORS --
Background of the Plan" and "CERTAIN PENDING LITIGATION."
Prudential-Bache Properties, Inc. ("P-B Properties"), the co-general
partner of the Partnership, has previously settled with the plaintiffs in the
Litigation and is not a party to the Settlement Agreement. P-B Properties has
advised Spanos that, in view of the unique circumstances under which the Plan
arose, including the fact that P-B Properties and its affiliates have settled
with the plaintiff class in the litigation and did not take part in the
negotiations for the Settlement by Spanos and its affiliates with the Court-
approved counsel and representatives of the plaintiff class, it makes no
recommendation as to whether Unitholders should approve or disapprove the Plan.
However, because the Settlement Agreement contemplates certain action by P-B
Properties in connection with the Auction and the Liquidation, P-B Properties
has executed a separate agreement with the plaintiffs and the Spanos Defendants
whereunder it has acknowledged the Settlement and agreed, subject to final
approval of the Settlement by the Court, to be bound by all of the provisions of
the Settlement Agreement which require that P-B Properties take, or forebear
from taking, certain actions in connection with the Plan (see "THE PLAN--
Description of the Auction"). This Solicitation Statement has been prepared and
is being furnished solely by Spanos.
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Neither Spanos nor P-B Properties (collectively, the "General
Partners") intends to call a meeting of the Unitholders in connection with this
solicitation of Consents. Approval or disapproval by a Unitholder of the Plan
is to be indicated by marking and signing the enclosed form of Unitholder
consent (a "Consent") and returning it to Skinner & Co., which has been engaged
by Spanos on behalf of the Partnership to act as soliciting agent (the
"Soliciting Agent"), in the enclosed self-addressed envelope, which requires no
postage if mailed in the United States. The enclosed form of Consent permits a
Unitholder to indicate approval, disapproval or abstention with respect to each
element of the Plan. However, the Plan will not be implemented unless
Unitholders holding a majority of the outstanding Units approve all three
elements. Moreover, implementation of the Plan is subject to the issuance by
the Court of a final, nonappealable order and judgment approving the Settlement.
Consents of the Unitholders to the Plan will be solicited until the
earlier of: (a) receipt of Consents from Unitholders owning a majority of the
outstanding Units or (b) June 30, 1998 (subject to extension to a date not
later than August 31, 1998, in Spanos' sole discretion, by notice to all
Unitholders).
The close of business on April 1, 1998 (the "Record Date") has been
fixed by Spanos for determining the Unitholders entitled to notice of the
solicitation of Consents and to consent
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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 Consent are first being mailed to Unitholders
on or about April __, 1998.
Pursuant to the Court's preliminary approval order, Unitholders are
enjoined from selling or otherwise transferring their Units without Court
approval, unless both the Unitholder and his or her buyer or transferee agree in
writing to be bound by the Settlement Agreement if finally approved by the
Court. Accordingly, no transfer of Units will be accepted by the General
Partners unless accompanied by such an agreement signed by both the transferring
Unitholder and the transferee and otherwise meeting the requirements of the
Partnership Agreement. Unitholders will be notified as soon as possible as to
the results of this solicitation.
Pursuant to the Partnership Agreement, the consent of Unitholders
holding a majority of the outstanding Units is required to approve the sale of
properties representing 66 2/3% or more of the aggregate net book value of the
Partnership's assets within a 12-month period and the termination of the
Partnership. Under Delaware law and the Partnership Agreement, any matter upon
which the Unitholders are entitled to act may be submitted for a vote by written
consent without a meeting. Any Consent given pursuant to this solicitation may
be revoked by the person giving it at any time before the earlier of (a) the
date
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upon which Spanos has received Consents from Unitholders owning a majority of
the outstanding Units or (b) 10:00 a.m. California time on June 30, 1998
(unless such date or time is extended), by sending a written notice of
revocation or a later dated Consent containing different instructions to the
Soliciting Agent before such date. Any written notice of revocation or
subsequent Consent should be sent to the Soliciting Agent, Skinner & Co., at 660
Market Street, Suite 204, San Francisco, CA 94104 (Telephone 415-981-0970).
In addition to solicitation by use of the mails, officers, directors
and employees of Spanos and its affiliates may solicit Consents in person or by
telephone, facsimile or other means of communication. Such directors, officers
and employees will not receive additional compensation for such services but may
be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. In addition, Skinner & Co. has been retained as Soliciting Agent
to assist Spanos in the solicitation of Consents for a base fee of $1,750, plus
additional fees for time spent by Skinner personnel in communication with
Unitholders and tabulations of Consents, as well as reimbursement of expenses
such as postage, copying, courier and messenger services and telephone and
facsimile costs. The estimated aggregate of Skinner's fees is $6,750, and its
expenses are estimated at approximately $5,000. Arrangements have been made
with custodians, nominees and fiduciaries for the forwarding of Consent
solicitation materials to beneficial owners
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of Units held of record by such custodians, nominees and fiduciaries, and the
Partnership will reimburse such custodians, nominees and fiduciaries for
reasonable expenses incurred in connection therewith. All costs and expenses of
this solicitation of Consents, including the costs of preparing and mailing this
Solicitation Statement, will be advanced by Spanos or its affiliates, subject to
reimbursement from the Partnership unless the consent of Unitholders holding a
majority of the outstanding Units is not obtained on or before 5:00 p.m.
California time on the third business day before the hearing at which the
parties to the Settlement Agreement will request the Court to enter its order
and judgment finally approving the Settlement. That hearing is currently
expected to take place in June, 1998. The aggregate expenses to be incurred
relating to this solicitation are estimated to be approximately $197,000.
Spanos recommends that Unitholders consent to the Plan. See "SPECIAL
FACTORS -- Fairness of the Plan; Recommendation of Spanos."
THE TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF
SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF THE INFORMATION CONTAINED
IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
7
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
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<S> <C>
INTRODUCTION............................................................ 1
SUMMARY................................................................. 10
SPECIAL FACTORS......................................................... 16
Background of the Plan............................................. 16
Effects of the Plan................................................ 21
Fairness of the Plan; Recommendation of Spanos..................... 22
Disadvantages of the Plan.......................................... 25
Advantages of the Plan............................................. 25
Vote Required to Approve the Plan.................................. 28
No Other Offers.................................................... 28
Failure to Approve the Plan........................................ 29
THE PLAN................................................................ 32
General............................................................ 32
Description of the Auction......................................... 34
Description of Properties.......................................... 42
Anticipated Results of Auction, Use of Proceeds and
Cash Distributions................................................ 45
Amendment to Partnership Agreement................................. 47
Liquidation........................................................ 48
Distributions and Fees............................................. 49
PRO FORMA FINANCIAL INFORMATION......................................... 53
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS........................ 53
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS................. 55
Market Prices...................................................... 55
Distributions to Unitholders....................................... 57
FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN............................. 59
General............................................................ 59
Partnership Taxation............................................... 60
Sale of Properties................................................. 60
Tax Allocations and Distributions.................................. 63
Capital Gains Tax.................................................. 67
Passive Loss Limitation............................................ 68
Final Partnership Returns and Future Tax Issues.................... 69
Certain State Income Tax Considerations............................ 70
NO APPRAISAL RIGHTS..................................................... 71
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF......................... 71
CERTAIN PENDING LITIGATION.............................................. 72
</TABLE>
8
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<TABLE>
<CAPTION>
Section Page
- ------- ----
<S> <C>
AVAILABLE INFORMATION................................................... 77
INDEX TO FINANCIAL STATEMENTS........................................... F-1
EXHIBIT A: Proposed Amendment to Amended and Restated Agreement
of Limited Partnership of Prudential-
Bache/A.G. Spanos Realty Partners L.P., I................ A-1
EXHIBIT B: Annual Report of Partnership on SEC Form 10-K
for the year ended December 31, 1997..................... B-1
</TABLE>
9
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SUMMARY
The following is a summary of certain information contained elsewhere in this
Solicitation Statement. This Summary does not purport to be complete and is
qualified in its entirety by the more detailed information contained in this
Solicitation Statement and the exhibits hereto. Unless otherwise specifically
provided, terms used in this Summary have the respective meanings ascribed to
them elsewhere in this Solicitation Statement or, if not defined herein, in the
Partnership Agreement. Unitholders are urged to read this Solicitation
Statement and the exhibits in their entirety.
THE PARTNERSHIP
- ---------------
Prudential-Bache/A.G.
Spanos Realty
Partners L.P., I............... The Partnership is a Delaware limited
partnership which owns eight real properties
(the "Properties") consisting 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 an
affiliate of Spanos to bid for, and if the
successful bidder to purchase, one or more of
the Properties from the Partnership (the
"Amendment"); and (iii) the subsequent
termination and liquidation of the Partnership
and the distribution to the Unitholders,
Subordinated Limited
10
<PAGE>
Partners and the General Partners of the net
sales proceeds and other cash held by the
Partnership at the time of distribution, other
than certain amounts set aside to provide for
the payment of all expenses and other
liabilities of the Partnership and payment of
certain attorneys' fees in the Litigation (the
"Plan of Liquidation").
Record Date; Units Entitled
to Consent..................... Unitholders of record at the close of business
on April 1, 1998 are entitled to vote by
written Consent. At such date, there were
outstanding 316,828 Units, each of which will
entitle the record owner thereof to one
vote.
Vote Required.................. The Plan will not be implemented unless
written Consents approving each element of the
Plan are received from Unitholders of record
holding a majority of all outstanding Units.
See "VOTING SECURITIES AND PRINCIPAL HOLDERS
THEREOF" for information regarding Unit
ownership by Prudential Securities
Incorporated ("Prudential Securities"), an
affiliate of P-B Properties.
Termination of Consent
Solicitation................... Consents must be received by the earlier of
(a) the date on which Spanos has received
Consents from Unitholders owning a majority of
the outstanding Units or (b) 10:00 a.m.
California time on June 30, 1998 (unless such
date or time is extended, in the sole
discretion of Spanos, by notice to all
Unitholders, to permit further solicitation of
Consents if majority approval has not been
obtained).
11
<PAGE>
THE PLAN
- --------
General........................ The Plan is a single proposal consisting of
the Auction, the Amendment and the Plan of
Liquidation.
Background of the Plan......... See "SPECIAL FACTORS -- Background of the
Plan."
Recommendation of Spanos....... Spanos recommends the approval of the Plan.
Spanos has been advised by P-B Properties that
it is making no recommendation regarding the
Plan, because the Plan was developed in the
course of negotiations (in which P-B
Properties did not participate) for the
settlement of class action litigation (to
which P-B Properties is no longer a party,
having entered into a separate settlement with
the plaintiff class), which negotiations were
undertaken with Spanos and its affiliates by
Lead Class Counsel approved by the Court on
behalf of the plaintiff class, the
representatives of which were also approved by
the Court. See "SPECIAL FACTORS -- Fairness
of the Plan; Recommendation of Spanos."
Security Ownership and Voting
of the General Partners........ As of the Record Date, neither of the General
Partners, nor any executive officer or
director of a General Partner, owned directly
or beneficially any Units. Prudential
Securities beneficially owned approximately
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.
12
<PAGE>
Consummation of the
Plan of Sale................... The Auction will be held as promptly as
practicable after obtaining the requisite
approval of the Unitholders to the Plan and
after the Court has entered a final
nonappealable order and judgment approving the
Settlement. It is anticipated that property
sales pursuant to the Auction will be
consummated by mid-1998.
No Appraisal Rights............ Unitholders have no appraisal rights in
connection with the Plan. See "NO APPRAISAL
RIGHTS."
Federal Income
Tax Consequences............... The Partnership will have taxable gain or loss
upon its sale of each Property. Such gain or
loss will be allocated to the Unitholders in
accordance with the Partnership Agreement, and
generally will constitute Section 1231 gain or
Section 1231 loss. Any Section 1231 gains
would be eligible for a reduced tax rate. See
"FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN
-- Capital Gains Tax." For most tax-exempt
Unitholders, only a portion of the gain from
the sale of the Properties would be treated as
unrelated business income. See "FEDERAL
INCOME TAX CONSEQUENCES OF THE PLAN -- Sale of
Properties."
Distributions to a Unitholder generally will
not be taxable to the extent the distributions
do not exceed the Unitholder's adjusted tax
basis in the Units. The tax basis in the
Units will be reduced by the distributions,
and those in excess of the tax basis generally
will be treated as capital gain, which will be
long-term if the applicable Units have been
held for more than one year. Unitholders who
have remaining tax basis in their Units after
termination of the Partnership generally will
have
13
<PAGE>
a capital loss. See "FEDERAL INCOME TAX
---
CONSEQUENCES OF THE PLAN -- Tax Allocations
and Distributions."
Final Distributions and
Liquidation.................... As promptly as practicable following the sale
of the last Property, after payment or
reserving for payment of all costs of the
Auction and this Consent solicitation, the
General Partners will determine the amount of
funds which they believe will be sufficient to
provide for the Partnership's remaining
expenses and liabilities, including the costs
of liquidation of the Partnership and any
contingent liabilities. Such liabilities
would include potential liabilities under
contracts of sale of the Properties. The
Settlement Agreement provides that the amount
of the contingency reserve shall not exceed
$1,000,000, and that such reserve will be held
for a period of one year or less. The
Settlement Agreement further provides that
Lead Class Counsel representing the
Unitholders may apply to the Court for an
award of attorneys' fees payable out of the
amount of property sales proceeds which would
otherwise be distributable to the Unitholders.
After establishment of the contingency reserve
and payment of the Court-approved attorneys'
fees, the balance of the Partnership's funds
will be distributed to the Unitholders,
Subordinated Limited Partners and General
Partners in accordance with the Partnership
Agreement. Once all known liabilities have
been satisfied, the Partnership will
distribute its remaining net assets and
terminate. Any remainder of the $1,000,000
reserve will be distributed to the Unitholders
in accordance with the
14
<PAGE>
Partnership Agreement, and the General
Partners will remain obligated with respect to
any unsatisfied obligations of the
Partnership.
15
<PAGE>
SPECIAL FACTORS
Before consenting to the Plan, Unitholders should carefully consider
certain factors regarding the Plan:
Background of the Plan
- ----------------------
The Partnership was formed in 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 for an aggregate purchase price of $107,500,000. See
"Description of Properties" below.
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.
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
16
<PAGE>
best interests of the Partnership. Affiliates of Spanos which have acted as
general partners of real estate limited partnerships have periodically evaluated
the desirability of sale of individual properties held by those partnerships,
after the minimum anticipated holding periods had ended. Similarly, Spanos has
from time to time evaluated the Properties and those of Prudential-Bache/A.G.
Spanos Genesis Income Partners L.P., I (the "Genesis Partnership"), a public
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. While the Partnership has sold no
properties since its inception, the Genesis 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
17
<PAGE>
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 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.
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
18
<PAGE>
terms of specific sales. Advance approval of the Plan will allow the General
Partners to consummate a sale or sales of the Properties upon completion of the
Auction, without risking loss of the buyer or buyers due to delays in obtaining
the necessary consents of Unitholders.
The Plan is being proposed by Spanos in connection with the Settlement
of the Litigation. The Litigation was commenced as a class action against P-B
Properties and its affiliates, and was expanded to include Spanos and its
affiliates in 1993. See "CERTAIN PENDING LITIGATION." In early 1994, counsel
for Spanos and its affiliates met with the lead lawyers representing the
plaintiffs in the litigation ("Lead Class Counsel") to explore the prospects for
settlement of the Litigation as to Spanos and its affiliates. From the
beginning of the settlement negotiations, Lead Class Counsel and the
representatives of the class of plaintiffs (the "Class Representatives")
demanded the sale of the properties of the Partnership and the Genesis
Partnership and liquidation of such partnerships, and that Spanos or its
affiliates provide "floor bids," to ensure a bargained-for specified minimum
amount of proceeds to be distributed to Unitholders. Lead Class Counsel, Spanos
and Spanos Genesis agreed that the expense of appraisals of each of the
properties was not warranted, because a public auction after dissemination of
full information to prospective bidders, together with a guaranteed minimum bid,
would provide a superior measure of the values of the various properties than
would opinions of non-
19
<PAGE>
bidding appraisers. In the initial meeting, Lead Class Counsel, Spanos and its
affiliates began negotiations concerning the amount of a floor bid for the
properties of both the Partnership and the Genesis Partnership. Spanos
initially offered a floor bid for all of the properties aggregating $31,900,000
over the existing mortgage debt on the properties. Lead Class Counsel
thereafter engaged a financial and evaluation consultant who requested
additional information regarding the Properties, which was provided by Spanos
and reviewed by the consultant. In determining the amount of its proposed floor
bid, Spanos did not undertake a formal valuation of the properties, but rather
relied on its own familiarity with the properties and its expertise generally
with respect to multi-family residential properties, and took into account the
market conditions for such properties and the desirability of settling the
Litigation.
Throughout 1994, negotiations continued with Lead Class Counsel and
its consultant, primarily relating to the floor bids. In addition, Spanos'
counsel met twice with members of the executive committee formed by counsel to
plaintiffs in the Litigation, Lead Class Counsel and its consultant, and in late
1994 Spanos agreed to negotiate further its floor bids. Ultimately, Spanos
agreed to increase its minimum bid for the properties of both partnerships to
$41,000,000 over existing mortgage debt. However, no agreement regarding a
settlement was reached, and negotiations continued during 1995. In June of
1995, Spanos increased its aggregate floor bid offer to
20
<PAGE>
$41,360,000, but still no definitive agreement was reached. Throughout the
remainder of 1995 and 1996, settlement negotiations were carried on, and various
proposed forms of a settlement agreement were exchanged between the parties. In
May, 1997, after further negotiations, Spanos increased its aggregate floor bid
offer to $43,000,000, allocated $22,440,000 to the Partnership and $20,560,000
to the Genesis Partnership, in each case over existing mortgage debt. Lead
Class Counsel, its consultant and the executive committee of plaintiffs' counsel
agreed to this offered amount, and on May 12, 1997, the Settlement Agreement was
executed. The increases in the amount of floor bid which Spanos offered
resulted from the negotiation process, although the fact that the markets for
the properties had improved further also influenced its decisions.
On May 20, 1997, the Court entered its preliminary order which, among
other things, approved the appointment of representatives of the plaintiff
class, approved the appointment of Lead Class Counsel, preliminarily approved
the Settlement and approved the form of Notice to the Unitholders which
accompanies this Solicitation Statement.
If the Plan is approved by the Unitholders, and if the Court enters a
final nonappealable order and judgment approving the Settlement, the Auction
will take place as promptly as is practicable, consistent with meeting the terms
of the Plan, as described under "THE PLAN -- Description of the Auction."
21
<PAGE>
Effects of the Plan
- -------------------
If the Plan is approved and implemented as proposed, the effects of
the Plan will be the sale of substantially all of the Partnership's assets, the
termination of the Partnership's business, the winding up of the Partnership's
affairs and the distribution to the General Partners, the Subordinated Limited
Partners and the Unitholders of the net proceeds of the Auction and the
Partnership's other assets, after payment of liabilities, liquidation expenses
and certain attorneys' fees. Spanos estimates that, assuming the Properties are
sold for the amount of its Minimum Overall Bid (as defined under "THE PLAN --
Description of the Auction"), the Unitholders will receive an initial cash
distribution of approximately $39.51 per Unit upon completion of the Sale of the
Properties, and may receive a distribution of up to an additional $3.16
approximately one year later. See "THE PLAN -- Anticipated Results of Auction,
Use of Proceeds and Cash Distributions." The amount distributed to each
Unitholder generally will not be taxable to the extent the distributions do not
exceed the Unitholder's adjusted tax basis in the Units. See "FEDERAL INCOME
TAX CONSEQUENCES OF THE PLAN -- Tax Allocations and Distributions."
Fairness of the Plan; Recommendation of Spanos
- ----------------------------------------------
Spanos reasonably believes that the Plan is fair to the Unitholders
and recommends approval of the Plan. No appraisals of the Properties were
obtained, and no independent evaluation of the fairness of the Plan to
Unitholders has been made. However,
22
<PAGE>
the Settlement has been preliminarily approved by the Court, and the Plan will
not be implemented unless the Court, after approval of the Plan by the
Unitholders, issues an order finding that the Settlement is fair, reasonable,
adequate and in the best interests of the Unitholders. Further, the auction
process is designed to secure the highest prices available for the Properties on
the date of the Auction.
In reaching its conclusion to recommend approval of the Plan, Spanos
considered the following factors:
(1) the fact that the Properties have now been held for their
originally anticipated holding periods, which militates in favor of a sale of
the Properties at this time;
(2) increased availability of investor capital and the increased
purchasing activity and favorable interest rate environment, which also
militates in favor of sale;
(3) improved occupancies and revenues in recent years, which enhance
the prospects for realization of an adequate sale price for the Properties;
(4) the potential for future operating performance increases and a
possible increase in the value of the Properties, which might militate in favor
of holding the Properties, but which also might enhance their salability;
(5) the satisfactory physical condition of the Properties and the
need for expenditures for repairs, replacements and improvements to be incurred
in the future, which militates in favor of a sale now;
23
<PAGE>
(6) the presence of competition and the possibility of increased
future competition, which suggest that a sale now may be advisable;
(7) the relative illiquidity of the Units, which militates in favor
of sale;
(8) the historic levels of cash distributions to the Unitholders, the
suspension of cash distributions in 1992 and the resumption of distributions in
1996 at a significantly lower level, which suggest that Unitholders would
benefit from recovering their investment now; and
(9) the potential for an increase in the amounts of distributions,
which might militate in favor of holding the Properties, if such future
distributions would represent a rate of return equivalent to that available in
other investments.
In addition, Spanos took into account the pendency of the Litigation,
including (i) the extensive negotiations with Lead Class Counsel leading to the
Settlement Agreement and the Court's approval of the Settlement; (ii) the fact
that included in the relief sought by the plaintiffs is rescission of the
original issuance of the Units; (iii) the costs expended to date and expected to
be expended by Spanos and its affiliates in continuing defense against such
Litigation; and (iv) the effects of participation in the defense of such
Litigation upon certain of the key personnel of Spanos, each of which was
considered from Spanos' standpoint to weigh in favor of offering a floor bid
and
24
<PAGE>
selling the Properties to settle the Litigation. See "CERTAIN PENDING
LITIGATION."
Spanos does not believe that it is feasible to attempt to quantify any
of the foregoing factors, nor did Spanos accord any particular weight to any of
those factors, although it believes that the fact that the Properties have now
been held for their originally anticipated holding periods and the fact that the
representatives of the class action plaintiffs, which include all of the
Unitholders, demanded sale of the Properties weighed more heavily in favor of
the Plan than did other factors. After reviewing all of the above, Spanos
concluded that these factors weighed in favor of agreeing to the floor bids and
selling the Properties now, rather than sometime in the future, because it
believes that the risks of continuing to own the Properties outweigh the
benefits of continued ownership.
Disadvantages of the Plan
- -------------------------
The primary disadvantage of disposing of the Properties at this time
is that the Partnership will not benefit from possible further improvements in
economic and market conditions which might produce increased cash flow and
possibly enhance the sales prices of the Properties. Further, it is not
anticipated that the Unitholders will receive aggregate distributions from the
Partnership, including distributions from sales of the Properties and any
remaining contingency reserve, which will equal the amounts originally invested
in the Partnership. In
25
<PAGE>
addition, no current independent appraisals of the Properties were obtained,
because Spanos believes that a public auction after dissemination of full
information to prospective bidders, together with its affiliate's minimum bids,
will provide a superior measure of the values of the Properties than would
opinions of non-bidding appraisers. No independent opinion or evaluation of the
fairness of the Plan to Unitholders has been made. However, the Plan will not
be implemented unless the Court issues an order finding that the Settlement is
fair, reasonable, adequate and in the best interests of the Unitholders.
Advantages of the Plan
- ----------------------
In addition to the factors regarding the Settlement discussed under
"Background of the Plan" above, Spanos based its recommendation on the
following factors:
(i) SPANOS' BELIEF THAT THE CURRENT LEVEL OF MORTGAGE INTEREST RATES
AND INCREASED AVAILABILITY OF INVESTOR CAPITAL ARE FAVORABLE FOR THE SALE OF THE
PROPERTIES. In particular, Spanos has considered as favorable factors the
availability of potential purchasers with sufficient equity to purchase
properties; the availability of financing for the acquisition of real estate
from the capital markets and traditional lending sources; and continued
favorable interest rates which make it less expensive for potential purchasers
to borrow funds.
(ii) GENERAL IMPROVEMENT IN THE OCCUPANCIES, REVENUES AND NET
OPERATING INCOME OF THE PARTNERSHIP'S PROPERTIES, which Spanos believes enhances
their salability.
26
<PAGE>
(iii) REALIZATION OF HIGHEST OBTAINABLE PRICES THROUGH THE AUCTION.
The Court-approved Auction process provides a mechanism which Spanos believes
will enable the Partnership to sell the Properties for the best aggregate sale
price obtainable at the time of sale, under current market conditions.
Moreover, the guaranteed minimum bids from an affiliate of Spanos provide
assurance that the Properties will be sold at prices exceeding existing mortgage
debt and sufficient to assure at least $22,440,000 of gross sale proceeds.
(iv) RISKS OF CONTINUED OWNERSHIP. Retaining the Properties will
continue to subject the Partnership to the risks inherent in the ownership of
rental property, such as fluctuations in occupancy rates, operating expenses and
rental rates (which in turn may be affected by general and local economic
conditions), the supply and demand for apartment properties of the type owned by
the Partnership, increased competition (particularly from newer apartment
projects with more desirable configurations and greater amenities) and federal
and local laws and regulations affecting the ownership and operation of real
estate.
(v) LIQUIDITY. The sales will provide liquidity to the
Unitholders. At present, there is no established public trading market for the
Partnership's Units, and liquidity has been limited to sporadic sales which
occur within an informal secondary market, and two recent tender offers, each
for a
27
<PAGE>
limited number of Units. See "MARKET PRICES OF UNITS AND DISTRIBUTIONS TO
UNITHOLDERS -- Market Prices."
(vi) INCREASED COMPETITION. Spanos believes that older apartment
buildings such as those on the Properties, even though well maintained and in
good condition, can over time suffer a competitive disadvantage in attracting
and retaining tenants, as compared to new apartments with more modern amenities
in newer, attractive neighborhoods. Further, the two-bedroom, one-bath
configurations of many of the apartments in the Properties are not as attractive
for prospective tenants as two-bedroom, two-bath configurations often found in
newer competing projects. In addition, new apartment construction has commenced
recently in several of the Properties' market areas, as a result of recent price
increases for apartment projects and readily available financing for such
construction. The Properties, therefore, may not be able to sustain current
levels of revenue.
(vii) THE CONDITION OF THE PROPERTIES. The Partnership has
maintained the Properties in good condition during the past few years. Spanos
believes that it would be advantageous to sell the Properties now before further
aging and wear in the ordinary course occurs, thereby requiring substantially
increased expenditures for repairs and refurbishment.
(viii) THE PARTNERSHIP'S ORIGINAL OBJECTIVES AND POLICIES. Sales of
the Properties at this time are compatible with the Partnership's originally
anticipated holding periods.
28
<PAGE>
(ix) ELIMINATION OF SCHEDULE K-1 REPORTS. The Partnership's
liquidation will eliminate the requirement for annual Schedule K-1 income tax
reporting for the Partnership, which Spanos believes is often burdensome for
Unitholders.
Vote Required to Approve the Plan
- ---------------------------------
Implementation of the Plan requires that Spanos receive Consents
approving each element of the Plan from Unitholders of record holding a majority
of all outstanding Units.
No Other Offers
- ---------------
During the 18 months preceding the date of this Solicitation
Statement, neither Spanos nor the Partnership has received any firm offers from
unaffiliated persons for the merger or consolidation of the Partnership with
another entity or the sale of all or any substantial part of its assets to any
third party, nor is Spanos aware of any firm offer for Units which would enable
the holder of such Units to exercise control over the Partnership. However,
immediately prior to execution of the Settlement Agreement, Spanos received from
an unaffiliated entity a tentative offer for the purchase of all of the
Properties of the Partnership for a price which would have yielded less net
proceeds to the Partnership than would result from Spanos' Minimum Overall Bid.
Because of the lower price offered, the lack of assurance that such a sale would
result in termination of the Litigation and the fact that negotiations for the
definitive Settlement Agreement were substantially complete, Spanos determined
that it was in the best interests of the Partnership
29
<PAGE>
to proceed with the Settlement Agreement, and Spanos so advised the entity
making the tentative offer, and suggested that it submit a bid for the
Properties in the Auction. Moreover, certain limited tender offers for Units
have been made during such period. See "MARKET PRICES OF UNITS AND
DISTRIBUTIONS TO UNITHOLDERS"
Failure to Approve the Plan
- ---------------------------
If the Unitholders fail to approve the Plan, the Partnership will
continue to own the Properties. In such event, Spanos expects that the
Partnership will operate the Properties for an indefinite period, which over
time would likely entail substantial expenditures for repairs and refurbishment.
Consistent with the Partnership Agreement, the General Partners may receive or
solicit offers for the sale of one or more of the Properties as opportunities
arise. In any such sale, the Partnership would benefit from any increase in
value of the affected property over the value at the time of the Auction, and
would suffer a detriment to the extent of decrease in such value. Failure by
the Unitholders to approve the Plan will not affect their rights under the
Partnership Agreement.
30
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
- ----------------------------------
The following table sets forth selected financial data of the
Partnership for each of the five years in the period ended December 31, 1997.
This data should be read in conjunction with the financial statements, related
notes and other financial information included in the Partnership's Annual
Report on Form 10-K for the year ended December 31, 1997, a copy of which is
attached hereto as Exhibit B.
<TABLE>
<CAPTION>
For Year Ended December 31,
(In thousands, except per -----------------------------------------------------
Unit and per Subordinated
Interest amounts) 1997 1996 1995 1994 1993
- ------------------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total Revenues $16,124 $15,931 $15,362 $14,500 $13,424
Interest Expense 5,082 5,177 6,015 6,381 6,835
Net Loss (54) (402) (1,752) (2,713) (3,673)
Net Loss to (1) (8) (35) (54) (73)
General Partners
Net Loss per -0- -0- -0- -0- -0-
Subordinated Interest
Net Loss per Unit (0.17) (1.24) (5.42) (8.39) (11.36)
Cash Distributions per -0- -0- -0- -0- -0-
Subordinated Interest
Cash Distributions per 4.88 4.88 -0- -0- -0-
Unit
<CAPTION>
At December 31,
-----------------------------------------------------
1997 1996 1995 1994 1993
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
FINANCIAL POSITION
Total Assets $79,257 $82,001 $84,564 $87,946 $91,804
Mortgage Loans Payable 64,184 65,322 66,362 67,215 68,581
Unitholders' Equity 5,331 6,929 8,869 10,586 13,245
Subordinated Limited 8,878 8,878 8,878 8,878 8,850
Partners' Equity
General Partners' Deficit (1,340) (1,307) (1,268) (1,233) (1,179)
Total Partners' Equity 12,869 14,500 16,479 18,231 20,916
</TABLE>
31
<PAGE>
THE PLAN
GENERAL
The Plan was developed by Spanos in connection with the Settlement of
the Litigation and is being proposed by Spanos for consent by Unitholders to
each element of the Plan -- the Auction, the Amendment and the Plan of
Liquidation. See "INTRODUCTION" and "SPECIAL FACTORS -- Background of the
Plan."
The principal advantages of the Plan are:
. Sale of the Properties in a favorable market for multi-family
properties.
. Enhanced salability due to recent improved operations of the
Properties.
. Sale of the Properties in a public auction, with substantial
information available to bidders.
. Providing liquidity to the Unitholders.
. Sale while the Properties are in good repair, avoiding substantial
expenditures for repairs and refurbishments.
. Guaranteed minimum bids from an affiliate of Spanos.
. Sale of the Properties within the originally anticipated holding
period.
. Elimination of Schedule K-1 tax reports.
See "SPECIAL FACTORS -- Advantages of the Plan."
The principal disadvantages of the Plan are:
32
<PAGE>
. Unitholders will not benefit from possible improvements in economic
and market conditions affecting the Properties.
. Unitholders will not likely recover their original investments.
. No current independent appraisals of the Properties have been
obtained.
. No independent opinion or evaluation of the fairness of the Plan to
Unitholders has been obtained.
See "SPECIAL FACTORS -- Disadvantages of the Plan."
Spanos recommends that the Unitholders approve the Plan, including
approval of the Auction, which will result in the sale of all of the
Partnership's Properties, followed by the termination and liquidation of the
Partnership. If the Plan is approved, and the Court enters a final
nonappealable order and judgment approving the Settlement, the Properties will
be sold in the Auction on the terms set forth below and in accordance with the
terms of the Partnership Agreement as amended by the Amendment. See
"Description of the Auction" below.
Approval of the Plan will not automatically result in the sale of the
Properties. Spanos and its affiliates have the right, but not the obligation,
to terminate the Settlement on the occurrence of certain conditions, including
the failure by the Court to enter a final order and judgment approving the
Settlement, or the entering by the Court of an order and judgment which varies
from that contemplated by the parties to the
33
<PAGE>
Settlement Agreement, or the failure of a majority of the Unitholders to approve
the Plan. The only other conditions which would permit Spanos and its
affiliates to terminate the Settlement have been satisfied by the date of this
Solicitation Statement. Termination of the Settlement would have the effects
described under "SPECIAL FACTORS -- Failure to Approve the Plan," and the
Litigation would continue.
The Court must enter an order and judgment approving the fairness of
the Settlement, and the order and judgment must become final and no longer
subject to appeal or review, before the Plan may be effected.
Description of the Auction
- --------------------------
The Auction will be conducted as follows:
a. Conduct of the Auction. The Settlement Agreement covers both the
----------------------
Partnership and the Genesis Partnership, and provides for a combined
simultaneous Auction of the properties of both partnerships (the "Auction
Properties"). Since one or more affiliates of Spanos and Spanos Genesis
(collectively, the "Spanos General Partners") will initially bid in the Auction,
the Settlement Agreement provides that the Spanos General Partners shall have no
involvement in conducting the Auction, except that they may identify potential
bidders to be invited to participate in the Auction, have agreed to assist in
accommodating due diligence information requests from potential bidders and have
agreed to submit certain minimum bids, as hereafter described.
34
<PAGE>
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 ("Eckland Consultants"), to perform a physical
inspection of the Auction Properties and prepare an engineering report setting
forth any material structural or operational defects and to provide a Phase I
report (and if necessary a Phase II report) on the environmental condition of
each of the Auction Properties; (iii) to contract with First American Title
Insurance Company to perform title searches and issue preliminary title
commitments; and (iv) to contract with one or more qualified termite inspection
companies, selected by the Agent and acceptable to P-B Properties and Lead Class
Counsel, to perform termite inspections at each Auction Property. The fees and
expenses of the Agent, the independent real estate counsel, Eckland Consultants,
the title company and the termite inspection companies will be borne by the
Partnership and the 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.
35
<PAGE>
The Agent will prepare packages of information (the "Bid Packages")
for distribution to potential bidders regarding the Auction, the Auction
Properties, the Partnership and the Genesis Partnership, including bidding
instructions, a bid form, a basic sales contract and various due diligence
materials for each of the Auction Properties, including the following:
(i) the reports of Eckland Consultants;
(ii) the preliminary title commitment;
(iii) the termite inspection report;
(iv) detailed operating statements for the last three full calendar
years;
(v) the rent roll;
(vi) copies of leases and schedules of current lease rates and
expirations;
(vii) descriptions of all capital improvements of all assets
reflected in the operating statement of the Auction Property;
(viii) schedules of required and planned capital improvements,
renovations and repairs;
(ix) a summary of any mortgage debt on the Auction Property,
including explanations of prepayment and assumption fee
provisions; and
(x) a property-level budget, together with all property-level
contracts not cancelable on 30 days' notice.
36
<PAGE>
The Bid Packages will also include audited consolidated operating statements for
the Partnership and the Genesis Partnership for the last three full calendar
years, as well as any other information which the Agent may deem useful and
appropriate in soliciting bids.
In the Settlement Agreement, the Spanos General Partners have agreed
to assist in accommodating all reasonable due diligence requests from potential
bidders, including providing (i) access to the books and records of the
Partnership, the Genesis Partnership and the individual Auction Properties
(including the rent rolls, operating statements and budgets included in the Bid
Packages, and such other information as is reasonably necessary to verify the
income and expenses of the Properties), (ii) opportunities for interviews with
management personnel of Spanos and Spanos Genesis, including property managers,
superintendents and leasing agents and (iii) on-site inspections of the Auction
Properties.
To receive a Bid Package, a potential bidder must execute a
confidentiality agreement and demonstrate to the Agent's satisfaction that it
has the financial ability and legal capacity to prepare and submit a bona fide
bid and to undertake and perform all obligations arising upon acceptance of its
bid.
After distribution of the Bid Packages, the Agent will solicit bids
from qualified bidders (i.e., persons or entities which the Agent believes to
have the financial ability and legal capacity to prepare and submit a bona fide
bid in the Auction and
37
<PAGE>
to undertake and perform all obligations arising upon acceptance of any bid they
may submit) and will conduct the Auction.
In the Auction, the Agent will neither favor nor disfavor the
affiliate or affiliates of the Spanos General Partners which submit the minimum
required bids described below.
The Agent will establish an "Initial Bid Period," within which bidders
may conduct further due diligence and submit preliminary written bids. A bidder
may either bid for all of the Auction Properties of either the Partnership or
the 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 (other than the Spanos affiliate) who
have previously bid on a Property or Properties, for a period of no more than 30
days from the close of the Initial Bid Period. The Agent will then determine
the total of the highest of the Individual Bids submitted for each of the
Auction Properties, and the highest Overall Bid for all of
38
<PAGE>
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., either the Overall Bid or the aggregate Individual
Bids which will, in the judgment of P-B Properties and Lead Class Counsel,
produce the highest gross cash price in excess of existing mortgage debt to each
of such partnerships).
Upon determination of the Successful Bids, the Agent will immediately
notify the makers of those bids (the "Successful Bidders") and seek to obtain
their signatures on the basic sales contract included in the Bid Package.
b. Execution of Sales Contracts. The bid form will ask the
----------------------------
Successful Bidders to execute the basic sales contract immediately and promptly
to deposit the full purchase price into an escrow. However, the Agent will be
authorized to negotiate with each of the Successful Bidders as to the definitive
form of the sales contract, subject to approval by P-B Properties and Lead Class
Counsel. If any Successful Bidder fails or refuses to execute a sales contract
at the price and on the terms included in the Successful Bid (with such
modifications as may be approved as aforesaid), the Agent may, with the
concurrence of P-B Properties and Lead Class Counsel, substitute as the
Successful Bid for the Auction Property or Auction Properties in question the
bid or bids producing the next highest gross cash price in
39
<PAGE>
excess of existing mortgage debt to the Partnership or the Genesis Partnership,
as the case may be.
c. Minimum Spanos Bid; No Other Bids or Purchases By Spanos. Under
--------------------------------------------------------
the Settlement Agreement, Spanos has agreed that one or more of its affiliates
(the "Spanos Bidder") will, at the outset of the Initial Bid Period, submit a
preliminary written Overall Bid which will provide to the Partnership a gross
cash price in excess of then-existing mortgage debt of at least $22,440,000 (the
"Minimum Overall Bid"). In addition, Spanos has agreed that the Spanos Bidder
will submit preliminary written Individual Bids for each of the Properties in
amounts such that the aggregate gross cash price in excess of existing mortgage
debt for all of the Properties is at least $22,440,000.
The following table sets forth the amount of each preliminary
Individual Bid which Spanos currently intends that the Spanos Bidder will
submit:
<TABLE>
<CAPTION>
Excess of Bid
Individual Price Over
Property Bid Price Mortgage Debt (1) Mortgage Debt
- --------- ----------- ----------------- -------------
<S> <C> <C> <C>
Silver Springs $ 7,103,000 $ 5,398,000 $ 1,705,000
Rancho del Sol 15,405,000 11,130,000 4,275,000
Sandpebble 9,643,000 5,528,000 4,115,000
Regency Square 9,922,000 8,047,000 1,875,000
Cameron Creek 8,417,000 6,427,000 1,990,000
Harbor Pointe 14,221,000 12,931,000 1,290,000
Pointe West 4,534,000 3,064,000 1,470,000
Bernardo Crest 17,235,000 11,515,000 5,720,000
----------- ----------- -----------
Total $86,480,000 $64,040,000 $22,440,000
----------- ----------- -----------
</TABLE>
- ----------------
(1) Principal amount of mortgage debt outstanding as of December 31, 1997.
40
<PAGE>
If the Spanos Bidder's guaranteed Minimum Overall Bid is the
Successful Bid for the Properties, Spanos estimates that the ultimate aggregate
distributions to Unitholders upon consummation of the Liquidation will be
approximately $43.00 per Unit. See "Anticipated Results of Auction, Use of
Proceeds and Cash Distributions" below.
Under the Settlement Agreement, the Spanos Bidder may submit an
improved Individual Bid for one or more of the Properties during the re-bid
period, and, may also improve any Overall Bid previously submitted. However,
certain Unitholders who were informed regarding the proposed conduct of the
Auction informally expressed concern that the ability of the Spanos Bidder to
submit improved Individual and Overall Bids could chill the interests of
potential third-party bidders in the Auction. Accordingly, Spanos has
determined that, after submission of the required Minimum Overall Bid and
required initial Individual Bids, neither the Spanos Bidder nor Spanos nor any
other affiliate of Spanos will submit improved bids during the re-bid period.
Therefore, if any third-party bidder submits an Overall Bid which exceeds the
Minimum Overall Bid of the Spanos Bidder, then the Spanos Bidder will not be the
Successful Bidder. Moreover, as to each Property, if any third-party bidder
submits an Individual Bid which exceeds the Spanos Bidder's initial Individual
Bid, then the Spanos Bidder will not be the Successful Bidder as to such
Property. Each of the bids submitted by the Spanos Bidder will be considered a
final bid and will remain open
41
<PAGE>
through the end of the re-bid period. If the Spanos Bidder is the Successful
Bidder with respect to one or more of the Properties, it will be required to
execute the basic sales contract without change. It is presently anticipated
that the Spanos Bidder will be A.G. Spanos Construction, Inc., which will
utilize its existing cash reserves and presently available bank lines of credit
to fund the purchase price of any Property as to which it is the Successful
Bidder.
d. Consummation of Sales of Properties. The bid form and the form of
-----------------------------------
basic sales contract will provide that the sale of a Property will be
consummated as soon as practicable after execution of the contract. At the
closing of the sale of each Property, the escrow agent for such property will be
directed to disburse the net sale proceeds to the Partnership.
For a general discussion of the tax consequences from the sale of the
Properties, see "FEDERAL INCOME TAX CONSEQUENCES OF THE PLAN."
Description of Properties
- -------------------------
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, 1998:
42
<PAGE>
<TABLE>
<CAPTION>
1997
Average
No. Annual
of Land Occupancy Date of Purchase Mortgage Mortgage
Property Location Units (Acres) Rate Purchase Price/*/ Debt Maturity
- -------- --------- ----- ------- ---------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Silver Springs Tempe, AZ 198 9.3 93.8% 11/88 $ 8,692,200 $ 5,398,000 12/2000
Rancho del Sol Las Vegas, NV 376 16.0 93.7% 12/88 20,078,400 11,130,000 10/2019
Sandpebble Sparks, NV 236 11.5 95.3% 12/88 9,828,000 5,528,000 6/98
Regency Square Chamblee, GA 276 9.2 92.3% 1/89 14,955,000 8,047,000 2/2001
Cameron Creek Tempe, AZ 211 8.7 94.5% 3/89 9,959,400 6,427,000 10/2019
Harbor Pointe Dunwoody, GA 366 45.9 93.5% 6/89 20,203,000 12,931,000 10/2019
Pointe West Aurora, CO 138 5.3 95.4% 9/89 5,100,000 3,064,000 3/2016
Bernardo Crest San Diego, CA 216 16.6 96.4% 12/89 18,684,000 11,515,000 8/2019
----- ----- ------------ -----------
2,017 122.5 $107,500,000* $64,040,000
<CAPTION>
Mortgage Monthly Est.
Interest Debt Balloon
Property Rate Service Payment
- -------- -------- -------- --------
<S> <C> <C> <C>
Silver Springs 6.5% $ 38,006 $ 5,030,000
Rancho del Sol 8.11% 92,172 --
Sandpebble 8.28% 48,828 5,474,000
Regency Square 8.00% 61,269 7,732,000
Cameron Creek 8.11% 52,480 --
Harbor Pointe 7.75% 102,635 --
Pointe West 7.61% 25,971 --
Bernardo Crest 8.12% 94,221 --
-------- -----------
$515,582 $18,236,000
</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 with respect to such Properties, which payments were treated as
reductions to the purchase prices per Property set forth above.
43
<PAGE>
Anticipated Results of Auction, Use of Proceeds and Cash Distributions
- ----------------------------------------------------------------------
The following table sets forth the anticipated application of the
proceeds from the Auction, as well as information regarding the estimated loss
to be realized per Unit upon sale of the Properties and termination of the
Partnership. The amount available for distribution to Unitholders shown below
assumes that: (i) the Spanos Bidder's guaranteed Minimum Overall Bid is the
Successful Bid for both the Partnership and the Genesis Partnership, and all of
the Auction Properties are purchased by the Spanos Bidder; and (ii) the costs of
the Auction and the solicitation of Consents are allocated between the
Partnership and the Genesis Partnership in proportion to the amounts of the
Spanos Bidder's respective guaranteed Minimum Overall Bids. The amount
available for distribution to Unitholders would increase if the aggregate sales
price of the Properties exceeds the Spanos Bidder's guarantee by more than the
increased expenses of the Auction which will result from multiple purchasers of
the Properties.
44
<PAGE>
<TABLE>
<S> <C>
Application of Proceeds:
Auction Sale Price (Net of Mortgage Debt) $22,440,000
Less: Auction Expenses 695,000/1/
Consent Solicitation Expenses 197,000/1/
-----------
Net Sale Price $21,548,000
Plus: Other Partnership Assets 2,100,000/2/
-----------
(Net of Liabilities)
$23,648,000
===========
Less: Liquidation Expenses (est.) 100,000
Attorneys' Fees 1,000,000/3/
-----------
Net Distributable Amount $22,548,000
===========
Distributions to Unitholders 13,520,000/4/
Distributions to Subordinated Limited Partners 8,878,000/5/
Distributions to General Partners 150,000/6/
-----------
Total Distributions $22,548,000
===========
Distribution to Unitholders Per Unit
($250 of Original Capital Contribution):
Prior Cash Distributions Per Unit $ 154.71/7/
Distributions Per Unit from Auction Proceeds 42.67/4/8/
Loss Per Unit $ 52.62/7/8/
</TABLE>
- ------------------
/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 the Spanos Bidder is not the
sole Successful Bidder), but any such increase is not expected to be material.
/2/ Estimated based upon assets and liabilities as of December 31, 1997.
45
<PAGE>
/3/ Pursuant to the Settlement Agreement and subject to the approval of the
Court, the Partnership will pay to Lead Class Counsel, on behalf of the
Unitholders, an amount not to exceed 8% of the amount otherwise distributable to
the Unitholders from the Auction Proceeds.
/4/ Of this amount, the General Partners initially will withhold $1,000,000
($3.16 per Unit) for a period of up to one year as a reserve against further
unforeseen contingent obligations of the Partnership, including any liabilities
which may arise under the sales contracts for the Properties.
/5/ The Subordinated Limited Partner Interests were issued to affiliates of
Spanos in consideration of a cash capital contribution of $5,544,000 and in
consideration of certain cash flow guaranty payments made by such affiliates to
the Partnership during the period from inception through June 30, 1992.
/6/ The Partnership Agreement provides that liquidating distributions are to be
paid to the Unitholders, Subordinated Limited Partners and General Partners in
accordance with their positive capital account balances, after allocating the
net income or loss from the terminating transaction. Based upon the foregoing
assumptions, it is estimated that approximately $950,000 of the net income
resulting from the Auction will be allocated to the General Partners, which
would bring their capital accounts (currently a deficit of approximately
$800,000) to a positive balance of approximately $150,000. (See "Distributions
and Fees" below.)
/7/ Assumes Unitholder held Units since first closing of Partnership's offering
in 1988.
/8/ Assumes contingency reserve is not utilized and is ultimately distributed
to Unitholders. In addition, Unitholders who are not tax-exempt investors have
received tax benefits from their investment in the Units, and many Unitholders
will receive additional amounts under both the Settlement Agreement and the PSI
Settlement Agreement described hereinafter under "CERTAIN PENDING LITIGATION."
Amendment to Partnership Agreement
- ----------------------------------
Pursuant to Section 15.4.20 of the Partnership Agreement, the General
Partners and their affiliates may not purchase real property from the
Partnership, other than in connection with joint ventures with the Partnership.
In order
46
<PAGE>
for an affiliate of Spanos to be able to bid for and, if successful, to purchase
any or all of the Properties, the Partnership Agreement must be amended, which
requires the approval of Unitholders holding a majority of the outstanding
Units. The Amendment will permit such a purchase of the Properties, as set
forth in Exhibit A hereto.
Liquidation
- -----------
Pursuant to the Settlement Agreement, within ten business days
following the closing of the sale of the last Property, the General Partners
will cause the Partnership (i) to pay all costs associated with the Auction,
including the solicitation of Consents from Unitholders and the preparation and
mailing of the notices required by the Settlement Agreement and the Court to be
sent to Unitholders for which bills have been received; (ii) to estimate and
reserve for all such costs associated with the Auction for which bills have not
yet been received; and (iii) to provide a further contingency reserve for
potential unforeseen costs and liabilities in an amount not to exceed
$1,000,000, such reserve to be maintained for a period not to exceed one year
from the closing of the sale of the final Property. The General Partners will
then cause the Partnership to distribute the balance of the cash from the sales
first, on behalf of the Unitholders, as attorneys' fees to Lead Class Counsel,
in such amount as has been awarded by the Court, which for the Unitholders will
not exceed eight percent (8%) of the amount otherwise distributable to the
Unitholders from the sales,
47
<PAGE>
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.
Even if all liabilities of the Partnership have not been satisfied after one
year, the remainder of the contingency reserve will be distributed to the
Unitholders, and the General Partners will remain obligated for such
liabilities.
Section 19.1 of the Partnership Agreement provides that the
Partnership will terminate and be dissolved upon the disposition of all of the
assets of the Partnership and the receipt of the final cash payment of the
purchase price of all such assets.
Distributions and Fees
- ----------------------
The sale of all of the Partnership's Properties in the Auction will
constitute a "Terminating Sale or Disposition," as defined below. Pursuant to
Section 11.8 of the Partnership
48
<PAGE>
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 capital account balances. As of the date of this Solicitation
Statement, only the General Partners had negative capital account balances,
which at December 31, 1997 aggregated approximately $400,000 for each of the
General Partners, and so an aggregate of approximately $800,000 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 General Partners will be allocated approximately
$75,000 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
49
<PAGE>
1998 (assuming all of the Properties are sold in 1998) will be sufficient to
restore the Unitholders' capital account balances to the level of their Adjusted
Contributions.
As set forth under "Anticipated Results of Auction, Use of Proceeds
and Cash Distributions" above, and based on the assumptions therein stated,
Spanos estimates that upon completion of the Liquidation, the General Partners
will have received cash distributions aggregating approximately $150,000, the
Subordinated Limited Partners (who are affiliates of Spanos) will have received
cash distributions of $8,878,000 and the Unitholders will have received
approximately $13,520,000 of cash distributions, in each case in addition to
those previously received.
A "Terminating Sale or Distribution" is defined in the Partnership
Agreement to be the earlier to occur of (i) the sale or disposition of the
Partnership's last three Properties commencing with the first such sale or (ii)
the sale or disposition of a Property which causes the aggregate acquisition
cost of all Properties which have been sold or disposed of to exceed 66 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.
Neither of the General Partners will receive any fees in connection
with the sale of the Properties or the liquidation
50
<PAGE>
and dissolution of the Partnership. However, as provided in the Partnership
Agreement, the General Partners will be entitled to receive cash distributions
of approximately $75,000 each. Upon sale of the Properties, the management fees
and special distributions which the General Partners presently receive will be
eliminated. Furthermore, Spanos has guaranteed that the Auction will generate
gross proceeds of at least $22,440 in excess of the aggregate outstanding
principal balance of all existing mortgage debt on the Properties, the net
amount of which (after payment of expenses of the Auction, certain plaintiffs'
attorneys' fees and the expenses of liquidation of the Partnership and
establishment of a contingency reserve) will be available for distribution to
the Unitholders, 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.
51
<PAGE>
PRO FORMA FINANCIAL INFORMATION
On a pro forma basis, if the Plan had been consummated on December 31,
1997 under the assumptions described above under "THE PLAN -- Anticipated
Results of Auction, Use of Proceeds and Cash Distributions," the Partnership's
Balance Sheet as of December 31, 1997 would have reflected cash of approximately
$22,548,000, limited partners' equity of approximately $13,520,000, subordinated
limited partners' equity of approximately $8,878,000 and general partners'
equity of approximately $150,000, and the Partnership's income statement for the
year ended December 31, 1997 would have reflected a nonrecurring gain of
approximately $9,679,000.
FINANCIAL INFORMATION REGARDING GENERAL PARTNERS
See the Index to Financial Statements for information regarding the
audited balance sheet of the Spanos General Partner as of its most recent fiscal
year-end, and the audited balance sheets of the general partners of the Spanos
General Partner as of their respective most recent fiscal year-ends. The Spanos
General Partner has no reason to believe that P-B Properties does not have the
financial ability to meet its obligation to make an additional capital
contribution to the Partnership with respect to its capital account deficiency,
pursuant to the Partnership Agreement. Moreover, as set forth under "THE PLAN -
- -Distributions and Fees," allocation of the net income which will be produced by
sale of the Properties pursuant to the Minimum
52
<PAGE>
Overall Bid will result in elimination of the capital account deficiency of P-B
Properties and any obligation of P-B Properties to make an additional capital
contribution.
53
<PAGE>
MARKET PRICES OF UNITS AND DISTRIBUTIONS TO UNITHOLDERS
Market Prices
- -------------
The Units of the Partnership are not listed on any national securities
exchange or quoted on the NASDAQ System, and there is no established public
trading market for the Units. Secondary market activity for the Units has been
limited and sporadic. However, as a service to its clients, Prudential
Securities has facilitated sales to purchasers in a limited secondary market for
the Units. Limited information available to Spanos from secondary market
sources indicates that bid prices in the limited secondary market have ranged
from a low of approximately $26.00 per Unit to a high of approximately $55.00
per Unit during the period from the first quarter of 1996 through November of
1997. Such bid prices may not reflect actual transactions, and the proceeds to
a seller of Units would be reduced by sales commissions, which may be
substantial, and transfer fees payable to the Partnership.
Prudential Securities was the principal distributor of the Units in
the Partnership's public offering, and continues to provide certain investor
services on a contractual basis, including processing of all transfers of Units,
subject to the approval of the General Partners. Prudential Securities has
advised Spanos that the transfer records for the Partnership reflect the
following aggregate numbers of Units transferred in the past five years:
54
<PAGE>
<TABLE>
<CAPTION>
No. of Units
Year Transferred
---- ------------
<S> <C>
1993 38,843
1994 37,409
1995 36,516
1996 51,174
1997 40,690
</TABLE>
Generally, no information regarding the prices at which Units were sold is
available from the Partnership's transfer records, and the transfers reflected
in the above table include non-sale transactions.
Spanos believes that the limited amount of information available
regarding transfers of Units and bid prices does not reflect sufficient market
activity to be representative of the market value of the Units, and such
information should not be relied upon as being indicative of the ability of
Unitholders to sell their Units in secondary market transactions or as to the
prices at which such Units may be sold. Therefore, the information presented
should not be relied upon by Unitholders in determining whether or not to
consent to the Plan.
On 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,
55
<PAGE>
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.
In November, 1997, Hungry Bear Fund 96, LLC, an entity not affiliated
with either of the General Partners, commenced a limited tender offer for up to
500 units (.15% of the outstanding Units) at a cash price of $42.75 per Unit,
less the transfer fee of $75.00 payable to the Partnership and less any cash
distributions made by the Partnership after October 1, 1997 to any tendering
Unitholder. The tender offer was scheduled to expire on December 15, 1997, and
to the knowledge of the General Partners was not extended. Based upon the
Partnership's records, it appears to date that a total of 144 Units were
purchased in this tender offer.
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.
56
<PAGE>
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 4.88
-------
$154.71
-------
</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.
During the same period, the Partnership made cash distributions to the
Subordinated Limited Partners averaging $57.62 per $250 Unit, which
distributions were made from refinancing proceeds. Pursuant to the Partnership
Agreement, the Partnership has made or accrued special distributions to P-B
Properties aggregating $1,861,586 for the period 1988-1997, which distributions
were made from operating cash flow and were treated for financial reporting and
tax purposes as operating expenses.
In addition to distributions from the Partnership, most Unitholders
will be entitled to receive payments with respect to their Units pursuant to the
PSI Settlement Agreement described below under "CERTAIN PENDING LITIGATION."
57
<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
58
<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
59
<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
Successful 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 1998, 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 the
Properties would be combined with any other Section 1231 gains or Section 1231
losses of the Unitholder for that year. Net Section 1231 gains or net Section
1231 losses generally would be treated as long-term capital gain or ordinary
loss, as the case may be. However, a Unitholder's net Section 1231 gains would
be treated as ordinary income rather than capital gain to the extent of his or
her net Section 1231 losses,
60
<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. In general, under Section 1250, if real property is
depreciated on an accelerated basis rather than on a straight-line basis, then
the lesser of (i) any gain realized on disposition of the property or (ii) the
excess of accelerated depreciation over straight-line depreciation as of the
date of sale will be treated as ordinary income in the year the property is
sold. The Partnership does not expect to have any gain from the sale of the
Properties subject to recapture under Section 1250 of the Code. Spanos
estimates that approximately $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
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<PAGE>
losses of their partnership. Accordingly, each Unitholder's allocable share of
the gains or losses from the sale of the Properties (including each Unitholder's
allocable share of Section 291(a) gain, Section 1245 gain, Section 1231 gain or
Section 1231 loss) will be separately stated and reflected on the applicable
Schedule K-1 forms provided to the Unitholders by the Partnership.
For most tax-exempt Unitholders, only a portion of the gain from the
sale of the Properties would be treated as unrelated business income. Under
Section 514(a) of the Code, gain from the sale of "debt-financed property" is
treated as unrelated business income generally in an amount equal to a ratio
determined by comparing the property's debt to its basis. 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
62
<PAGE>
tax purposes if they have substantial economic effect or are otherwise made in
accordance with the partners' economic interests in the partnership. This
summary assumes, and Spanos believes, that the allocations of Partnership items
of income, gain, loss, deduction and credit to the Unitholders have substantial
economic effect or are otherwise in accordance with the Unitholders' economic
interests in the Partnership.
In general, under the Partnership Agreement, any Net Income in
connection with a Terminating Sale or Disposition will be allocated among the
Partners (prior to making distributions of sale proceeds) first to restore the
General Partners' negative capital account balances and then 98% to Unitholders
and 2% to the General Partners. If the Net Income of the Partnership for the
year 1998 is not sufficient to restore the Unitholders' capital account balances
to the level of their Adjusted Contributions, then the Partnership Agreement
provides that the 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
63
<PAGE>
1231 gain. To the extent that the actual gain on the Properties is more than
that estimated above, the per-Unit allocation of such gain would be
correspondingly higher. Any allocation of gain (or loss) from the sale of
Properties will increase (or decrease) a Unitholder's basis in the Units.
In general, under the Partnership Agreement, loss from the sale of a
Property must be allocated 2% to the General Partners and 98% to the
Unitholders. However, in such circumstances a special allocation of gross
rental income (depending upon the ultimate sales proceeds) would be made to P-B
Properties to reduce its negative capital account by a comparable amount, and an
equal amount of loss will be allocated among the Unitholders. Allocation of
loss will reduce a Unitholder's basis in the Units. However, no loss can be
utilized currently to the extent the loss exceeds the Unitholder's basis in the
Units.
Distributions to a Unitholder will generally not be taxable to the
extent the distributions do not exceed the Unitholder's adjusted tax basis in
the Units. For purposes of determining tax basis in a Unitholder's Units, any
payment received by the Unitholder from the settlement fund established pursuant
to the PSI Settlement Agreement (see "CERTAIN PENDING LITIGATION"), or from any
other settlements related to the Units, should be applied to reduce such
Unitholder's adjusted tax basis. The tax basis in the Units will also be
reduced by the distributions. To the extent any settlement payment and the
distributions exceed the adjusted tax basis, such excess will
64
<PAGE>
generally be treated as capital gain, which will be long-term if the applicable
Units have been held for more than one year. Unitholders who have remaining tax
basis in their Units after termination of the Partnership will generally have a
capital loss. Such capital loss can be used to offset any net Section 1231
gains that have not been otherwise characterized as ordinary income, but only if
such capital loss occurs in the same year as the net Section 1231 gain. Net
capital losses of taxpayers other than corporations may not be carried back to
earlier years.
It is not expected that the Partnership will terminate for federal
income tax purposes in the year in which the Properties are sold, because a
reserve for potential unforeseen costs and liabilities will be established and
maintained for a period not to exceed one year from the closing of the sale of
the final Property. Accordingly, a Unitholder will likely be allocated gain
from the sale of the Properties in a different year than termination of the
Partnership, which may result in a capital loss to a Unitholder which cannot be
used to offset the gain from the sale of the Properties.
Based on the estimated 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.
65
<PAGE>
Capital Gains Tax
- -----------------
With respect to individuals, trusts, and estates, the Taxpayer Relief
Act of 1997 ("TRA") generally reduces the maximum tax rate on net capital gains
on capital assets held for more than 18 months to 20% and provides a maximum tax
rate on net capital gains derived from capital assets held for more than one
year and for not more than 18 months ("mid-term gains") of 28%. TRA does not
affect the taxation of capital gains realized by corporations. Substantially
all of the Partnership's assets have been held for longer than 18 months.
Accordingly, a substantial portion of any Section 1231 gains of the Partnership
realized on the sale of assets and allocable to Unitholders who are individuals,
trusts and estates may be taxed at a maximum federal income tax rate of 20% (if
such gains are not recharacterized as ordinary income as described above under
"Sale of Properties," or are not subject to the special tax rate described in
the next paragraph).
Under TRA, individuals, trusts and estates are taxed on unrecaptured
Section 1250 gain at a maximum federal income tax rate of 25%. Unrecaptured
Section 1250 gain generally equals the excess of (i) the lesser of the gain
realized on disposition of depreciable real property or depreciation allowed or
allowable on the property through the date of disposition, over (ii) the amount
of depreciation recapture realized upon the disposition (as described above
under "Sale of Properties"). Spanos believes that substantially all of the gain
realized upon the sale of the
66
<PAGE>
Partnership's assets pursuant to the transactions described herein will be
unrecaptured Section 1250 gain.
Net capital losses of such a Unitholder can be utilized to offset
ordinary income limited to the sum of net capital gains from other sources
recognized by the Unitholder during the tax year, plus $3,000 ($1,500 in the
case of a married individual filing a separate return). The excess amount of
such net capital loss may be carried forward and utilized in subsequent years
subject to the same limitations but may not be carried back to a prior year.
Unitholders classified as corporations are taxed on capital gains at
the same rates as ordinary income. A corporate Unitholder can deduct capital
losses only to the extent of capital gains, with any unused capital losses
generally being carried back three years and forward five years.
Passive Loss 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
67
<PAGE>
activity income that may be offset by passive activity losses from other passive
activity investments. If all of the Properties are sold, a Unitholder's
allocable share of any Partnership loss realized on such sale, or any loss
realized by the Unitholder upon liquidation of his or her Units, will not be
subject to the passive activity loss limitations. In addition, upon the
complete disposition of a Unitholder's entire interest in the Partnership, any
suspended passive activity losses of the Unitholder with respect to his or her
investment in the Partnership could be used to reduce other income of the
Unitholder.
Final Partnership Returns and Future Tax Issues
- -----------------------------------------------
Following the termination of the Partnership, the General Partners, on
behalf of the Partnership, will file a final tax return for the Partnership, and
on a timely basis will provide Schedule K-1 forms to all Unitholders setting
forth their allocable shares of the Partnership's items of income, gain, loss,
deduction and credit. P-B Properties will also have full responsibility and
authority for any other tax-related matter arising after the termination of the
Partnership, including acting as the "tax matters partner" representing the
Partnership in any federal or other audit of returns of the Partnership for its
final year or any prior year.
Unitholders should understand that while the Partnership will be
terminated, such termination will not eliminate the possibility that the IRS
could challenge the tax
68
<PAGE>
treatment of the Partnership's activities for the year of termination or any
prior year for which the statute of limitations for making adjustments has not
elapsed. If any adjustments are made to the Partnership's income tax returns,
P-B Properties will so notify the Unitholders. Any tax audit or adjustments
could result in assessment of additional tax liabilities upon the Unitholders
which would be payable from their own funds and would not be reimbursable by the
General Partners or the Partnership.
Certain State Income Tax Considerations
- ---------------------------------------
Because each state's tax law varies, it is impossible to predict the
tax consequences to the Unitholders in all the states in which they are already
subject to tax. Accordingly, the following is a general summary of certain
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
69
<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, nor any officer or director of either of the
general partners of Spanos, owned any Units. Prudential Securities beneficially
owned 4,663 Units as of the Record Date and has advised Spanos that it intends
to vote
70
<PAGE>
such Units to consent or withhold consent to the Plan in the same proportions as
do the other Unitholders.
CERTAIN PENDING LITIGATION
There is currently pending in the United States District Court for the
Southern District of New York (the "Court") a class action entitled In re
Prudential Securities Incorporated Limited Partnerships Litigation, MDL Docket
No. 1005, M-21-67 (MP). The consolidated action had its genesis in several
different class actions filed in various courts, all of which were transferred
to a single judge and consolidated for pretrial proceedings under the
aforementioned caption./*/ On June 8, 1994, plaintiffs in the consolidated
action filed a Consolidated Complaint that superseded the individual complaints
previously filed in various courts and that was purportedly brought on behalf of
a class of approximately 350,000 investors who had purchased units in
approximately 700 limited partnerships sponsored or co-sponsored by P-B
Properties or its affiliates (collectively the "Prudential Organization"). The
Consolidated Complaint named as defendants, among others, Prudential
- ---------------------------
/*/ 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.).
- -----------
71
<PAGE>
Securities, P-B Properties, certain of the affiliates and present and former
officers and employees of the aforementioned, and the co-general partners of
other partnerships sponsored or co-sponsored by the Prudential Organization,
including Spanos. The Partnership is not named as a defendant in the
Consolidated Complaint, but the Partnership is listed as being among the limited
partnerships at issue in the case.
The Consolidated Complaint alleges violations of the federal and New
Jersey Racketeer Influenced and Corrupt Organizations Act ("RICO") statutes,
fraud, negligent misrepresentation, breach of fiduciary duties, breach of third-
party beneficiary contracts and breach of implied covenants in connection with
the marketing and sales of limited partnership interests. Plaintiffs request
relief in the nature of rescission of the purchase of securities and recovery of
all consideration and expenses in connection therewith, as well as compensation
for lost use of money invested less cash distributions; compensatory damages;
consequential damages; treble damages for defendants' alleged RICO violations
(both federal and New Jersey); general damages for all injuries allegedly
resulting from negligence, fraud, breaches of contract, and breaches of duty in
an amount to be determined at trial; disgorgement and restitution of all
earnings, profits, benefits, and compensation received by defendants as a result
of their allegedly unlawful acts; and costs and disbursements of the action. On
August 9, 1995, P-B Properties, Prudential Securities and other Prudential
72
<PAGE>
Organization defendants (collectively the "PSI Settling Defendants") entered
into a Stipulation and Agreement of Partial Compromise and Settlement (the "PSI
Settlement Agreement") with plaintiffs in the consolidated action. The Court
preliminarily approved the PSI Settlement Agreement by order dated August 29,
1995 and, following a hearing held November 17, 1995, found that the PSI
Settlement Agreement was fair, reasonable, adequate and in the best interests of
the plaintiff class. The court gave final approval to the settlement, certified
a class of purchasers of interests in specific limited partnerships, including
the Partnership, released all settled claims by members of the class against the
PSI Settling Defendants and permanently barred and enjoined class members from
instituting, commencing or prosecuting any settled claim against the released
parties. Pursuant to the PSI Settlement Agreement, PSI and its affiliates have
paid a total of $110,000,000 into a settlement fund for future distributions to
members of the plaintiff class, including Unitholders who purchased their Units
prior to June 8, 1994. The consolidated action remained pending against Spanos
and certain of its affiliates, as well as other co-general partners of other
partnerships, including Spanos Genesis. The Partnership is not named a
defendant in the Consolidated Complaint and the action is not expected to have a
material effect on the Partnership's financial condition; accordingly, no
provision for any loss that may result upon resolution of the Consolidated
Complaint has been made in the financial statements of the Partnership.
73
<PAGE>
On May 12, 1997, Spanos and those of its affiliates named as
defendants in the consolidated action entered into the Settlement Agreement with
the plaintiffs therein. P-B Properties is not a party to the Settlement
Agreement, but has acknowledged the Settlement and agreed to be bound by certain
provisions of the Settlement Agreement which require that P-B Properties take,
or forebear from taking, certain actions in connection with the Plan. The
Settlement Agreement requires, among other things, that Spanos use its best
efforts to solicit the consent of the Unitholders of the Partnership for the
Auction and the subsequent termination and dissolution of the Partnership. In
addition to the provisions for the Auction, the minimum Spanos bids and the
contingency reserve, the Settlement Agreement provides that Spanos and its
affiliates will pay (i) $1,175,000 into a settlement fund, to be distributed to
members of the plaintiff class, including Unitholders who purchased their Units
prior to June 8, 1994, (ii) $100,000 for the costs of providing notice to the
members of the plaintiff class and (iii) $500,000 to Lead Class Counsel. On May
20, 1997, the Court preliminarily certified two settlement classes and
preliminarily approved the Settlement. For a more detailed description of the
Settlement and the rights of Unitholders in connection therewith, refer to the
NOTICE TO EQUITABLE CLASS OF PENDENCY OF CLASS ACTION, PROPOSED PARTIAL
SETTLEMENT OF CLASS ACTION BY THE SPANOS DEFENDANTS, REQUIREMENT FOR MAJORITY
CONSENT TO THE AUCTION OF THE PROPERTIES OF CERTAIN PARTNERSHIPS AS PART OF THE
SPANOS
74
<PAGE>
SETTLEMENT, SETTLEMENT FAIRNESS HEARING, RIGHT TO APPEAR AT HEARING AND RIGHT TO
OBJECT TO THE SETTLEMENT, which accompanies this Solicitation Statement.
On or about April 15, 1994, a multiparty petition entitled Schreiber,
et al. v. Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed in
the 189th Judicial District Court of Harris County, Texas, purportedly on behalf
of investors in the Partnership against the Partnership, the General Partners,
Prudential Securities, The Prudential Insurance Company of America and a number
of other defendants. The Petition alleges common law fraud, fraud in the
inducement and negligent misrepresentation in connection with the offering of
limited partnership interests and negligence, breach of fiduciary duty, civil
conspiracy, and violations of the federal Securities Act of 1933 (sections 11
and 12) and of the Texas Securities and 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.
75
<PAGE>
AVAILABLE INFORMATION
This Solicitation Statement does not purport to be a complete
description of all agreements and matters relating to the condition of the
Partnership, its Properties and the transactions described herein. Attached to
this Solicitation Statement as Exhibit B and incorporated by reference into this
Solicitation Statement is the Partnership's Annual Report on SEC Form 10-K for
the year ended December 31, 1997, which provides additional information
regarding the Partnership. With respect to statements contained in this
Solicitation Statement as to the content of any contract or other document filed
as an exhibit to the Form 10-K, each such statement is qualified in all respects
by reference to such report and the schedules thereto, which may be obtained
without charge upon written request to the Partnership. To make such a request,
a Unitholder must write to P-B Properties, One Seaport Plaza, New York, New York
10292.
All documents filed by the Partnership with the Securities and
Exchange Commission after the date of this Solicitation Statement, but before
the Partnership takes action pursuant to this Consent, shall be deemed to be
incorporated by reference into this Solicitation Statement. Copies of these
documents will be available without charge upon request to P-B Properties, One
Seaport Plaza, New York, New York 10292. Any
76
<PAGE>
statement contained in a document incorporated or deemed to be incorporated by
reference in this Solicitation Statement shall be deemed to be modified or
superseded for purposes of this Solicitation Statement to the extent that a
statement contained in this Solicitation Statement (or in any other subsequently
filed document that also is or is deemed to be incorporated by reference in this
Solicitation Statement) modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Solicitation Statement.
77
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
<TABLE>
<S> <C>
A.G. Spanos Realty Partners, L.P.
- ---------------------------------
Independent Auditors' Report........................ F-2
Balance Sheet as of September 30, 1997.............. F-3
Notes to Balance Sheet.............................. F-4
AGS Financial Corporation
- -------------------------
Independent Auditors' Report........................ F-6
Consolidated Balance Sheet as of August 31, 1997.... F-7
Notes to Consolidated Balance Sheet................. F-9
A.G. Spanos Realty Capital, Inc.
- --------------------------------
Independent Auditors' Report........................ F-13
Balance Sheet as of September 30, 1997.............. F-14
Notes to Balance Sheet.............................. F-15
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Partners
A.G. SPANOS REALTY PARTNERS, L.P.
Stockton, California
We have audited the accompanying balance sheet of A.G. SPANOS REALTY PARTNERS,
L.P., a California limited partnership, as of September 30, 1997. This
financial statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of A.G. SPANOS REALTY PARTNERS, L.P.
as of September 30, 1997, in conformity with generally accepted accounting
principles.
Bowman & Company, LLP
Stockton, California
January 8, 1998
F-2
<PAGE>
A.G. SPANOS REALTY PARTNERS, L.P.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Accounts receivable $ 79,547
Advances to General Partner 498,029
---------
$ 577,576
=========
LIABILITIES AND PARTNERS' DEFICIT
Accounts payable $ 89,991
Distributions and recognized losses in excess of investment
in Prudential-Bache/A.G. Spanos Realty Partners, L.P., I 666,934
---------
Liabilities 756,925
---------
General Partners' deficit (3,594)
Limited Partners' deficit (175,755)
---------
Partners' deficit (179,349)
---------
$ 577,576
=========
</TABLE>
See Notes to Balance Sheet
F-3
<PAGE>
A.G. SPANOS REALTY PARTNERS, L.P.
NOTES TO BALANCE SHEET
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
------------------
A.G. Spanos Realty Partners, L.P. (A California Limited Partnership) (the
"Partnership"), was organized under the laws of the State of California on
June 1, 1988 and will continue until December 31, 2035, unless previously
terminated in accordance with the provisions of the Limited Partnership
Agreement.
AGS Financial Corporation ("AGS") and A.G. Spanos Realty Capital, Inc.
("Realty Capital") are the general partners of the Partnership, and Mr.
A.G. Spanos, Mr. Dean A. Spanos, Mr. Michael A. Spanos, Mr. Barry L. Ruhl,
Mrs. Dea Spanos Berberian and the Spanos Grandchildren's Trust are the
limited partners of the Partnership. On June 1, 1988, the general
partners contributed $10 each for their interest and the limited partners
contributed $980 for their interests in the Partnership.
The Partnership was organized for the purpose of sponsoring limited
partnerships which in turn are to be organized to engage in the ownership,
financing, management and operation of apartments and other real estate
activities.
Investment in Partnership
-------------------------
The Partnership reflects its investment in Prudential-Bache/A.G. Spanos
Realty Partners L.P., I using the equity method of accounting, whereby the
Partnership's cash investment is reduced by partnership distributions to
the Partnership and by the Partnership's proportionate share of the net
loss of the partnership. Since distributions and allocated losses exceed
the Partnership's investment, the balance has been classified as a
liability.
Use of Estimates
----------------
The preparation of the balance sheet in conformity with generally accepted
accounting principles requires management to make estimates and
assumptions that affect the reporting amounts of assets, liabilities and
disclosures of contingent assets and liabilities at the date of the
balance sheet. Actual results could differ from those estimates.
F-4
<PAGE>
NOTES TO BALANCE SHEETS
2. COMMITMENTS AND CONTINGENT LIABILITIES
Lawsuits
--------
The Partnership has been named as a defendant in a "consolidated"
complaint that supersedes separate class action complaints that were filed
during the 1993 calendar year. The plaintiffs seek unspecified damages
for economic injury suffered by them for their investment in Prudential-
Bache/A.G. Spanos Realty Partners L.P., I. Among other things, the
plaintiffs allege that the Company earned excess fees for the syndication
of the entity.
During the year ended September 30, 1994, the Partnership was named as a
defendant in two separate lawsuits. Both lawsuits contend that they were
induced to purchase units in limited partnerships by fraudulent
misrepresentations. One lawsuit settled with no liability to the
Partnership during the year.
During the year ended September 30, 1995, the Partnership was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff
purchased units of limited partnership because of misrepresentations by
the Partnership. On May 12, 1997, the Partnership and certain of its
affiliates entered into a Stipulation of Settlement with legal counsel
representing the plaintiff class in the consolidated actions. The
settlement contemplates, among other things, the sale of all of the
properties of Prudential-Bache/A.G. Spanos Realty Partners L.P., I at
public auction and the subsequent liquidation and dissolution of
Prudential-Bache/A.G. Spanos Realty Partners L.P., I. The settlement
agreement was preliminarily approved by the Court on August 28, 1997.
Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the
Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I with
proxy solicitation materials seeking the Unitholders' consent to the
auction sale. The settlement agreement contains numerous conditions and
must be finally approved by the Court at a fairness hearing at which the
Unitholders and other interested parties will have an opportunity to be
heard. There can be no assurance that the conditions to implementation of
the settlement will be satisfied.
The Partnership believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be covered
by indemnification agreements from co-defendants, or by insurance, and
would not have a material effect on the financial condition of the
Partnership. It is impossible at this point to evaluate the likely
outcome and estimate any amount or range of potential losses.
Accordingly, the Partnership has not accrued a contingent loss on the
balance sheet.
F-5
<PAGE>
INDEPENDENT AUDITORS' REPORT
----------------------------
To the Board of Directors
AGS FINANCIAL CORPORATION
Stockton, California
We have audited the accompanying balance sheet of AGS FINANCIAL CORPORATION AND
SUBSIDIARIES, as of August 31, 1997. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audits to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of AGS FINANCIAL CORPORATION AND
SUBSIDIARIES as of August 31, 1997, in conformity with generally accepted
accounting principles.
Bowman & Company, LLP
Stockton, California
October 21, 1997
F-6
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
AUGUST 31, 1997
<TABLE>
<CAPTION>
ASSETS
<S> <C>
CASH $1,309,581
----------
RECEIVABLES
Fees receivable $ 950,229
Accrued interest receivable 622,597
Advances to sponsored partnerships 241,272
Other receivables 91,539
Notes receivable from sponsored partnerships 1,057,878
Receivable from affiliated partnership 3,518,395
----------
$6,481,910
----------
INVESTMENT IN PARTNERSHIPS $ 30,814
----------
FURNITURE AND EQUIPMENT
Office furniture and equipment $ 247,092
Less accumulated depreciation and amortization 246,340
----------
$ 752
----------
$7,823,057
==========
</TABLE>
See Notes to Consolidated Balance Sheet.
F-7
<PAGE>
<TABLE>
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C>
LIABILITIES
Accounts payable and accrued expenses $ 404,381
Deferred income taxes 1,250,661
Advances from affiliated company 46,611
Recognized losses in excess of investment 270,982
in partnerships
Payable to affiliated company 3,678,141
----------
$5,650,776
----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, stated value $1 per share
authorized 100,000 shares, issued 10,000 shares $ 10,000
Retained earnings 2,162,281
----------
$2,172,281
----------
$7,823,057
==========
</TABLE>
F-8
<PAGE>
AGS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of business
------------------
AGS Financial Corporation syndicates and functions as general partner
in real estate limited partnerships. One of the Company's wholly-
owned subsidiaries, AGS Securities Corporation, is inactive. The two
other wholly-owned subsidiaries, Residential Portfolio Depository
Corp. and AGS Depository Corp., are assignor limited partners in
public syndications.
The Company earns fees for services that it renders to the
partnerships, which are generally located in the Western and Sunbelt
states. In addition, the Company may advance funds to the
partnerships. The Company's receivables consist primarily of these
fees and advances. Such receivables are not secured. However, the
Company generally has priority on the proceeds from the sale of the
real estate when such sales occur. This priority is subordinated only
to the mortgage debt secured by such property
A summary of the Company's significant accounting policies follows:
Principles of consolidation
---------------------------
The consolidated financial statements include the accounts of the
Company and its subsidiaries. All material intercompany accounts and
transactions are eliminated in consolidation.
Use of Estimates
----------------
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reporting amounts of assets,
liabilities and disclosures of contingent assets and liabilities at
the date of the balance sheet. Actual results could differ from those
estimates.
Investments in partnerships
---------------------------
The Company's general partner investment in these entities is
reflected using the equity method of accounting, whereby the Company's
cash investment is reduced by partnership distributions to the Company
and by the Company's proportionate share of net losses of the
partnerships. In the partnerships where allocated losses exceed the
Company's investment, the balance has been classified as a liability.
Furniture and equipment
-----------------------
Furniture and equipment are stated at cost and are depreciated using
either the straight-line method or double declining balance method
over five years.
F-9
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES (CONT.)
Income Taxes
------------
The Company and its subsidiaries file consolidated federal and state
income tax returns. To the extent that undistributed earnings of the
subsidiaries are expected to be indefinitely invested in the
subsidiaries' business, no provisions is made for income taxes which
would be payable if these earnings were paid as dividends to the parent
company.
Deferred taxes are provided on temporary differences between the
recognition of revenues and expenses for tax and accounting purposes
using the tax rates at which the differences are expected to reverse in
accordance with the Statement of Financial Accounting Standards No. 109,
"Accounting for Income Taxes."
The major sources of deferred income taxes are the use of accelerated
depreciation in the partnerships, cash basis reporting by the Company for
tax purposes, and the treatment of partnership fees as guaranteed
payments for tax purposes.
Cash
----
For purposes of reporting the statements of cash flows, the Company
includes all cash accounts which are not subject to withdrawal
restrictions or penalties, and all highly liquid debt instruments
purchased with a maturity of three months or less as cash on the
accompanying balance sheet.
Frequently, the Company had cash amounts deposited in a financial
institution in excess of federally insured limits. As of August 31, 1997
there was $1,094,053 deposited in excess of federally insured limits.
NOTE 2. RELATED PARTY TRANSACTIONS
Company-sponsored limited partnerships
--------------------------------------
As managing general partner or pursuant to agreements with each of the
limited partnerships, the Company performs certain services for which
it receives compensation. Fees receivable from partnerships for
services performed were $950,229 at August 31,1997. The Company also
makes short-term advances to the partnerships which are reimbursed as
cash flow permits. Advances were $43,762 at August 31, 1997.
Purchase and management of real estate projects
-----------------------------------------------
All but one of the company-sponsored limited partnerships have
purchased real estate projects from entities owned by several of the
shareholders of the Company. A corporation owned by several
shareholders provides property management services to all of the real
estate partnerships organized by the Company.
F-10
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 2. RELATED PARTY TRANSACTIONS (CONT.)
Notes receivable from affiliated partnerships
---------------------------------------------
The Company has made loans to company-sponsored limited partnerships in
order to allow the partnerships to meet their cash needs. In addition,
the Company has taken back notes for unreimbursed offering and
organization costs incurred during the formation of several partnerships.
Notes receivable from partnerships were $1,057,878 at August 31, 1997.
Interest of $622,384 has accrued on these notes at August 31, 1997.
Advances from affiliated company
--------------------------------
The Company owes affiliates $46,611 at August 31, 1997, for working
capital advances by the affiliates. The advances are payable on demand.
Accrued interest owed to affiliates of $12,346 at August 31, 1997, has
been included in accounts payable and accrued expenses.
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
Company-sponsored limited partnerships
--------------------------------------
As general partner for various limited partnerships, the Company may
be subject to liabilities of the partnerships if the partnerships'
assets should become insufficient to meet their obligations. In the
opinion of management, the future revenues and the value of the
underlying assets of each of these partnerships will be sufficient to
meet partnership obligations.
As general partner, the Company has a fiduciary responsibility to
oversee the management of company-sponsored limited partnerships. The
assets and liabilities of such partnerships are included in the
individual partnership financial statements and not on the accounts of
the Company.
Lawsuits
--------
AGS Financial Corporation has been named as a defendant in a
"consolidated" complaint that supersedes separate class action
complaints that were filed during the 1993 calendar year. The
plaintiffs seek unspecified damages for economic injury suffered by
them for their investment in Prudential/Bache/A.G. Spanos Realty
Partners L.P., I. Among other things, the plaintiffs allege that the
Company earned excess fees for the syndication of the entity.
During the year ended August 31,1994, the Company was named as a
defendant in two separate lawsuits. Both lawsuits contend that they
were induced to purchase units in limited partnerships by fraudulent
misrepresentations. One lawsuit settled with no liability to the
Company during the year.
F-11
<PAGE>
NOTES TO CONSOLIDATED BALANCE SHEET
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES (CONT.)
During the year ended August 31, 1995, the Company was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff
purchased units in limited partnerships because of misrepresentations
by the Company. On May 12, 1997, the Company and certain of its
affiliates entered into a Stipulation of Settlement with legal counsel
representing the plaintiff class in the consolidated actions. The
settlement contemplates, among other things, the sale of all of the
properties of Prudential-Bache/A.G. Spanos Realty Partners L.P., I at
public auction and the subsequent liquidation and dissolution of
Prudential-Bache/A.G. Spanos Realty Partners L.P., I. The settlement
agreement was preliminarily approved by the Court on August 28, 1997.
Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the
Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I
with proxy solicitation materials seeking the Unitholders' consent to
the auction sale. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness
hearing at which the Unitholders and other interested parties will
have an opportunity to be heard. There can be no assurance that the
conditions to implementation of the settlement will be satisfied.
The Company believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be
covered by indemnification agreements from co-defendants, or by
insurance, and would not have a material effect on the financial
condition of the Company. It is impossible at this point to evaluate
the likely outcome and estimate any amount or range of potential
losses. Accordingly, the Company has not accrued a contingent loss on
the financial statements.
NOTE 4. SUBSEQUENT EVENTS
During the months of September, October and November, 1997, the real
property of the several partnership investments were sold. These sales
generated gains for the Company. Payments of the receivables due from
these partnerships are expected to be made to the Company.
NOTE 5. EXCHANGE OBLIGATION
On October 31, 1996, a partnership affiliated with the Company deeded
property in anticipation of a deferred tax free exchange. The Company
sold the property on October 31, 1996. The Company entered into an
agreement to build a replacement property for the affiliated
partnership and deeded the property to the affiliated partnership on
April 29, 1997, subject to a construction loan which had a balance at
August 31, 1997 of $8,173,053.
At August 31, 1997, the Company had cash in the amount of $159,746 and
accounts receivable of $3,518,395 from the October 31, 1996 sale and
exchange and had an account payable to an affiliated corporation in
the amount of $3,678,141. These amounts are reflected on the
accompanying balance sheet.
F-12
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
A.G. SPANOS REALTY CAPITAL, INC.
Stockton, California
We have audited the accompanying balance sheet of A.G. SPANOS REALTY CAPITAL,
INC., a California corporation, as of September 30, 1997. This financial
statement is the responsibility of the Company's management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the balance sheet is free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall balance sheet presentation. We believe that our audit
of the balance sheet provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of A.G. SPANOS REALTY CAPITAL, INC. as
of September 30, 1997, in conformity with generally accepted accounting
principles.
A.G. SPANOS REALTY CAPITAL, INC. is a wholly-owned subsidiary of A.G. Spanos
Construction, Inc., and this balance sheet is included in the consolidated
financial statements of A.G. Spanos Construction, Inc., the primary reporting
entity.
BOWMAN & COMPANY, LLP
Stockton, California
January 8, 1998
F-13
<PAGE>
A.G. SPANOS REALTY CAPITAL, INC.
BALANCE SHEET
SEPTEMBER 30, 1997
<TABLE>
<S> <C>
ASSETS
Cash $ 59,798
Certificate of Deposit 100,000
-----------
$ 159,798
===========
LIABILITIES AND STOCKHOLDER'S EQUITY
Distributions and recognized losses in excess of investment in
Prudential-Bache/A.G. Spanos Realty Partners, L.P., I $ 1,912
-----------
Common stock, stated value $10 per share 100,000
10,000 shares authorized and issued 3,068,280
Additional paid-in capital (3,068,280)
Note receivable - shareholder 57,886
-----------
Retained earnings 157,886
-----------
$ 159,798
===========
</TABLE>
See Notes to Balance Sheet.
F-14
<PAGE>
A.G. SPANOS REALTY CAPITAL, INC.
NOTES TO BALANCE SHEET
NOTE 1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
------------------
A.G. Spanos Realty Capital, Inc. (the "Company") is a California
corporation formed in 1988. It serves as co-general partner with AGS
Financial Corporation in A.G. Spanos Realty Partners, L.P. A.G. Spanos
Realty Capital, Inc. expects to organize additional partnerships that
will invest in properties in various locations. The sole shareholder,
A.G. Spanos Construction, Inc., has contributed $3,068,280 to the
capital of A.G. Spanos Realty Capital, Inc. by an unsecured, negotiable
demand promissory note.
Investment in Partnership
-------------------------
The Company reflects its investment in A.G. Spanos Realty Partners,
L.P. using the equity method of accounting, whereby the Company's cash
investment is reduced by partnership distributions to the Company and
by the Company's proportionate share of the net loss of the
partnership. Since distributions and allocated losses exceed the
Company's investment, the balance has been classified as a liability.
Use of Estimates
----------------
The preparation of the balance sheet in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reporting amounts of assets,
liabilities and disclosures of contingent assets and liabilities at the
date of the balance sheet. Actual results could differ from those
estimates.
NOTE 2. NOTE RECEIVABLE FROM SHAREHOLDER
The note receivable from A.G. Spanos Construction, Inc. (shareholder)
satisfies the shareholder's obligation under the capitalization
agreement between A.G. Spanos Realty Partners, L.P., A California
Limited Partnership, and A.G. Spanos Realty Capital, Inc. The
capitalization agreement provides that the initial capitalization shall
be provided by the shareholder in the amount of $100,000 in cash plus
an unsecured demand promissory note in the amount of $1,400,000.
Because the note is given as evidence of the obligation to provide
additional capital when required under terms of the capitalization
agreement and does not constitute current paid-in capital, it is not
reflected as paid-in capital or common stock subscribed.
The capitalization agreement further provides that the note receivable
shall be increased from time to time so that the total value of the
note and the $100,000 cash paid in for stock issued shall be the larger
of $1,500,000 or four percent of the gross amount of proceeds of the
offering for limited partnership interests in Prudential-Bache/A.G.
Spanos Realty Partners, L.P., I, a Delaware limited partnership. The
maximum required capital will be $3,168,280.
F-15
<PAGE>
NOTES TO BALANCE SHEETS
NOTE 3. COMMITMENTS AND CONTINGENT LIABILITIES
A.G. Spanos Realty Capital, Inc. has been named as a defendant in a
"consolidated" complaint that supersedes separate class action
complaints that were filed during the 1993 calendar year. The
plaintiffs seek unspecified damages for economic injury suffered by
them for their investment in Prudential-Bache/A.G. Spanos Realty
Partners L.P., I. Among other things, the plaintiffs allege that the
Company earned excess fees for the syndication of the entity.
During the year ended September 30, 1994, the Company was named as a
defendant in two separate lawsuits. Both lawsuits contend that
investors were induced to purchase units in limited partnerships by
fraudulent misrepresentations. One lawsuit settled with no liability
to the Company during the year.
During the year ended September 30, 1995, the Company was named as a
defendant in a lawsuit. The lawsuit contended that the plaintiff
purchased units in limited partnerships because of misrepresentations
by the Company. On May 12, 1997, the Company and certain of its
affiliates entered into a Stipulation of Settlement with legal counsel
representing the plaintiff class in the consolidated actions. The
settlement contemplates, among other things, the sale of all of the
properties of Prudential-Bache/A.G. Spanos Realty Partners L.P., I at
public auction and the subsequent liquidation and dissolution of
Prudential-Bache/A.G. Spanos Realty Partners L.P., I. The settlement
agreement was preliminarily approved by the Court on August 28, 1997.
Pursuant to the settlement, detailed information about the proposed
auction sale and other terms of the settlement will be sent to the
Unitholders of Prudential-Bache/A.G. Spanos Realty Partners L.P., I
with proxy solicitation materials seeking the Unitholders' consent to
the auction sale. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness
hearing at which the Unitholders and other interested parties will have
an opportunity to be heard. There can be no assurance that the
conditions to implementation of the settlement will be satisfied.
The Company believes it has meritorious defenses in all pending cases
and that adverse decisions in any or all of these cases would be
covered by indemnification agreements from co-defendants, or by
insurance, and would not have a material effect on the financial
condition of the Company. It is not possible, at this point, to
evaluate the likely outcome and estimate any amount or range of
potential losses. Accordingly, the Company has not accrued a contingent
loss on the balance sheet.
F-16
<PAGE>
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 an Affiliate of
---------------------------------------
the Spanos General Partner may bid for, and if such bid is successful
---------------------------------------------------------------------
purchase, any or all of the Properties in a public auction held
---------------------------------------------------------------
pursuant to the order of a court with jurisdiction over the
-----------------------------------------------------------
Partnership, the General Partners, the Subordinated Limited Partners,
---------------------------------------------------------------------
the Limited Partners and the Unitholders.
----------------------------------------
A-1
<PAGE>
EXHIBIT B: ANNUAL REPORT OF PARTNERSHIP ON SEC FORM 10-K FOR THE YEAR ENDED
DECEMBER 31, 1997.
B-1
<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
/X/ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1997
OR
/ /TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________ to _________
Commission File Number: 0-17683
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 43
Exhibit Index at page 36
<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").
On May 12, 1997, the Spanos General Partner and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing
the plaintiff class in the litigation in Note E to the financial
statements set forth below in Item 8, Financial Statements and
Supplementary Data. The settlement contemplates, among other things, the
sale of all of the Partnership Properties at public auction and the
subsequent liquidation and dissolution of the Partnership. The Spanos
General Partner filed a preliminary proxy statement seeking the Limited
Partners' consent to the auction sale with the Securities and Exchange
Commission on July 28, 1997, and has received a third series of comments
to which it is in the process of responding. The settlement agreement
contains numerous conditions and must be finally approved by the Court at
a fairness hearing at which Limited Partners and other interested parties
will have an opportunity to be heard. There can be no assurance that the
conditions to implementation of the settlement will be satisfied.
The 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.
3
<PAGE>
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
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%). No single tenant accounted for 10%
or more of the revenue for any of the three years ended December 31, 1997.
The Partnership is engaged solely in the business of real estate
investment; therefore, presentation of industry segment information is not
applicable. The General Partners believe the Properties are adequately
insured. For more information regarding the Properties, see Item 2,
Properties. For more information regarding the Partnership's operations,
see Item 7, Management's Discussion and Analysis of Financial Condition
and Results of Operations.
The Partnership has no employees. The officers and employees of the
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.
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 (2)
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 (5)
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 (6) 1997 Realty Tax Data
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993 Amount Rate
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Silver Springs 93.8% 94.1% 95.1% 95.2% 95.0% $6,924 $7,029 $6,832 $6,183 $5,844 $ 77,311 1.0130%
Rancho del Sol 93.7% 94.9% 93.6% 95.7% 94.7% $7,112 $7,099 $6,921 $6,850 $6,177 $149,815 0.9611%
Sandpebble Village 95.3% 97.4% 95.8% 96.0% 94.7% $7,505 $7,519 $7,142 $6,875 $6,369 $109,045 1.1221%
Regency Square 92.3% 94.4% 96.2% 94.8% 94.5% $8,408 $8,582 $8,219 $7,452 $6,991 $215,580 1.6064%
Cameron Creek 94.5% 92.8% 93.0% 94.4% 92.9% $7,826 $7,544 $7,187 $6,816 $6,058 $ 95,621 1.2048%
Harbor Pointe 93.5% 92.1% 94.5% 97.2% 96.1% $8,065 $7,951 $7,828 $7,433 $6,822 $234,953 1.5784%
Bernardo Crest 96.4% 95.2% 94.4% 91.5% 92.4% $10,617 $10,215 $9,736 $9,167 $9,201 $161,513 1.0220%
Pointe West 95.4% 93.9% 95.7% 94.7% 95.2% $6,968 $6,514 $6,348 $5,903 $5,463 $ 59,782 0.8715%
</TABLE>
(1) The Partnership has a 100% fee simple ownership interest in each Property
subject to a first mortgage lien in favor of the indicated holder. Each
mortgage is secured only by the Property to which it relates and is without
recourse to either of the General Partners or the Partnership. (See Note C
and Schedule III to the Financial Statements.)
(2) 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 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.
(6) Average annual revenue per apartment unit is determined by dividing total
operating revenues for the Property by the number of apartment units.
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 5, 1998: 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 4,779 Unitholders as of March 5, 1998.
A significant secondary market for the Units has not developed, and it is
not expected that one will develop in the future. There are also certain
restrictions set forth in the Partnership Agreement limiting the ability
of a Unitholder to transfer Units. Consequently, Unitholders may not be
able to liquidate their investments in the event of an emergency or any
other reason.
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
March 31, 1997 $1.22
June 30, 1997 $1.22
September 30, 1997 $1.22
December 31, 1997 $1.22
All of the distributions paid to Unitholders for 1996 and 1997 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,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Total revenues $16,124,230 $15,930,615 $15,362,108 $14,499,788 $13,424,097
Interest expense $5,082,298 $5,176,971 $6,014,655 $6,381,294 $6,835,318
Net loss ($53,509) ($402,122) ($1,752,058) ($2,713,210) ($3,672,977)
Net loss per Unit ($0.17) ($1.24) ($5.42) ($8.39) ($11.36)
Net loss per Subordinated
Interest -- -- -- -- --
Cash distributions per Unit (b) $4.88 $4.88 -- -- --
Cash distributions per
Subordinated Interest -- -- -- -- --
Total assets $79,257,157 $82,001,149 $84,563,942 $87,946,202 $91,804,442
Mortgage loans payable $64,183,994 $65,322,170 $66,361,897 $67,215,017 $68,580,958
</TABLE>
(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. The cash
distributions did not result in taxable income to the Unitholders. Each
Unitholder's taxable income or loss from the Partnership is equal to his
allocable share of the taxable income or loss of the Partnership, without
regard to the cash generated or distributed by the Partnership.
10
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Capital Resources and Liquidity
The Partnership had cash of $4,161,000 at December 31, 1997. There are no
proposed programs for renovation, improvement or development of the
Properties other than maintenance and repairs (including major repairs) in
the ordinary course which will be paid from operations, and the
Partnership's liquidity position is considered satisfactory. However, see
below for information regarding the balloon payment due on the Sandpebble
Village mortgage and the possible consequences of failing to obtain
replacement financing.
On May 12, 1997, the Spanos General Partner and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing
the plaintiff class in the consolidated actions. The settlement
contemplates, among other things, the sale of all of the Partnership
Properties at public auction and the subsequent liquidation and
dissolution of the Partnership. The Spanos General Partner filed a
preliminary proxy statement with the Securities and Exchange Commission on
July 28, 1997, and has received a third series of comments to which it is
in the process of responding. The settlement agreement contains numerous
conditions and must be finally approved by the Court at a fairness hearing
at which Limited Partners and other interested parties will have an
opportunity to be heard. There can be no assurance that the conditions to
implementation of the settlement will be satisfied.
The Partnership's operating activities provided cash of $2,930,000 in
1997, of which $62,000 reflects timing differences related to current
assets and liabilities. Of the balance, $1,138,000 was applied to
scheduled principal amortization on the Partnership's mortgage debt,
$1,578,000 was paid in cash distributions, and $276,000 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 for the fourth quarter of 1996. (Fourth quarter 1996
distributions of $394,000 were paid in February 1997.) Scheduled principal
amortization increased in 1996 and 1997, reflecting the fact that the
principal portion of the monthly mortgage payments increases over time.
11
<PAGE>
The Partnership's long term debt, which consists of eight real estate
mortgages with respect to the Properties, was $64,184,000 at December 31,
1997. 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 Sandpebble mortgage requires a balloon payment
of approximately $5,474,000 on June 1, 1998, however, the Partnership
expects to obtain a short term extension of the maturity date pending the
results of the proxy solicitation regarding the auction sale of the
Properties. The other two require balloon payments of $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.
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 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.
Results of Operations
1997 Compared to 1996. Rental revenue was $15,995,000 in 1997, an
increase of 1.2% from 1996. Revenue increased at four properties (Cameron
Creek, Harbor Pointe, Bernardo Crest and Pointe West) reflecting increases
in both occupancy and effective rental rates. Revenue was down 1.5% at
Silver Springs and 2% at Regency Square, principally because of lower
occupancy. Revenue at Rancho del Sol and Sandpebble was generally
unchanged from 1996. Overall, the weighted average occupancy of the
Apartment Projects was 94.2% in 1997 compared to 94.3% in 1996.
12
<PAGE>
Property operating expenses were $5,736,000 in 1997 compared to $5,716,000
for 1996. Major repairs (i.e., exterior painting, asphalt work and other
expensive repairs that do not recur on an annual basis) declined to
$265,000 in 1997 compared to $541,000 for 1996. Furnished unit expense
was down $45,000 compared to 1996, reflecting fewer furnished unit rentals
in 1997. Operating expenses excluding major repairs and furnished unit
expense increased $341,000 or approximately 6.8% over 1996. Expense
categories showing the greatest increases were maintenance, up $128,000 or
7.8% reflecting the generally higher costs of operating an aging property
portfolio; on-site salaries, up $78,000 or 6%, reflecting higher personnel
costs; and advertising, up $75,000 or 22%. Property taxes increased
$76,000 primarily because of an increase at Harbor Pointe which had a
lower assessment in 1996. Property management fees, which are 3% of
property revenue, increased with the increase in revenue. Interest
expense declined $95,000, reflecting lower outstanding principal on the
mortgage loans. Depreciation expense declined $180,000 because certain
personal property assets became fully depreciated in 1996.
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
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.
Year 2000.
The General Partners do not expect that any costs related to year 2000
compliance will be material to the financial statements of the
Partnership.
13
<PAGE>
Item 8. Financial Statements and Supplementary Data Page
Independent Auditors' Report 15
Balance sheets at December 31, 1997 and 1996 16
Statements of operations for the years ended
December 31, 1997, 1996 and 1995 17
Statements of changes in partners' equity (deficit)
for the years ended December 31, 1997, 1996 and 1995 18
Statements of cash flows for the years ended
December 31, 1997, 1996 and 1995 19
Notes to financial statements 20-31
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 31, 1997 and 1996, and the related statements of
operations, changes in partners' equity (deficit) and cash flows for each
of the three years in the period ended December 31, 1997. Our audits also
included the financial statement schedule of the Partnership listed at
Item 14(a)(2). These financial statements and financial statement
schedule are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating
the overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential-Bache/A.G. Spanos Realty
Partners L.P., I as of December 31, 1997 and 1996, and the results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1997 in conformity with generally accepted accounting
principles. Also, in our opinion, such financial statement schedule, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information set forth
therein.
/s/ Deloitte & Touche LLP
San Francisco, California
March 13, 1998
15
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Property, net $74,608,817 $77,633,657
Cash and cash equivalents 4,161,323 3,946,802
Other assets (net of accumulated amortization
of $1,297,372 and $1,276,744, respectively) 487,017 420,690
----------- -----------
$79,257,157 $82,001,149
=========== ===========
LIABILITIES AND PARTNERS' EQUITY (DEFICIT)
Liabilities:
Mortgage loans payable $64,183,994 $65,322,170
Accounts payable 602,925 603,086
Accounts payable, affiliate 203,930 200,389
Distributions payable 394,418 394,418
Accrued interest 433,615 428,040
Unearned rent and tenant deposits 569,495 553,085
----------- -----------
66,388,377 67,501,188
----------- -----------
Partners' equity (deficit):
Limited partners' equity (316,828 units
authorized and outstanding) 5,330,720 6,929,279
Subordinated limited partners' equity (46,364 units
authorized and outstanding) 8,878,175 8,878,175
General partners' deficit (1,340,115) (1,307,493)
----------- -----------
12,868,780 14,499,961
----------- -----------
$79,257,157 $82,001,149
=========== ===========
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental $15,994,514 $15,811,247 $15,269,148
Interest 129,716 119,368 92,960
----------- ----------- -----------
16,124,230 15,930,615 15,362,108
----------- ----------- -----------
Expenses:
Property operating expenses 5,736,362 5,716,463 5,221,536
Property taxes 1,109,706 1,033,812 1,084,608
Property management fees to affiliates 479,863 474,158 458,074
General and administrative expense 104,890 94,903 96,939
Interest expense 5,082,298 5,176,971 6,014,655
Management fees to General Partners 639,780 632,450 610,766
Depreciation 3,024,840 3,203,980 3,627,588
----------- ----------- -----------
16,177,739 16,332,737 17,114,166
----------- ----------- -----------
Net loss $ (53,509) $ (402,122) $(1,752,058)
=========== =========== ===========
Net loss allocated to General Partners $ (1,070) $ (8,042) $ (35,041)
=========== =========== ===========
Net loss allocated to Limited Partners $ (52,439) $ (394,080) $(1,717,017)
=========== =========== ===========
Net loss allocated to Subordinated Limited
Partners $ -0- $ -0- $ -0-
=========== =========== ===========
Net loss per unit of limited partnership
interest $ (0.17) $ (1.24) $ (5.42)
=========== =========== ===========
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Subordinated
Limited Limited General
Total Partners Partners Partners
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
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)
Net loss (53,509) (52,439) -0- (1,070)
Distributions (1,577,672) (1,546,120) -0- (31,552)
----------- ----------- ----------- -----------
Partners' equity
(deficit)-
December 31, 1997 $12,868,780 $ 5,330,720 $ 8,878,175 $(1,340,115)
=========== =========== =========== ===========
</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, 1997, 1996 and 1995
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- ----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss $ (53,509) $ (402,122) $(1,752,058)
----------- ----------- -----------
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 3,024,840 3,203,980 3,627,588
Amortization of loan fees included in
interest expense 20,628 20,628 221,744
(Increase) decrease in other assets (86,955) 22,312 18,390
Decrease (increase) in accounts payable (161) 31,800 37,400
Increase (decrease) in accounts payable,
affiliate 3,541 2,777 (783,498)
Increase (decrease) in accrued interest 5,575 (6,578) (57,123)
Increase in unearned rent and tenant deposits 16,410 34,319 26,139
----------- ----------- -----------
Total adjustments 2,983,878 3,309,238 3,090,640
----------- ----------- -----------
Net cash provided by operating activities 2,930,369 2,907,116 1,338,582
----------- ----------- -----------
Cash flows from financing activities:
Mortgage loan principal amortization (1,138,176) (1,039,727) (853,120)
Distributions to partners (1,577,672) (1,183,262) -0-
----------- ----------- -----------
Net cash used in financing activities (2,715,848) (2,222,989) (853,120)
----------- ----------- -----------
Net increase in cash and cash equivalents 214,521 684,127 485,462
Cash and cash equivalents, beginning of year 3,946,802 3,262,675 2,777,213
----------- ----------- -----------
Cash and cash equivalents, end of year $ 4,161,323 $ 3,946,802 $ 3,262,675
=========== =========== ===========
</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, 1997, 1996 and 1995
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 estimated fair value. Depreciated cost was
reduced by certain payments received under the cash flow guaranty (see
Note D). Depreciation on buildings and equipment is recorded on a
straight-line basis over their estimated useful lives, which range from 7
to 27.5 years.
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 income
(loss) is set forth below:
1997 1996 1995
Net loss per financial statements $ (53,509) $ (402,122) $(1,752,058)
Financial statement depreciation
in excess of tax depreciation 124,558 175,997 269,972
Loan fee amortization and interest
expense adjustment -0- -0- (10,051)
Unearned rent and non refundable
deposits recognized as income for
tax purposes when received 6,145 148 618
---------- ----------- -----------
Net taxable income (loss) $ 77,194 $ (225,977) $(1,491,519)
========== =========== ===========
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
21
<PAGE>
such distributions equals the limited partners' aggregate capital
contributions and (ii) the aggregate of all other cash distributions
(including operating cash distributions, but excluding distributions in
repayment of capital contributions) equals the limited partners' 10% per
annum cumulative noncompounded return on their adjusted capital
contributions (the "First Level Sale or Refinance Distributions").
Thereafter, cash distributions resulting from a sale or refinancing are
generally allocable 85% to the Unitholders and 15% to the General Partners
(the "Second Level Sale or Refinance Distributions"). 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.
Revenue Recognition
Rental income is accrued as rents are due.
Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107, "Disclosures about
Fair Value of Financial instruments," requires the determination of fair
value for certain of the Partnership's assets and liabilities. The
following methods and assumptions were used to estimate the fair value of
those financial instruments included in the following categories:
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.
22
<PAGE>
NOTE B - PROPERTY
Property is comprised of the following at December 31, 1997 and 1996:
1997 1996
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 (30,845,208) (27,820,368)
------------- -------------
$ 74,608,817 $ 77,633,657
============= =============
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.
23
<PAGE>
<TABLE>
<CAPTION>
Final Monthly Principal Estimated
Property Pledged Obligation Obligation Interest Maturity Payment Due During Balloon
as Collateral at 12/31/97 at 12/31/96 Rate Date Terms 1998 Payment
---------- ---------- -------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Silver Springs Village
Tempe, Arizona 5,398,434 5,500,487 6.50% 12/01/00 38,006 113,018 5,030,000
Rancho del Sol
Las Vegas, Nevada 11,129,984 11,325,219 8.11% 10/01/19 92,172 211,673 N/A
Sandpebble Village
Sparks, Nevada 5,527,992 5,650,644 8.28% 06/01/98 48,828 5,527,992 5,474,000
Regency Square
Chamblee, Georgia 8,191,919 8,321,802 8.00% 02/01/01 61,269 95,321 7,732,000
Cameron Creek
Tempe, Arizona 6,426,800 6,530,719 8.11% 10/01/19 52,480 112,669 N/A
Harbor Pointe
Dunwoody, Georgia 12,930,605 13,150,748 7.75% 10/01/19 102,635 237,824 N/A
Pointe West
Aurora, Colorado 3,063,205 3,138,599 7.61% 03/01/16 25,971 81,337 N/A
Bernardo Crest
San Diego, California 11,515,055 11,703,952 8.12% 08/01/19 94,221 204,811 N/A
----------- ----------- -------- -----------
64,183,994 65,322,170 515,582 6,584,645
=========== =========== ======== ===========
</TABLE>
Interest paid in 1997, 1996 and 1995 was $5,056,095, $5,150,209 and
$5,850,034, respectively.
24
<PAGE>
Aggregate maturities of mortgage loans payable for each of the five years
ending December 31, 2002 and thereafter are as follows:
1998 $ 6,584,645
1999 1,146,784
2000 6,262,350
2001 8,807,983
2002 1,165,320
Thereafter 40,216,912
-----------
$64,183,994
===========
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.
An affiliate of the Spanos General Partner manages the Apartment Projects.
Property management fees totaled $479,863, $474,158 and $458,074 in 1997,
1996 and 1995, 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 $1,379,000,
$1,301,000 and $1,262,000 in 1997, 1996 and 1995, respectively. Accruals
of $41,966 and $41,315 for property management fees and $121,813 and
$104,347 for salary expense reimbursements were outstanding at
December 31, 1997 and 1996, respectively.
25
<PAGE>
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.
1997 1996 1995
Supervisory management fee $319,890 $316,225 $305,383
Special distribution 264,362 260,697 249,855
Administrative expense reimbursements 55,528 55,528 55,528
-------- -------- --------
$639,780 $632,450 $610,766
======== ======== ========
Accruals of $161,964 and $159,074 for management fees payable to the
General Partners were outstanding at December 31, 1997 and 1996,
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, 1997.
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).
26
<PAGE>
On or about February 13, 1995, an individual action captioned Estate of
Jean Adams v. Prudential Securities, Inc. et al. (Case No. 1995 CV 00265)
was filed in the Court of Common Pleas in Stark County, Ohio against PSI,
The Prudential, the General Partners, the Partnership and affiliates of
the Spanos General Partner. The action was removed to the United States
District Court for the Northern District of Ohio (Eastern Division) on
March 15, 1995. Plaintiff alleged misrepresentations, breach of fiduciary
duties and civil conspiracy by defendants in connection with the sale of
units of the Partnership. Plaintiff sought unspecified damages, including
punitive damages.
By order of the Judicial Panel on Multidistrict Litigation dated April 14,
1994, the Kinnes and 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 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. On November
20, 1995, the court gave final approval to the settlement, dismissed the
Kinnes and Kahn actions, certified a class of purchasers of specific
limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing
or prosecuting any settled claim against the released parties. By orders
27
<PAGE>
entered August 12, 1996 and October 25, 1996, respectively, the Adams and
Connelly cases were dismissed as to the Bache General Partner, PSI and the
other Prudential defendants. The full amount due under the settlement
agreement has been paid. The consolidated action as well as the Adams and
Connelly cases remain pending against nonsettling defendants, including
the Spanos General Partner and certain of its affiliates. The Partnership
is not named a defendant in the consolidated complaint and the action is
not expected to have a material effect on the Partnership's financial
statements; accordingly, no provision for any loss that may result upon
resolution of this matter has been made in the accompanying financial
statements.
On May 12, 1997, the Spanos General Partner and certain of its affiliates
entered into a Stipulation of Settlement with legal counsel representing
the plaintiff class in the consolidated actions. The settlement
contemplates, among other things, the sale of all of the Partnership
Properties at public auction and the subsequent liquidation and
dissolution of the Partnership. The settlement agreement was preliminarily
approved by the Court on August 28, 1997. Pursuant to the settlement,
detailed information about the proposed auction sale and other terms of
the settlement will be sent to the Limited Partners with proxy
solicitation materials seeking the Limited Partners' consent to the
auction sale. The Spanos General Partner filed a preliminary proxy
statement with the Securities and Exchange Commission on July 28, 1997,
and has received a third series of comments to which it is in the process
of responding. The settlement agreement contains numerous conditions and
must be finally approved by the Court at a fairness hearing at which
Limited Partners and other interested parties will have an opportunity to
be heard. There can be no assurance that the conditions to implementation
of the settlement will be satisfied.
On or about April 15, 1994 a multiparty petition entitled Schreiber, et
al. v. Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed
in the 189th Judicial District Court of Harris County, Texas, purportedly
on behalf of investors in the Partnership against the Partnership, the
General Partners, PSI, The Prudential Insurance Company of America and a
number of other defendants. The Petition alleges common law fraud, fraud
in the inducement and negligent misrepresentation in connection with the
offering of limited partnership interests and negligence, breach of
fiduciary duty, civil conspiracy, and violations of the federal Securities
Act of 1933 (sections 11 and 12) and of the Texas Securities and Deceptive
Trade Practices statutes. The suit seeks, among other things,
compensatory and punitive damages, costs and 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.
28
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure
Not applicable.
29
<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.
30
<PAGE>
AGS FINANCIAL CORPORATION
Name Position
Alex G. Spanos Chairman of the Board
Dean A. Spanos Vice Chairman and Director
Barry L. Ruhl Director
Michael A. Spanos Director
Arthur J. Cole President and Director
Jeremiah T. Murphy Executive Vice President and
Chief Financial Officer
ALEX G. SPANOS, age 74, has been Chairman of the Board of AGS Financial
Corporation since its founding in 1981. In addition, he serves as
Chairman of the Board or President of each of the other Spanos companies
and owns a controlling interest in the San Diego Chargers, a professional
football team. Mr. Spanos founded the combined Spanos organizations in
the early 1960's and has been the driving force behind the development of
approximately 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 47, has been Vice Chairman and a Director of AGS
Financial Corporation since its founding in 1981. He is the chief
operating officer of the property development and management companies
within the Spanos organization, responsible for land acquisitions,
financing construction and property sales. Mr. Spanos holds a bachelor's
degree in business administration from the University of the Pacific.
MICHAEL A. SPANOS, age 38, has served as a Director of AGS Financial
Corporation since its founding in 1981. He is Executive Vice President of
A.G. Spanos Construction, Inc. He holds a bachelor's degree from the
University of the Pacific.
BARRY L. RUHL, age 46, has been a Director of AGS Financial Corporation
since its founding in 1981. He is Executive Vice President of A.G. Spanos
Construction, Inc. He holds a D.D.S. from the University of the Pacific
Dental School.
31
<PAGE>
ARTHUR J. COLE, age 43, has served as President of AGS Financial
Corporation since August 1990 and as a director since 1986. He joined AGS
Financial Corporation in 1983. He holds a bachelor's degree from Golden
Gate University.
JEREMIAH T. MURPHY, age 53, has served as an Executive Vice President of
AGS Financial Corporation and is the Chief Financial Officer for all the
A.G. Spanos Companies. He has been employed by the Spanos companies since
1983. Prior to joining the Spanos companies he was a partner with the
accounting firm, Bowman & Company, which he joined in 1970. Mr. Murphy is
a Certified Public Accountant and a graduate of Bernard Baruch College.
PRUDENTIAL-BACHE PROPERTIES, INC.
Name Position
Brian J. Martin President, Chief Executive
Officer, Director and Chairman
of the Board of Directors
Barbara J. Brooks Vice President - Finance and
Chief Financial Officer
Eugene D. Burak Vice President
Chester A. Piskorowski Senior Vice President
Frank W. Giordano Director
Nathalie P. Maio Director
BRIAN J. MARTIN, age 47, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of the Bache General
Partner. He is a Senior Vice President of Prudential Securities
Incorporated ("PSI"), an affiliate of the Bache General Partner. Mr.
Martin also serves in various capacities for other affiliated companies.
Mr. Martin joined PSI in 1980. Mr. Martin is a member of the Pennsylvania
Bar.
BARBARA J. BROOKS, age 49, is the Vice President-Finance and Chief
Financial Officer of the Bache General Partner. She is a Senior Vice
President of PSI. Ms. Brooks also serves in various capacities for other
affiliated companies. She has held several positions within PSI since
1983. Ms. Brooks is a certified public accountant.
32
<PAGE>
EUGENE D. BURAK, age 52, is a Vice President of the Bache General Partner.
He is a First Vice President of PSI. Prior to joining PSI in September
1995, he was a management consultant for three years and was with
Equitable Capital Management Corporation from March 1990 to May 1992. Mr.
Burak is a certified public accountant.
CHESTER A. PISKOROWSKI, age 54, is a Senior Vice President of the Bache
General Partner. He is a Senior Vice President of PSI and is the Senior
Manager of the Specialty Finance Asset Management area. Mr. Piskorowski
has held several positions within PSI since April 1972. Mr. Piskorowski is
a member of the New York and Federal Bars.
FRANK W. GIORDANO, age 55, is a Director of the Bache General Partner. He
is a Senior Vice President of PSI and Executive Vice President and General
Counsel of Prudential Mutual Fund Management LLC, an affiliate of PSI.
Mr. Giordano also serves in various capacities for other affiliated
companies. He has been with PSI since July 1967.
NATHALIE P. MAIO, age 47, is a Director of the Bache General Partner. She
is a Senior Vice President and Deputy General Counsel of PSI and
supervises nonlitigation legal work for PSI. She joined PSI's Law
Department in 1983; presently, she also serves in various capacities for
other affiliated companies.
Thomas F. Lynch, III ceased to serve as President, Chief Executive
Officer, Chairman of the Board of Directors and Director of the Bache
General Partner effective May 2, 1997. Effective May 2, 1997, Brian J.
Martin was elected President, Chief Executive Officer, Chairman of the
Board of Directors and Director of the Bache General Partner.
Item 11. Executive Compensation
The Partnership is not required to and did not pay remuneration to the
officers and directors of the General Partners. Certain officers and
directors of the General Partners receive compensation from the General
Partners and/or their affiliates (but not from the Partnership) for
services performed for various affiliated entities, which may include
services performed for the Partnership; however, the General Partners
believe that any compensation attributable to services performed for the
Partnership is immaterial. See Item 13, "Certain Relationships and
Related Transactions," for a discussion of compensation and fees to which
the General Partners and their affiliates are entitled.
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%.
33
<PAGE>
The Partnership has issued 48,513 Subordinated Interests (of which 46,364
remain outstanding at March 5, 1998) 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 5, 1998, 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, 1997, earned or received
compensation or payments for services from the Partnership as follows:
34
<PAGE>
Capacity in Form of Cash
Recipient Which Served Compensation Compensation
Spanos General General Partner Supervisory $319,890
Partner Management Fee(1)
Bache General General Partner Special 264,362
Partner Distribution(2)
A.G. Spanos Property Manager Property 479,863
Management Inc. Management Fees(3)
General Partners General Partners Cash from Operations(4) 31,552
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.
35
<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 42.
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.
36
<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.
37
<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/Brian J. Martin Date: March 27, 1998
---------------------------------------
Brian J. Martin
Chairman of the Board of Directors and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities (with respect to the General Partners) and on
the dates indicated.
By: Prudential-Bache Properties, Inc.
A Delaware corporation, General Partner
By: /s/Brian J. Martin Date: March 27, 1998
---------------------------------------
Brian J. Martin
Chairman of the Board of Directors and Director
(Principal Executive Officer)
By: /s/Barbara J. Brooks Date: March 27, 1998
---------------------------------------
Barbara J. Brooks
Vice President-Finance and Chief Financial Officer
(Principal Financial Officer)
By: /s/Nathalie P. Maio Date: March 27, 1998
---------------------------------------
Nathalie P. Maio
Director
38
<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 27, 1998
-------------------------------
Arthur J. Cole
President
(Principal Accounting Officer)
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Arthur J. Cole Date: March 27, 1998
-------------------------------
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 27, 1998
-------------------------------
Arthur J. Cole
Vice President
39
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant in the capacities (with respect to the General Partners) and on
the dates indicated.
By: A.G. Spanos Realty Partners, L.P.
General Partner
By: AGS Financial Corporation, a general partner
By: /s/Alex G. Spanos Date: March 27, 1998
----------------------------------
Alex G. Spanos
Chairman of the Board of Directors
By: /s/Dean A. Spanos Date: March 27, 1998
----------------------------------
Dean A. Spanos
Vice Chairman and Director
By: /s/Michael A. Spanos Date: March 27, 1998
----------------------------------
Michael A. Spanos
Director
By: /s/Barry L. Ruhl Date: March 27, 1998
----------------------------------
Barry L. Ruhl
Director
By: /s/Arthur J. Cole Date: March 27, 1998
----------------------------------
Arthur J. Cole
President and Director
(Principal Executive Officer)
By: /s/Jeremiah T. Murphy Date: March 27, 1998
----------------------------------
Jeremiah T. Murphy
Executive Vice President and Chief Financial Officer
(Principal Financial and Accounting Officer)
40
<PAGE>
SIGNATURES
By: A.G. Spanos Realty Capital, Inc., a general partner
By: /s/Alex G. Spanos Date: March 27, 1998
----------------------------------
Alex G. Spanos
President and Director (Principal Executive Officer)
By: /s/Dean A. Spanos Date: March 27, 1998
----------------------------------
Dean A. Spanos
Executive Vice President and Director
By: /s/Michael A. Spanos Date: March 27, 1998
----------------------------------
Michael A. Spanos
Executive Vice President and Director
By: /s/Barry L. Ruhl Date: March 27, 1998
----------------------------------
Barry L. Ruhl
Executive Vice President and Director
By: /s/Jeremiah T. Murphy Date: March 27, 1998
----------------------------------
Jeremiah T. Murphy
Vice President (Principal Financial and Accounting Officer)
AGS Depository Corp.
By: /s/Alex G. Spanos Date: March 27, 1998
----------------------------------
Alex G. Spanos
Director, President and Chief Financial Officer
(Principal Executive, Financial and Accounting Officer)
By: /s/Dean A. Spanos Date: March 27, 1998
----------------------------------
Dean A. Spanos
Director
By: /s/Jeremiah T. Murphy Date: March 27, 1998
----------------------------------
Jeremiah T. Murphy
Director
41
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I
(A LIMITED PARTNERSHIP)
SCHEDULE III
REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Column A Column B Column C Column D Column E Column F Column G
Costs Capitalized Gross Amount at which Carried at
Initial Cost to Subsequent to Close of Period
Partnership Acquisition Notes 2, 3 and 5
Accumulated
Bldgs & Carrying Buildings & Total Depr. Date of Date
Description (Note 1) Land Equip Imps Cost Land Equipment Note 2 (Note 4) Construction Acquired
- ------------------- ---- ------ ----- ---- ---- --------- ------ ------ ------------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Silver Springs Village 1,842,000 6,977,200 -0- -0- 1,417,226 6,380,215 7,797,441 2,421,517 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 6,522,015 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 3,056,527 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 4,577,873 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 2,900,811 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 5,792,013 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 4,199,053 1988 12/04/89
San Diego, California
Pointe West 885,000 4,226,000 -0- -0- 690,000 4,082,709 4,772,709 1,375,399 1985 09/29/89
Aurora, Colorado
---------- ---------- --------------------------- ---------- ---------- ----------
21,910,000 88,581,245 -0- -0- 18,053,226 87,400,799 105,454,025 30,845,208
========== ========== =========================== ========== ======================
</TABLE>
See notes.
42
<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: 1997 1997 1995
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 totaling $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 1997 1996 1995
accumulated depreciation:
27,820,368 24,616,388 20,988,800
Balance at beginning of period
Additions during period: 3,024,840 3,203,980 3,627,588
Depreciation ------------ ----------- -----------
30,845,208 27,820,368 24,616,388
============ =========== ===========
43
<PAGE>
[ARTICLE] 5
[LEGEND]
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FINANCIAL
STATEMENTS FROM PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS L.P., I, AND IS
QUALIFIED ENTIRELY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
[/LEGEND]
<TABLE>
<S> <C>
[PERIOD-TYPE] YEAR
[FISCAL-YEAR-END] DEC-31-1997
[PERIOD-START] JAN-01-1997
[PERIOD-END] DEC-31-1997
[CASH] 487,017
[SECURITIES] 0
[RECEIVABLES] 0
[ALLOWANCES] 0
[INVENTORY] 0
[CURRENT-ASSETS] 4,648,340
[PP&E] 105,454,025
[DEPRECIATION] 30,845,208
[TOTAL-ASSETS] 79,257,157
[CURRENT-LIABILITIES] 2,204,383
[BONDS] 64,183,994
[PREFERRED-MANDATORY] 0
[PREFERRED] 0
[COMMON] 0
[OTHER-SE] 12,868,780
[TOTAL-LIABILITY-AND-EQUITY] 79,257,157
[SALES] 15,994,514
[TOTAL-REVENUES] 16,124,230
[CGS] 0
[TOTAL-COSTS] 0
[OTHER-EXPENSES] 11,095,441
[LOSS-PROVISION] 0
[INTEREST-EXPENSE] 5,082,298
[INCOME-PRETAX] 0
[INCOME-TAX] 0
[INCOME-CONTINUING] 0
[DISCONTINUED] 0
[EXTRAORDINARY] 0
[CHANGES] 0
[NET-INCOME] (53,509)
[EPS-PRIMARY] (0.17)
[EPS-DILUTED] 0
</TABLE>
<PAGE>
PRUDENTIAL-BACHE/A.G. SPANOS REALTY PARTNERS, L.P., I
CONSENT REGARDING SALE OF ASSETS,
AMENDMENT TO THE PARTNERSHIP AGREEMENT AND LIQUIDATION
The undersigned holder ("Holder") of units ("Units") of limited
partnership interest in Prudential-Bache/A.G. Spanos Realty Partners L.P., I
(the "Partnership"), hereby votes as follows:
(1) The proposed sale of substantially all of the assets of the
Partnership in a public auction:
[_] CONSENTS [_] DOES NOT CONSENT [_] ABSTAINS
(2) The proposed amendment of the Amended and Restated Agreement of
Limited Partnership of the Partnership:
[_] CONSENTS [_] DOES NOT CONSENT [_] ABSTAINS
(3) The proposed termination and liquidation of the Partnership:
[_] CONSENTS [_] DOES NOT CONSENT [_] ABSTAINS
in each case as more fully described in the Partnership's Statement Furnished in
Connection with the Solicitation of Consents dated April __, 1998 (the
"Solicitation Statement").
The Units represented by this Consent will be voted in accordance with
the elections specified by the Holder named below. IF NO ELECTIONS ARE
SPECIFIED, ANY OTHERWISE PROPERLY COMPLETED AND SIGNED CONSENT FORM WILL BE
DEEMED TO BE A CONSENT TO EACH OF THE FOREGOING PROPOSALS AS DESCRIBED IN THE
SOLICITATION STATEMENT. By execution hereof, the undersigned Holder acknowledges
receipt of the Solicitation Statement.
The Partnership reserves the right to waive any conditions to, or
modify the terms of, the Solicitation (as defined in the Solicitation
Statement). In order to count, this Consent must be received by the Partnership
prior to the earlier of (a) the date on which the Spanos General Partner
receives Consents from Unitholders owning a majority of the Outstanding Units,
or (b) 10:00 a.m., California time, on June 30, 1998, or on such later date as
may be determined by the Spanos General Partner. This fully completed and
executed Consent should be sent by mail in the self-addressed, postage-paid
envelope enclosed for that purpose, or by overnight courier, or by fax, to the
Partnership, as follows:
<PAGE>
If delivered by mail or If delivered by fax, to:
by courier, to:
Skinner & Co. Skinner & Co.
660 Market Street, Suite 204 Facsimile Number: (415) 981-0970
San Francisco, CA 94104 Telephone Number: (415) 788-0794
Please sign your name below exactly in the same manner as the name(s)
in which ownership of the Units is registered. When Units are held by two or
more joint Holders, all such Holders should sign. When signing as attorney-in-
fact, executor, administrator, trustee or guardian, please give full title as
such. If a corporation, please sign in full corporate name by the President or
other authorized officer. If a partnership, please sign in partnership name by
an authorized person.
Dated: _____________, 1998
Signature
______________________________
Name (Please Print)
______________________________
Signature if held jointly
______________________________
Name (Please Print)
______________________________
2
