SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a)of the Securities Exchange Act of 1934
(Amendment No. 4)
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Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14a-11(c) or ss. 240.14a-12
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
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(Name of Registrant as Specified In Its Charter)
Swift Energy Company
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
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Rule 14a-6(i)(4).
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
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2) Aggregate number of securities to which transaction applies:
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
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4) Proposed maximum aggregate value of transaction:
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5) Total fee paid:
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[X] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
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2) Form, Schedule or Registration Statement No.:
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September 30, 1997
Dear Limited Partner:
Enclosed is a proxy statement and related information pertaining to a
proposal to sell all of the Partnership's properties and dissolve and liquidate
the Partnership. In order for the sale and liquidation to take place, Limited
Partners holding a majority of the outstanding Units must approve this proposal.
It is important that you review the enclosed materials before voting on the
proposal. The Managing General Partner recommends that you vote in favor of such
sale and liquidation for a number of reasons. See "The Proposal -- Reasons for
the Proposal" and "Recommendation of the Managing General Partner."
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd. has been in
existence for over six years, and most of the properties underlying its net
profits interest were purchased by the first half of 1991. No capital is
available for any enhancement activities on the properties in which the
Partnership owns non-operating interests or to produce the proved non-producing
reserves on those properties. The Partnership's interest in proved reserves that
can be produced without requiring further expenditures is quite low. For several
years no net profits have been received by the Partnership due to the need to
reduce excess costs incurred by its companion partnership to pay operating and
enhancement costs. The balance of these excess costs significantly reduce the
value of the Partnership's reserves. The Partnership's interest in proved
producing reserves at January 1, 1997 is only 109.156 Mcfe. Thus, even if oil
and gas prices were unusually high, there would be very little impact upon the
Partnership's ultimate economic performance. See "The Proposal -- Partnership
Financial Performance and Conditions." To continue operation of the Partnership
means that Partnership direct expenses (such as costs of audits, reserve
reports, and Securities and Exchange Commission filings), as well as the cost of
operating the properties in which the Partnership owns an interest, will
continue while revenues remain at low levels. See "The Proposal -- Estimates of
Liquidating Distribution Amount." Thus, approval of the current sale of the
Partnership's Property Interests at this time will accelerate the receipt by the
partners of the remaining cash value of the Partnership's Property Interests.
If Limited Partners holding a majority of the Units approve this proposal,
the Managing General Partner will attempt to complete the sale of all
Partnership properties by the end of the first quarter of 1998.
Included in this package are the most recent financial and other
information prepared regarding the Partnership. If you need any further material
or have questions regarding this proposal, please feel free to contact the
Managing General Partner at (800) 777-2750.
We urge you to complete your Proxy and return it immediately, as your vote
is important in reaching a quorum necessary to have an effective vote on this
proposal. Enclosed is a green Proxy, along with a postage-paid envelope
addressed to the Managing General Partner for your use in voting and returning
your Proxy. Thank you very much.
SWIFT ENERGY COMPANY,
Managing General Partner
By: /a/ A. Earl Swift
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A. Earl Swift
Chairman
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060
(281) 874-2700
NOTICE OF SPECIAL MEETING OF LIMITED PARTNERS
To be held October 30, 1997
Notice is hereby given that a special meeting of limited partners of Swift
Energy Managed Pension Assets Partnership 1991-A, Ltd. (the "Partnership") will
be held at 16825 Northchase Drive, Houston, Texas, on Thursday, October 30, 1997
at 4:00 p.m. Central Time to consider and vote upon:
The adoption of a proposal for (a) sale of substantially all of the assets
of the Partnership (consisting of its net profits interest) including the
purchase in certain circumstances of the Partnership's Property Interests
underlying its net profits interests by the Managing General Partner and
(b) the dissolution, winding up and termination of the Partnership (the
"Termination"). All asset sales and the Termination comprise a single
proposal (the "Proposal"), and a vote in favor of the Proposal will
constitute a vote in favor of each of these matters.
A record of limited partners of the Partnership has been taken as of the
close of business on September 15, 1997, and only limited partners of record on
that date will be entitled to notice of and to vote at the meeting, or any
adjournment thereof.
If you do not expect to be present in person at the meeting or prefer to
vote by proxy in advance, please sign and date the enclosed proxy and return it
promptly in the enclosed postage-paid envelope which has been provided for your
convenience. The prompt return of the proxy will ensure a quorum and save the
Partnership the expense of further solicitation.
SWIFT ENERGY COMPANY,
Managing General Partner
/s/ John R. Alden
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JOHN R. ALDEN
Secretary
September 30, 1997
Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
16825 Northchase Drive, Suite 400
Houston, Texas 77060-9468
(281) 874-2700
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PROXY STATEMENT
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SUMMARY
General
This Proxy Statement is being provided by Swift Energy Company, a Texas
corporation (the "Managing General Partner") in its capacity as the Managing
General Partner of Swift Energy Managed Pension Assets Partnership 1991-A, Ltd.
a Texas limited partnership (the "Partnership"), to holders of units of limited
partnership interests representing an initial investment of $100 per Unit in the
Partnership (the "Units"). This Proxy Statement and the enclosed proxy are
provided for use at a special meeting of limited partners (the "Limited
Partners"), and any adjournment of such meeting (the "Meeting") to be held at
16825 Northchase Drive, Houston, Texas, at 4:00 p.m. Central Time on Thursday,
October 30, 1997. The Meeting is called for the purpose of considering and
voting upon a proposal to (a) sell substantially all of the assets of the
Partnership (consisting of its net profits interest), including the purchase in
certain circumstances of the Partnership's Property Interests underlying its net
profits interest by the Managing General Partner and (b) dissolve, wind up and
terminate the Partnership (the "Proposal"), in accordance with the terms and
provisions of Article XVI of the Partnership's Limited Partnership Agreement
dated March 31, 1991 (the "Partnership Agreement"), and the Texas Revised
Limited Partnership Act (the "Texas Act"). This Proxy Statement and the enclosed
proxy are first being mailed to Limited Partners on or about October 6, 1997.
Under Article XVI.C of the Partnership Agreement, the affirmative vote of
Limited Partners holding at least 51% of the Units then held by Limited Partners
as of the Record Date (as defined) is required for approval of the Proposal.
Each Limited Partner appearing on the Partnership's records as of September 15,
1997 (the "Record Date"), is entitled to notice of the Meeting and is entitled
to one vote for each Unit held by such Limited Partner. Under Article XX.H of
the Partnership Agreement, the General Partners may not vote any Units owned by
them for matters such as the Proposal. VJM Corporation, a California
corporation, the Special General Partner of the Partnership, owns a 1% interest
in the Partnership as a General Partner, but owns no Units. The Managing General
Partner currently owns approximately 1.21% of all outstanding Units. Therefore,
the affirmative vote of holders of 51% of the remaining Units is required to
approve the proposed sale.
Partnership's Property Interests
The working interest in the producing oil and gas properties in which the
Partnership owns the Property Interests is owned by an affiliated companion
partnership, Swift Energy Income Partners 1991-A, Ltd. (the "Operating
Partnership"). The Partnership's assets consist of a net profits interest that
covers multiple working interests, and which may be divided into multiple net
profits interests if the Operating Partnership separately sells one or more of
its working interests burdened by the net profits interest (the "Property
Interests"). Upon approval of the Proposal by the Limited Partners, the Managing
General Partner intends to sell substantially all of the Partnership's Property
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Interests, together with the Operating Partnership's working interests in the
same properties, in a sale or series of sales, use the proceeds to pay or
provide for the payment of liabilities, and then wind up the affairs of the
Partnership. The total PV-10 Value of the Partnership's reserves as of January
1, 1997 was $238,256, before reduction for excess costs. During 1996,
approximately 73% of the Partnership's revenue was attributable to natural gas
production. For more information, see the attached Annual Report on Form 10-K
for the year ended December 31, 1996 and the Form 10-Q for the second quarter of
1997.
Method of Sale
It is highly likely that the Property Interests will be sold in a series of
sales rather than in a single transaction. The Managing General Partner
anticipates that most of the Partnership's Property Interests will be offered
for sale at auctions (together with the working interest owned by the Operating
Partnership) conducted by the Oil & Gas Asset Clearinghouse (the "O&G
Clearinghouse"), or a similar company engaged in auctions of oil and gas
properties, although some of the Partnership's Property Interests may be sold in
negotiated transactions with third parties. Other than the possible sale of
interests in the AWP Olmos Field to the Managing General Partner (discussed in
"Special Factors" below if no third party exceeds the minimum bid amount at
auction) all sales will be made to unaffiliated third parties at auction or
through negotiated transactions. The procedures to be followed for offering the
AWP Olmos Field Property Interests at auction are discussed under "Special
Factors" and "The Proposal -- Auction Procedure" herein. The Managing General
Partner will not begin the sales process until the Proposal has been approved by
the Limited Partners. A minimum auction price will be set for sale of certain of
the Operating Partnership's working interest and the Partnership's Property
Interest in the same field. If the Managing General Partner has an interest in
purchasing certain of the Partnership's Property Interests if no higher price is
paid at auction, the Managing General Partner will obtain an independent
appraisal of the value of the Property Interest by an independent Consultant,
J.R. Butler and Company ("J.R. Butler") before such Property Interest is offered
at auction. A purchase of such property by the Managing General Partner will
take place only if the Property Interest is first offered to third parties at
auction, and then only if a price higher than the appraised value is not
received from third parties. Bids over the minimum price from third parties will
be accepted at auction. If no third party purchases these Property Interests at
auction at prices above the minimum bid, then the Managing General Partner will
purchase those interests for the minimum bid amount set by the third party
appraisals.
The Managing General Partner is asking for approval of the Proposal prior
to offering the Partnership's Property Interests for sale, and thus before the
sales prices for Partnership properties are known, to avoid delay in selling the
Property Interests. Furthermore, as the Managing General Partner must sell the
Partnership's Property Interests in its oil and gas properties together with the
working interests in those same properties owned by the Operating Partnerships
and several other Partnerships which it manages, solicitation of approval of
each purchase offer from all of the partnerships would be impractical.
It is possible, though unlikely, that less than all of the Partnership's
Property Interests will be sold. See "The Proposal--Steps to Implement the
Proposal--Negotiated Sale." The Managing General Partner anticipates that the
majority of sales will be made by the end of the first quarter of 1998. The sale
of Partnership Property Interests that account for at least 662/3% of the total
value of the Partnership Property Interests will cause the Partnership to
dissolve automatically under the terms of the Partnership Agreement and the
Texas Act. Any Partnership Property Interests that are not sold at auction may
be sold pursuant to negotiated sales to third parties.
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SPECIAL FACTORS
Partnership Property Interests
The chart below presents information on those fields in which the
Partnership has a Property Interest which constitute 10% or more of the
Partnership's PV-10 Value at January 1, 1997. The information below includes the
location of each field, the number of wells and operator, together with
information on the percentage of the Partnership's total PV-10 Value ($238,256)
on January 1, 1997 attributable to each of these fields. Information is also
provided regarding the percentage of the Partnership's production for the 18
months ended June 30, 1997 on a volumetric basis from each of these fields. On a
volumetric basis, the percentages of the PV-10 Value at January 1, 1997 of these
fields attributable to natural gas were between 57.4% and 84.6% and most of the
production from these fields (in excess of 69% for the AWP Olmos Field, and in
excess of 84.7% for all other fields shown) has been natural gas.
Of the remaining 18 fields in which the Partnership owns a Property
Interest, 12 fields each comprise less than 1.0% of the Partnership's PV-10
Value at January 1, 1997 and the PV-10 Value of each of the other 6 fields
average 2.5% of the Partnership's PV-10 Value at the same date.
North
Buck 18
AWP Draw Weatherford Other
Field Field Field Fields
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McMullen Campbell Custer TX (28);
County and State County, County, County, OK (26);
Texas Wyoming Oklahoma KS (27);
MS (9);
AR (12);
LA (5)
...................................................
Number of Wells 5 17 1 108
...................................................
Operator Swift Devon Swift Swift and
4 others
...................................................
% of 1/1/97 PV-10 Value 73.1% 7.8% 5.8% 13.3%
...................................................
% of Production for 18
months ended 6/30/97
(Vol.) 16.3% 3.8% 5.3% 74.6%
...................................................
Possible Sale of AWP Olmos Field Property Interest to the Managing General
Partner
If approved by a majority of the Limited Partners, the Proposal described
above to sell substantially all of the Partnership's assets and subsequently to
dissolve and terminate the Partnership will also result in the possible sale to
the Managing General Partner, after first offering such Property Interest to
third parties at auction, of the Partnership's Property Interest in the AWP
Olmos Field, representing 73.1% of its PV-10 Value at January 1, 1997, for
$138,600. The possible sale of the Partnership's AWP Olmos Field Property
Interest to the Managing General Partner is being proposed for Limited Partner
approval in an attempt to realize the highest value for this Property Interest.
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The reasons for proposing the sale of the Partnership's Property Interests at
this time are described in detail under "The Proposal -- Reasons for the
Proposal." In summary, these reasons include: (i) the reduced levels of cash
flow from the Partnership's Property Interests (no net profits payments have
been made to the Partnership in 1996 or 1997), which has resulted in no cash
distributions to Limited Partners since January 1, 1996; (ii) the inherent
decline in hydrocarbons produced over time in the absence of any further capital
expenditures on the properties in which the Partnership has a Property Interest;
(iii) the continuation of certain fixed oil field overhead and operating costs
($9,444 in 1996) which are incurred regardless of the level of production; and
(iv) continued direct costs (audits, reserve reports, partnership filings)
incurred each year ($6,986 in 1996). Because of the depletion of the
Partnership's oil and gas reserves (241,416 Mcfe at January 1, 1997) and lack of
cash flow, the Managing General Partner believes that the Partnership's asset
base and future net revenues no longer justify the continuation of the
Partnership's operations. It is also the Managing General Partner's belief that
improvements over the last several years in the level of oil and gas prices,
particularly those for natural gas, make this an appropriate time to consider
the sale of the Partnership's Property Interests, which also increases the
likelihood of maximizing the value of the Partnership's assets, although the
level of future prices cannot be predicted with any accuracy. By selling its
Property Interests and liquidating the Partnerships, future overhead and direct
costs can be avoided and the receipt of the value of the Partnership's reserves
accelerated so that such funds are received at one time. Such sale and
liquidation is viewed by the Managing General Partner as preferable to requiring
the periodic sale of a portion of its Property Interests over a long period of
time to pay the expenses of future operations and administration.
AWP Olmos Field
Of the Partnership's interest in remaining reserves (before including any
reduction for costs and excess costs), 73.1% of the PV-10 Value of such reserves
is located in the AWP Olmos Field, located in McMullen County in South Texas. Of
the Partnership's 1996 revenues attributable to production, 16.5% was from the
AWP Olmos Field. Although the AWP Olmos Field is the Managing General Partner's
largest producing property, the Partnership's interest in the AWP Olmos Field is
immaterial in relation to the Managing General Partner's interest in the field.
The Managing General Partner operated 240 wells and had an acreage position of
approximately 35,000 net acres in the AWP Olmos Field as of December 31, 1996.
The General Partner has been an operator in the field since 1989 and has
extensive experience with the field. Approximately 76% of the Partnership's
reserves attributable to the AWP Olmos Field are proved nonproducing reserves,
that cannot be produced without additional capital expenditures, which makes
such reserves less valuable to the Partnership. On the other hand, in its
position as operator of these properties, the Managing General Partner is in a
position to provide information to J.R. Butler and Company ("Consultant"), an
independent petroleum geological firm, that will allow Consultant to fully
evaluate and give value to these behind-pipe reserves.
Fair Market Value Opinion of J.R. Butler and Company Regarding AWP Olmos Field
Property Interest
The Managing General Partner selected J.R. Butler and Company ("J.R.
Butler" or the "Consultant") to appraise the Property Interests in the AWP Field
held by three different partnerships. J.R. Butler is an established engineering
consulting firm headquartered in Houston, Texas since 1948. J.R. Butler was
selected from among three established consulting firms interviewed by the
Managing General Partner. The Managing General Partner requested bid proposals
and met with all three firms. The Managing General Partner selected J.R. Butler
based upon the Managing General Partner's appraisal of Butler's capabilities,
experience, responsiveness, fees quoted for the engagement and Butler's
familiarity with the region in which the Property Interests are located.
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There has been no pre-existing relationship between the Managing General
Partner and J.R. Butler prior to engagement of J.R. Butler in 1997 to appraise
certain interests owned by three different partnerships for purposes of
determining values or assessing the sale or possible sale of certain properties.
These partnerships have paid J.R. Butler approximately $30,000 for such
appraisal services. Although the Managing General Partner has no arrangement
with J.R. Butler for future work, it is likely that the Managing General Partner
would employ J.R. Butler for any future appraisals of properties owned by
partnerships managed by Managing General Partner.
The Managing General Partner did not instruct J.R. Butler as to values or
limit the scope of J.R. Butler's investigation for purposes of preparing the
appraisals. The Managing General Partner provided J.R. Butler with data, logs,
maps, production and tests for Butler's use in determining the fair market value
of the Property Interests. J.R. Butler prepared its own reserves analysis of the
Property Interests and provided the fair market value thereof, and the Managing
General Partner did not provide any values for the Property Interests. The J.R.
Butler appraisal did not opine on the fairness of the transaction to the Limited
Partners.
The fair market value opinion ("Opinion") of the Consultant states that in
the opinion of the Consultant, the aggregate market value of the Partnership's
hydrocarbon reserves and future net revenues as of January 1, 1997, from the AWP
Properties, in each case before reduction for any excess costs, is approximately
$138,600. If the Partnership continues to operate with no sales of properties,
it would not recognize these values because of the need to reduce any potential
payments under the net profits interest by the amount of excess costs incurred
by the Operating Partnership in relation to the properties in which the
Partnership has an interest. The Opinion does not in any manner address the
underlying business decision to sell these Property Interests. Moreover, the
Opinion is necessarily based upon market, economic and other conditions as they
existed on or could be evaluated as of January 1, 1997.
The Consultant selected by the Managing General Partner to provide the fair
market value opinion was chosen through a process whereby several independent
consulting firms were interviewed by the Managing General Partner. The Managing
General Partner determined that having a single independent appraisal of certain
Property Interests to establish a minimum price at which such properties could
be sold at auction would be adequate protection against conflicts of interest in
any potential sale of such Property Interests to the Managing General Partner.
Therefore, the Managing General Partner deemed such process to be a better use
of Partnership resources than the retention of multiple appraisers to determine
minimum prices to be based upon the highest or average value determined by the
various appraisers. The Managing General Partner has not acquired a separate
report or opinion regarding the fairness to the Limited Partners of the price at
which the Partnership's Property Interest in the AWP Olmos Field may be sold to
the Managing General Partner.
The Consultant prepared the reserves and future performance estimates
utilizing standard petroleum engineering methods. For properties with sufficient
production history, reserves estimates and rate projections were based primarily
on extrapolation of established performance trends and reconciled, whenever
possible, with volumetric and/or material balance calculations. For the
undeveloped locations, reserves were determined by a combination of volumetric
calculations (geologic mapping) and analogy. The Opinion states that
volumetrically determined reserves or those determined by analogy are generally
subject to greater qualifications than reserves estimates supported by
established production decline curves and/or material balance calculations.
Consultant performed the determination and classification of reserves (with
exception of the escalated prices and costs) in accordance with Securities and
Exchange Commission guidelines. The definitions used by Consultant also conform
to those promulgated by the Society of Petroleum Engineers (SPE) and the Society
of Petroleum Evaluation Engineers (SPEE).
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Basic evaluation data used by Consultant, including production data,
estimates of drilling, completion and workover costs and operating costs were
obtained principally from the Managing General Partner. Gas and liquid prices
were obtained from averaging the actual prices received by the Managing General
Partner in 1996 through the month of October. The value of the wet gas stream
was reflected by the Btu-adjusted gas price for each well. An additional
adjustment in gas prices included a 5% reduction to reflect lease use. The
estimates of future net revenue prepared by Consultant consisted of those
revenues expected to be realized from the sale of the estimated reserves after
deduction of royalties, ad valorem and production taxes, direct operating costs,
excess costs and required capital expenditures, when applicable. Future net
revenues used by Consultant were determined before the deduction of federal
income tax. Consultant prepared market value estimates by applying qualitative
risk adjustments considered by Consultant to be appropriate for the various
reserves categories and "profit factors" (as applicable) against the spread of
future net revenue values obtained from three pricing scenarios (one
non-escalated and two escalation assumptions) and two present value discount
rates of 10% and 17%.
The reserves and the resulting "value estimates" included in the study by
Consultant are not exact quantities. Future conditions may affect the recovery
of estimated reserves and revenue, and all categories of reserves may be subject
to revision and/or reclassification as more performance and well data become
available. Furthermore, the Opinion states that any oil or gas reserves estimate
or forecast of production and income is a function of engineering and geological
interpretation and judgment and that such estimates should be used with the
understanding that additional information obtained subsequent to a study may
justify revisions which could increase or decrease the original estimates of
reserves and value.
Consultant is an independent consulting firm as provided in the Standards
Pertaining to the Estimating and Auditing of Oil and Gas Reserves Information
promulgated by the SPE. Neither Consultant nor any of its personnel have any
direct or indirect interest in the Managing General Partner or the Partnership
and Consultant's compensation was not contingent upon the results of its
reserves estimates, cash flow analyses or market value opinion resulting from
its review of the Partnership properties.
In preparing the Opinion, Consultant assumed the accuracy and completeness
of the financial and other information provided to it by the Managing General
Partner or which were publicly available and did not attempt to independently
verify such information. Consultant did not make field inspections or judgments
relative environmental or other legal liabilities.
AWP Olmos Field Sale
The properties to be sold at auction include the Partnership's Property
Interest in the AWP Olmos Field. Because of the inherent conflict of interest
between the Managing General Partner's fiduciary duty to the Partnership to
obtain the highest price for the sale of the AWP Property Interest, and the
Managing General Partner's interest as a buyer of such Properties, the Managing
General Partner has developed a procedure to address these conflicts of interest
in bidding on such property. At auction of this Property Interest, a minimum
price will be set for sale of the Operating Partnership's working interest and
the Partnership's Property Interest in the AWP Olmos Field. This minimum price
will be based upon the fair market value provided by the Consultant for the AWP
Olmos Field Property Interests.
The Managing General Partner will purchase the AWP Property Interest only
if no third party offers to purchase the AWP Property Interest at auction for a
price which exceeds the minimum bid amount. J.R. Butler and Company, an
independent third party appraiser, has already provided an appraisal which
determined that the fair market value of the AWP Property Interest at January 1,
1997 was $138,600 (before any deductions for excess costs). This is also the
6
amount to be used as the minimum bid amount at auction, and in the event such
interest is not purchased at auction, will also be the price at which the
Managing General Partner would purchase such Property Interest. The basis upon
which this appraisal was prepared is discussed in detail under "Fair Market
Value Opinion of J.R. Butler and Company" above, and the appraisal itself is
included with this Proxy Statement and incorporated herein by reference. The AWP
Olmos Field Property Interest constitutes 73.1% of the Partnership's PV-10 Value
at January 1, 1997, or approximately $174,165. If any third party bids more than
the minimum bid amount, then it will be sold to such third party. If, however,
the minimum bid amount is not received from a third party, then the Managing
General Partner will purchase the Property Interest for that amount.
The possible purchase of the Partnership's Property Interest in the AWP
Olmos Field has been structured in a manner to ensure that the price received by
the Partnership for its most important Property Interest is the best price
available, principally through first requiring that the Property Interest be
offered at auction to any third party which desires to purchase it. The
appraised value of such AWP interest by J.R. Butler and Company of $138,600
compares to the PV-10 Value of the same interest as of January 1, 1997 of
$174,165. The Managing General Partner does not believe that the PV-10 Value
accurately reflects the amount that oil and gas industry members are currently
paying to purchase producing properties on the open market, especially when so
much of the PV-10 Value of the AWP Property Interest is attributable to proved
non-producing reserves (76% of the PV-10 Value of the AWP Property Interest at
January 1, 1997).
During the auction process, the auctioneer does not disclose to prospective
bidders the minimum bid amount which has been set on any Property Interest. When
a bid first exceeds the sales price minimum, the auctioneer announces that the
minimum amount has been exceeded and that the property will be sold. If the
highest bid received does not exceed the minimum amount, the auctioneer
announces that this is the case without disclosing the exact amount of the
minimum bid required.
Fairness of Proposed AWP Sale
The Managing General Partner believes that this proposed method of sale of
the Partnership's AWP Olmos Field interest is fair to Limited Partners for a
variety of reasons, none of which is given greater weight than another:
1. Requiring that the Property Interest be offered at auction to third parties
before any sale is made to the Managing General Partner provides a
mechanism for receiving the highest price a third party is willing to pay.
Only in the event that a higher price is not received will a sale be made
to the Managing General Partner.
2. The minimum price at which the Managing General Partner might buy the
Partnership's AWP Olmos Field interest has been based upon an independent
third party appraisal of its fair market value. The factors and methods
used by J.R. Butler in making this appraisal are discussed in detail under
"Fair Market Value Opinion of J.R. Butler and Company" above.
3. Because of its position as the operator of the AWP Olmos Field and because
of the significant number of wells which it operates in that field, the
Managing General Partner believes it is in the position to offer the
highest purchase price for such Property Interest based upon its
familiarity with the costs of operating the field and its reservoir
characteristics.
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4. No transaction will take place unless the Proposal is approved by a
majority of Limited Partners, without the Managing General Partner voting
its 1.21% limited partnership interest in the Partnership.
Although the Managing General Partner has given consideration to offering
the AWP Property Interests at auction to the third party highest bidder with no
minimum sales price set, this alternative was rejected because there is no
assurance that a price equal to that willing to be paid by the Managing General
Partner would be received from third party bidders. Because of the Managing
General Partner's substantial control and operation of the AWP Olmos Field, the
level of interest and the amount that a third party would be willing to pay to
purchase such interest might be negatively affected by the lack of control of
such third party over such field and its operations. Similarly, attempts to
negotiate transactions with third parties are likely to be negatively affected
by the same lack of control and carry the same risks of receiving an
insufficient price for this Property Interest.
The possible sale of the AWP Olmos Field Property Interests to the Managing
General Partner and the procedures established for such a sale have been
approved by unanimous vote of the Board of Directors of the Managing General
Partner. The funds for any such purchase by the Managing General Partner of the
AWP interest will be funded from the Managing General Partner's working capital.
Neither the Managing General Partner nor a majority of its independent
directors retained an unaffiliated representative to act on behalf of the
Partnership's Limited Partners for the purposes of negotiating the terms upon
which any sale of the AWP Olmos Field interest to the Managing General Partner
would be made or preparing a report concerning the fairness of such transaction.
Managing General Partner Benefits
In addition to sharing the benefits available to Limited Partners through
liquidating their interests and receiving the current value of those interests
as a result of such sales, if the limited partners of the Companion Partnership
also votes to sell their properties, then a portion of the sales proceeds from
sale of the Partnership Property Interests will be used to pay the excess costs
payable to the Managing General Partner. As of June 30, 1997, the properties on
which the Partnership holds its net profits interest still carried excess
operating costs of $271,956. Any sale to the Managing General Partner of the
Partnership's Property Interests in the AWP Olmos Field would have no effect or
inconsequential effect on the Managing General Partner's net book value and net
earnings.
THE PROPOSAL INVOLVES CERTAIN RISKS. SEE "RISK FACTORS."
o If the Proposal is approved, the Limited Partners will not have an
opportunity to approve the specific terms of any particular sale of the
Property Interests.
o Currently there are no third party buyers for the Property Interests and
the price at which they will be sold has not yet been determined. The
Managing General Partner cannot accurately predict the prices at which
Property Interests ultimately will be sold to third parties.
o No minimum prices will be established for most of the Property Interests,
so there is no guarantee that the Property Interests will be sold at or
above their fair market value.
o If the Proposal is adopted, certain Property Interests may be sold to the
Managing General Partner if no higher bid is offered to third parties at
auction. Any such sale must be at the price determined by a single
8
third party appraisal, which is also the price used as the minimum price at
which such Property Interests will be offered which may not reflect the
fair market value of the Property Interests.
o The sale of the Property Interests is dependent upon the simultaneous sale
of the Operating Partnership's interest in the same properties. The failure
of the Operating Partnership to approve the proposal could significantly
adversely affect the likelihood of the sale of the Property Interests.
o If the Proposal is adopted, the receipt of a final liquidating distribution
or the amount thereof is not assured. See "The Proposal--Estimates of
Liquidating Distribution Amount."
If the Proposal is not approved by Limited Partners holding 51% or more of
the Units held by Limited Partners, the Partnership will continue to exist. In
that event, however, due to the expected decline in revenues, the Managing
General Partner estimates that a portion of the Partnership's Property Interests
ranging from an average of 10% to 15% will need to be sold each year in order to
cover future direct costs, operating costs and administrative costs.
LIMITED PARTNERS ARE URGED TO COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY AND TO RETURN IT TO THE MANAGING GENERAL PARTNER NO LATER
THAN OCTOBER 24, 1997.
9
GLOSSARY OF TERMS
Btu means British Thermal Unit, which is a heating equivalent measure for
natural gas.
Mcf means thousand cubic feet of natural gas.
Mcfe means thousand cubic feet of natural gas equivalent, which is determined
using the ratio of one barrel of oil, condensate or natural gas liquids to six
Mcf of natural gas.
Mmbtu means million British Thermal Units, which is a heating equivalent measure
for natural gas.
Net Profits Interest means an interest in oil and gas property which entitles
the owner to a specified percentage share of the Gross Proceeds generated by
such property, net of aggregate operating costs. Under the NP/OR Agreement, the
Partnership receives a Net Profits Interest entitling it to a specified
percentage of the aggregate Gross Proceeds generated by, less the aggregate
operating costs attributable to, those depths of all Producing Properties
acquired pursuant to such agreement that are evaluated at the respective dates
of acquisition to contain Proved Reserves, to the extent such depths underlie
specified surface acreage.
NP/OR Agreement means the form of Net Profits and Overriding Royalty Interest
Agreement entered into between the Partnership and an Operating Partnership
pursuant to which the Partnership acquired a Net Profits Interest, or in certain
instances various Overriding Royalty Interests, from the Operating Partnership
in a group of Producing Properties. The Working Interest in such group of
properties is held by the Operating Partnership.
PV-10 Value means the estimated future net revenue to be generated from the
production of proved reserves discounted to present value using an annual
discount rate of 10%; these amounts are calculated net of estimated production
costs and future development costs, using prices and costs in effect as of a
certain date, without escalation and without giving effect to non-property
related expenses such as general and administrative expenses, debt service,
future income tax expense or depreciation, depletion and amortization.
Producing Properties means Properties (or interests in properties) producing oil
and gas in commercial quantities, or containing shut-in wells capable of such
production, or properties which are acquired as an incidental part of the
acquisition of such properties. Producing Properties shall include associated
well machinery and equipment gathering systems, storage facilities or processing
installations or other equipment and property associated with the production and
field processing of oil or gas. Interests in Producing Properties may include
Working Interests, production payments, Royalty Interests, Overriding Royalty
Interest, Net Profits Interests, and other nonoperating interests. Producing
Properties may include gas gathering lines or pipelines. The geographical limits
of a Producing Property may be enlarged or contracted on the basis of
subsequently acquired geological data to define the productive limits of a
reservoir, or as a result of action by a regulatory agency employing such
criteria as the regulatory agency may determine.
Proved Reserves means those quantities of crude oil, natural gas, and natural
gas liquids which, upon analysis of geologic and engineering data, appear with
reasonable certainty to be recoverable in the future from known oil and gas
reservoirs under existing economic and operating conditions. Proved Reserves are
limited to those quantities of oil and gas which can be reasonably expected to
be recoverable commercially at current prices and costs, under existing
regulatory practices and with existing conventional equipment and operating
methods.
10
Royalty Interest means a fractional interest in the gross production, or the
Gross Proceeds therefrom, of oil and gas and other minerals under a lease; free
of any expenses of exploration, development, operation and maintenance.
Working Interest means the operating interest under an oil, gas and mineral
lease or other property interest covering a specific tract or tracts of land.
The owner of a Working Interest has the right to explore for, drill and produce
the oil, gas and other minerals covered by such lease or other property interest
and the obligation to bear the costs of exploration, development, operation or
maintenance applicable to his interest.
11
VOTING ON THE PROPOSAL
Vote Required
According to the terms of the Partnership Agreement, approval of the
Proposal requires the affirmative vote by the holders of at least 51%of the
Units held by Limited Partners. Therefore, an abstention by a Limited Partner
will have the same effect as a vote against the Proposal. This solicitation is
being made for votes in favor of the Proposal (which will result in liquidation
and dissolution). As of the Record Date, 14,314.86 Units were outstanding and
were held of record by 169 Limited Partners (excluding the Managing General
Partner's Units). Each Limited Partner is entitled to one vote for each Unit
held in his name on the Record Date. Accordingly, the affirmative vote of
holders of at least 7,300.58 Units is required to approve the Proposal. The
Managing General Partner holds 175 Units, but, in accordance with Article XX.H
of the Partnership Agreement, the Managing General Partner may not vote its
Units. The Managing General Partner's non-vote, in contrast to abstention by
Limited Partners, will not affect the outcome, because for purposes of adopting
the Proposal its Units are excluded from the total number of voting Units.
The Limited Partners should be aware that once they approve the Proposal
pursuant to this Proxy Statement, they will have no opportunity to evaluate the
actual terms of any specific purchase offers for the Partnership's Property
Interests. See "The Proposal - General" herein. See "The Proposal -- Reasons for
the Proposal" and "The Partnership -- Transactions Between the Managing General
Partner and the Partnership."
Proxies; Revocation
A sample of the form of proxy is included in this Proxy Statement. The
actual proxy to be used to register your vote on the Proposal is the separate
green sheet of paper included with the Proxy Statement. PLEASE USE THE GREEN
PROXY TO VOTE UPON THE PROPOSAL.
If a proxy is properly signed and is not revoked by a Limited Partner, the
Units it represents will be voted in accordance with the instructions of the
Limited Partner. If no specific instructions are given, the Units will be voted
FOR the Proposal. A Limited Partner may revoke his proxy at any time before it
is voted at the Meeting. Any Limited Partner who attends the Meeting and wishes
to vote in person may revoke his proxy at that time. Otherwise, a Limited
Partner must advise the Managing General Partner of revocation of his proxy in
writing, which revocation must be received by the Managing General Partner at
16825 Northchase Drive, Suite 400, Houston Texas 77060 prior to the time the
vote is taken.
No Appraisal or Dissenters' Rights Provided
In connection with the proposal to sell substantially all of its assets and
liquidate the Partnership, Limited Partners are not entitled to any dissenters'
or appraisal rights such as would be available to shareholders in a corporation
engaging in a merger. Dissenting Limited Partners are protected under state law
by virtue of the fiduciary duty of general partners to act with prudence in the
business affairs of the Partnership.
Solicitation
The solicitation is being made by the Partnership. The Partnership will
bear the costs of the preparation of this Proxy Statement and of the
solicitation of proxies and such costs will be allocated 90% to the Limited
Partners and 10% to the General Partners with respect to their general
partnership interests pursuant to Article VIII.A(iv). As the Managing General
Partner holds approximately 1.21% of the Units held by all Limited Partners,
12
1.21% of the costs borne by the Limited Partners will be borne by the Managing
General Partner, in addition to its portion borne as a General Partner.
Solicitations will be made primarily by mail. In addition to solicitations by
mail, a number of regular employees of the Managing General Partner may, if
necessary to ensure the presence of a quorum, solicit proxies in person or by
telephone. The Managing General Partner also may retain a proxy solicitor to
assist in contacting brokers or Limited Partners to encourage the return of
proxies, although it does not anticipate doing so. The costs of this proxy
solicitation, including legal and accounting fees and expenses, printing and
mailing costs, and related costs are estimated to be approximately $20,000.
RISK FACTORS
A Limited Partner considering whether to vote in favor of the Proposal
should give careful consideration to the risks involved, including those
summarized below:
Uncertainty of Liquidating Distributions
While the Managing General Partner is not aware of any unknown liabilities
at this time, should any unexpected liabilities come to light prior to making
any final liquidating distribution, such liabilities could significantly reduce,
or eliminate altogether, any final distribution.
Undetermined Sales Prices; Volatility of Oil and Gas Prices
Limited Partners will not have an opportunity to approve the specific terms
of any particular sale of the Property Interests and anticipated sales prices
for the Property Interests may not be achieved. Should domestic gas prices
strengthen after the sales of the assets, it is possible that more advantageous
sales prices for the properties might have been realized at a later date.
Potential Purchases of Property Interest by Managing General Partner
The Partnership's Property Interests in the AWP Olmos Field may be sold to
the Managing General Partner if the minimum price for those properties, set by
an independent appraiser retained by the Managing General Partner, is not
exceeded by a bid from a third party at auction. The Managing General Partner
will use this procedure for Property Interests in the AWP Olmos Field and may
determine to use this procedure for sale of certain other properties. Property
Interests may also be conveyed to the Managing General Partner for no
consideration if such interests cannot be sold to third parties and it is
determined that there is no value to such interests. There is no guarantee that
any of the other Property Interests will be sold at or above their fair market
value.
Dependence on Operating Partnerships
If the Partnership approves the proposal to sell its properties but the
Operating Partnership does not approve the sale of its Property Interests and
actually sell its interests in the same properties, then the Partnership will be
forced to sell its net profits interest as a single property (or undivided
interests therein). The purchaser or purchasers would have no control as working
interest owners, as the working interest will still be retained by the Operating
Partnership. If this lack of control prevents an economic sale to a third party
of the Partnership's Property Interests, the Managing General Partner will again
obtain a third party appraisal of the Partnership's Property Interests from J.R.
Butler and purchase those properties itself for the appraisal price. Therefore,
13
the likelihood of sale of the Partnership's Property Interests will be
significantly affected by the ability of the Partnership and its companion
Operating Partnership to sell their ownership interests in the same properties
together, which in turn is dependent upon approval of the proposal being made to
the Partnership and the similar proposal being made simultaneously to the
companion Operating Partnership. Failure to approve the proposal by either
partnership could significantly adversely affect the sale of properties by the
other partnership. See "The Proposal--Simultaneous Proposal to Operating
Partnerships."
Prices Used for Calculation of PV-10 Value of Proved Reserves
The PV-10 Value of the Partnership's proved oil and gas reserves upon which
the estimates of the range of liquidating distributions have been calculated
using an estimate of 1997 average prices without any escalation of $2.25 per
MMBTU. These estimates were based upon pricing scenarios determined by the
Managing General Partner and are not the same as those mandated by the
Securities and Exchange Commission for reserves disclosures under applicable SEC
Rules, which require use of prices at year-end, although the discount rate and
lack of escalation are the same. If estimates of reserves and future net
revenues had been prepared using December 31, 1996 prices, as mandated by the
SEC, reserves, future net revenues and the present value thereof would be
significantly higher. These higher prices have not been used because of the fall
in prices since year-end 1996 and the Managing General Partner's determination
that reserve estimates using 1997 average prices more accurately reflect values
likely to be received upon sale of the Partnership's Property Interests within
the next six months than estimates based upon year-end 1996 prices. If this
assumption is incorrect or prices increase rapidly at the end of 1997, the
estimates of the Partnership's PV-10 Value and proceeds receivable upon
liquidation of its Property Interests are likely to be too low.
14
THE PROPOSAL
General
The Managing General Partner has proposed that the Partnership's net
profits interest be sold, the Partnership be dissolved and that the Managing
General Partner, acting as liquidator, wind up its affairs and make final
distributions to its partners. The Partnership's assets consist of a net profits
interest (the "Property Interests") in producing oil and gas properties in which
the working interest is owned by an affiliated partnership also managed by the
Managing General Partner and formed at approximately the same time as the
Partnership was organized. The Partnership's non-operating net profits interest
exists by virtue a Net Profits and Overriding Royalty Interest Agreement ("NP/OR
Agreement") dated March 31, 1991 with Swift Energy Income Partners 1991-A, Ltd.
(the "Operating Partnership"). The NP/OR Agreement gives the Partnership a net
profits interest in a group of producing properties in which the Operating
Partnership owns the working interests, and entitles the Partnership to receive
a portion of the net profits from operation of the group of producing properties
owned by the Operating Partnership which are subject to the NP/OR Agreement. The
net profits percentage to which the Partnership is entitled is based upon a
percentage of the gross proceeds (reduced by certain costs) from the sale of oil
and gas production from these properties.
The Managing General Partner intends to sell most of the Partnership's
Property Interests through auction conducted by the O&G Clearinghouse or a
similar company, although some of the Partnership's Property Interests might be
sold to a third party in negotiated transactions or to the Managing General
Partner under certain circumstances as discussed in detail herein. The Managing
General Partner expects to sell all properties not sold by auction pursuant to
negotiated sales conducted by the Managing General Partner or a third party
engaged to dispose of the Partnership's assets. The Partnership, if not
terminated earlier, will terminate automatically, pursuant to the terms of the
Partnership Agreement, on January 1, 2021.
The Managing General Partner is an independent oil and gas company engaged
in the exploration, development, acquisition and operation of oil and gas
properties, both directly and through partnership and joint venture
arrangements, and therefore holds various interests in numerous oil and gas
properties. Furthermore, the Managing General Partner is the managing general
partner of a number of oil and gas partnerships.
Partnership Financial Performance and Condition
The Partnership owns non-operating Property Interests in producing oil and
gas properties within the continental United States in which Operating
Partnerships managed by the Managing General Partner own the working interests.
By the end of 1991 the Partnership had expended all of its original capital
contributions for the purchase of a Property Interest in oil and gas producing
properties. During 1996 approximately 73% of the Partnership's revenue was
attributable to natural gas production. The Operating Partnership has, from time
to time, performed workovers and recompletions of wells in which the Partnership
has Property Interests, using funds advanced by the Managing General Partner to
perform these operations, a portion of which amounts has been subsequently
repaid from production.
The Limited Partners have made contributions of $1,448,986, in the
aggregate to the Partnership. The Managing General Partner has made capital
contributions with respect to its general partnership interest of $11,528.
Additionally, pursuant to the presentment right set forth in Article XVIII of
the Partnership Agreement, it purchased 175 Units from Limited Partners.
15
From inception through January 31, 1997, the Partnership has made cash
distributions to its Limited Partners totaling $495,000, although no
distributions have been made since January 1, 1996. Through January 31, 1997,
the Managing General Partner has received cash distributions from the
Partnership of $36,695 with respect to its general partnership interest, and no
distributions related to its limited partnership interests. On a per Unit basis,
Limited Partners had received, as of January 31, 1997, $34.16 per $100 Unit, or
approximately 34.16% of their initial capital contributions.
The Partnership acquired its Property Interests at a time when oil and gas
prices and industry projections of future prices were much higher than actually
occurred in subsequent years. As detailed in the Designated Properties
Supplement dated January 29, 1991 regarding Property Interests to be acquired by
the Partnership, when the Managing General Partner projected future oil and gas
prices to evaluate the economic viability of an acquisition, it compared its
forecasts with those made by banks, oil and gas industry sources, the U.S.
government, and other companies acquiring producing properties. Acquisition
decisions for the Partnership were based upon a range of increasing prices that
were within the mainstream of the forecasts made by these outside parties. At
the time that the Partnership's Property Interests covering producing properties
were acquired, prices averaged about $23 per barrel of oil and $1.90 per Mcf of
natural gas. Oil and gas prices were expected to escalate during subsequent
years of the Partnership's operations. In general, in 1990 and early 1991, all
of these sources forecasted increases in product prices that were based upon oil
and gas prices at the time, which reflected the invasion of Kuwait by Iraq in
the summer of 1990 and the commencement of hostilities in the Gulf War in 1991.
The majority of the Partnership's Property Interests were acquired during the
fourth quarter of 1990 and the first quarter of 1991 when current prices were
predicted to escalate according to certain parameters from then current levels.
Thus the majority of properties were bought upon an evaluated weighted average
price of $1.90 per Mcf. The predicted price increases did not occur and prices
fell precipitously from 1991 to 1992. The bulk of the Partnership's reserves
were produced from 1991-1994 during which time the Partnership's oil prices in
fact averaged $17.37 per barrel and natural gas prices averaged approximately
$1.78 per Mcf.
The following graphs illustrate the above factors with respect to gas
revenues only, due to the fact that a substantial majority of the Partnership's
production to date being natural gas, the bulk of which was produced during the
years when gas prices were the lowest.
16
GAS PER MCF
------------------------
YEAR ACTUAL EXPECTED YEAR MCFE
- ---- ------ -------- ---- ------
1990 1.86 2.04 1990 253497
1991 1.63 2.24 1991 806323
1992 1.80 2.68 1992 704598
1993 1.96 3.19 1993 527436
1994 1.89 3.38 1994 463380
1995 1.44 3.58 1995 357960
1996 2.02 3.79 1996 305494
[GRAPHIC OMITTED -- Represented by table above.] (Comparison of Gas Prices
Expected in 1990 to Gas Prices Actually Received)
[GRAPHIC OMITTED -- Represented by table above.] (Amounts of Production to Date
Produced by Year)
In addition to the effect of prices, Partnership performance has been
negatively affected by problems related to specific wells in the Operating
Partnership's original acquisitions included within the net profits interests,
which disproportionately decreased cash flow because these wells had been
anticipated to have significant early cash flows. In 1992, a well in the
Lewisburg Field, Acadia Parish, Louisiana (the acquisition costs of which were
12% of Limited Partners' initial capital contributions) required certain
workover procedures, due to increased water production. The procedures were
unsuccessful and the well was recompleted higher in the producing zone. Although
production was re-established, the well is producing at a rate lower than prior
17
to the water encroachment. Additionally, the producing zones of four wells in
the Simbrah Field, Jackson County, Texas (the acquisition costs of which were
___% of Limited Partners' initial capital contributions) depleted in 1992 and
1993. Recompletion attempts into upper zones were unsuccessful and the wells
were plugged and abandoned in 1994. Recompletion procedures were attempted on
several other wells in Louisiana (the acquisition costs of which were 45% of the
Limited Partners' initial capital contribution) with limited success between
1993 and 1996. The costs to the Partnership for all of these workover and
recompletion attempts were $146,262, and as of January 1, 1997 there was no
PV-10 Value associated with any of these wells. Subsequent enhancement
activities were undertaken on the properties in which the Operating Partnership
held a working interest. To the extent funds were available from 1993 to 1995,
the Partnership's companion Operating Partnership drilled seven material
development wells on properties in which the Partnership had Property Interests,
of which six were successful. Five of the seven wells were in McMullen County,
Texas in the AWP Olmos Field and the other two wells were in Custer County,
Oklahoma and Fayette County, Texas, respectively. The drilling costs to the
Partnership for these seven wells was $124,519, and the wells represent 25.8% of
the January 1, 1997 PV-10 Value of the Partnership. The benefit of these
enhancement activities, however, was reduced by the need to repay the costs
incurred for these enhancements.
Lower prices also had an effect on the Partnership's interest in proved
reserves. Estimates of proved reserves represent quantities of oil and gas
which, upon analysis of engineering and geologic data, appear with reasonable
certainty to be recoverable in the future from known oil and gas reservoirs
under existing economic and operating conditions. When economic or operating
conditions change, proved reserves can be revised either up or down. If prices
had risen as predicted, the volumes of oil and gas reserves that are
economically recoverable might have been higher than the year-end levels
actually reported because higher prices typically extend the life of reserves as
production rates from mature wells remain economical for a longer period of
time. Production enhancement projects that are not economically feasible at low
prices can also be implemented as prices rise. At present, because of the small
remaining amount of reserves, further price increases would not have a
significant impact on the Partnership's performance.
As required by the Partnership Agreement, the Partnership expended all of
the partners' net commitments available for property acquisitions many years ago
to acquire Property Interests in producing oil and gas properties. The net
profits paid by the Operating Partnership to the Partnership have been reduced
by amounts used by the Operating Partnership to pay operating and enhancement
costs to the third party operator. These costs relate to the working interests
that were subject to the Partnership's net profits interest. The Managing
General Partner of the Operating Partnership advanced most of these costs
because it felt that such expenditures would increase the value of the
properties in which the Partnership and the Operating Partnership have an
interest. The Partnership's partnership agreement does not allow additional
assessments to be made against any Limited Partners.
Estimates of Liquidating Distribution Amount
As of December 31, 1996, the properties on which the Partnership holds its
net profits interest still carried excess operating costs of $308,068. Because
of the large amount of remaining costs, no cash distributions have been made to
its Limited Partners since January 1, 1996. Given the large amount of costs
incurred in excess of net revenues on properties in which the Partnership has a
non-operating interest (which has resulted in a large payable by the Operating
Partnership to the Managing General Partner which has not been repaid by the
Operating Partnership), it is highly likely that further net profits payments
from the Operating Partnership to the Partnership will be delayed for
significant periods of time and will be generally insignificant. The value of
18
the Partnership's net profits interest is quite low because of these costs.
Neither the Operating Partnership's partnership agreement nor the Partnership's
partnership agreement allow additional assessments to be made against any
Limited Partners, nor may any portion of Partnership capital may be remitted to
the Operating Partnership to reduce these excess operating costs. Under the
NP/OR Agreement these significant excess operating costs must be debited from
revenues generated by the working interests before any net profits can be paid
to the Partnership or a subsequent owner of the net profits interest. This
requirement substantially diminishes the fair market value of the net profits
interest. Therefore, the Managing General Partner anticipates that a sale of the
Partnership's Property Interest will generate a larger amount of cash for a
liquidating distribution to the Limited Partners than the present value of
future distributions if the Partnership were to continue in existence.
It is not possible to accurately predict the prices at which the Property
Interests will be sold. The sales price of the Partnership's net profits
interest or possibly multiple net profits interests may vary. In the latter
case, certain Property Interests might sell for a higher price and others for a
lower price than those estimated below. The projected range of sales prices
below has been based upon estimated future net revenues for the Partnership's
Property Interests, using an estimate of 1997 average prices without any
escalation of $2.25 per Mmbtu. The "high" range of estimated distributions from
liquidation is based upon estimated future net revenues discounted to present
value at 10% per annum. The "low" range is 70% of the "high" range estimate. The
1997 price estimate grew out of the pricing scenarios determined by the Managing
General Partner, which scenarios are used in various circumstances, including
economic modeling of partnership returns and evaluating the economics of
property sales or property acquisitions for the Managing General Partner or for
partnerships managed by the Managing General Partner. These pricing assumptions
vary from those mandated by the Securities and Exchange Commission ("SEC") for
reserves disclosures under applicable SEC rules, which require use of prices at
year-end, although the discount rate and lack of escalation are the same. If
estimates of reserves and future net revenues had been prepared using December
31, 1996 prices, as mandated by the SEC, reserves, future net revenues and the
present value thereof would be significantly higher. The Managing General
Partner has determined not to use these higher prices because current estimates
of 1997 average prices more accurately reflect prices purchasers of properties
are willing to pay, rather than higher values which do not reflect the decrease
in prices since year-end 1996. For example, the weighted average price of gas
received by the Partnership for the first six months of 1997 was $2.69 per Mcf
as compared to $4.83 per Mcf at December 31, 1996. On July 1, the Managing
General Partner's estimated weighted average price of gas for the remainder of
1997 was $2.58 per Mcf.
Set forth in the table below are estimated proceeds that the Partnership
may realize from sales of the Partnership's properties, after taking into
account reduction of the value of those Property Interests due to excess costs,
estimated expenses of the related dissolution and liquidation of the
Partnership, and the estimated amount of any net distributions available for
Limited Partners as a result of such sales.
19
Range of Limited Partners' Share of Estimated Distributions
from Property Interest Sales and Liquidation
Projected Range
----------------------
Low High
--------- ----------
Net Sales Proceeds(1) $ 33,650 $ 105,185
Partnership Dissolution Expenses(2) $ (18,000) $ (18,000)
---------- ----------
Net Distributions payable to Limited Partners $ 15,650 $ 87,185
========== ==========
Net Distributions per $100 Unit $ 1.08 $ 6.02
========== ==========
<FN>
(1) Includes cash and net receivables and payables of the Partnership, net of
selling expenses estimated to be 7% of sales proceeds, and absorption by
the Managing General Partner of all internal acquisition costs of the
Partnership.
(2) Includes Limited Partners' share of all costs associated with dissolution
and liquidation of the Partnership.
</FN>
If, on the other hand, the Partnership were to retain its Property
Interests and continue to benefit from production of those properties until
depletion, the table below estimates the return to Limited Partners, discounted
to present value, based upon the same pricing and discount assumptions used
above. The estimates of the present value of future net distributions have been
further reduced by continuing audit, tax return preparation and reserve
engineering fees associated with continued operations of the Partnership, along
with direct and general and administrative expenses estimated to occur during
this time. Such estimates do not take into account any sale of a portion of the
Partnership's Property Interests necessary in order to generate sufficient cash
proceeds to pay general, administrative and operating expenses, which would
reduce the revenues of the Partnership. Moreover, the following estimated future
net revenues do not take into account any growth in excess costs which might be
incurred by the Partnership's Companion Partnership due to needed future
maintenance or remedial work on the properties in which the Partnership has an
interest.
Estimated Share of Limited Partners'
Net Distributions from Continued Operations
Projected
Cash Flows
----------
Future Net Revenues from Net Profits Interest (over 17 years)(1) $ 165,600
Partnership Direct and Administrative Expenses(2) $ (32,000)
-------------
Net Distributions to Limited Partners (payable over 17 years)(3) $ 133,600
=============
Net Distributions per $100 Unit(4) $ 9.22
Present Value of Net Distributions per $100 Unit(5) $ 5.82
- -------------------
20
(1) Includes cash and net receivables and payables of the Partnership. Limited
Partners' future net revenues are based on the reserve estimates at
December 31, 1996 after reduction for excess costs, assuming unescalated
prices based on predictions of 1997 average prices. To a limited extent,
future net revenues may be influenced by a material change in the selling
prices of oil or gas. For further discussion of this, see "--Reasons for
the Proposal." The actual prices that will be received and the associated
costs may be more or less than those projected. See "The
Partnership--Partnership Financial Condition and Performance."
(2) Includes Limited Partners' share of general and administrative expenses,
and audit, tax, and reserve engineering fees.
(3) Based upon the Partnership's reserves having a projected 17-year life,
assuming flat pricing. To a limited extent, net distributions may be
influenced by a material change in the selling prices of oil or gas. For
further discussion of this, see "--Reasons for the Proposal." The actual
prices that will be received and the associated costs may be more or less
than those projected.
(4) Does not reflect effect of intermittent sales of Property Interests to pay
administrative costs once the properties no longer generate sufficient
revenues to cover such costs. The Managing General Partner estimates that
Property Interests ranging from an average of 10% to 15% of the value of
the Partnership's properties would have to be sold each year to cover such
costs.
(5) Discounted at 10% per annum.
Among factors which can affect the ultimate sales price received for
Partnership Property Interests are the following:
(1) The above cases presume that 100% of the Partnership's Property
Interests will be sold.
(2) In certain instances, the Partnership, together with the Operating
Partnerships which will be offering its working interest in the
properties in which the Partnership owns a Property Interest, will own
a large enough interest in the properties to allow the purchaser to
designate a new operator of the properties, which normally increases
the amount that a purchaser is willing to pay.
(3) Changes in the market for gas or oil may affect the pricing
assumptions used by purchasers in evaluating property value and
possible purchase prices.
(4) Different evaluations of the amount of money required to be spent to
enhance or maintain production may have a significant effect upon the
ultimate purchase price.
(5) In certain instances, the Managing General Partner may set minimum
bidding prices for those properties offered at auction, which may not
be met.
(6) The Managing General Partner may choose to package certain less
attractive properties together with other properties in order to
enhance the likelihood of their sale. Such packaging could result in a
significant discount by prospective purchasers of the value of the
Partnership's more productive properties contained in such packages.
The Partnership Agreement authorizes the Managing General Partner to sell
the Partnership Property Interests at a price that the Managing General Partner
deems reasonable. The proceeds of all sales, to the extent available for
distribution, are to be distributed to the Limited Partners and the General
Partners in accordance with Article XVI.E of the Partnership Agreement as
follows. After use of available proceeds from property sales to reserves for
contingent or unforeseen liabilities of the Partnership, the proceeds are to be
used to repay the capital accounts of the Partners whose capital accounts have
not yet been repaid. The amounts finally distributed will depend on the actual
sales prices received for the Partnership assets, results of operations until
such sales and other contingencies and circumstances.
21
Fairness of the Proposal; Comparison of Sale Versus Continuing Operations
The Managing General Partner believes that the Proposal to sell the
Partnership's Property Interests and liquidate is fair to Limited Partners for
several reasons. No such transactions will take place unless the Proposal is
approved by a majority of Limited Partners, without the Managing General Partner
voting its 1.21% limited partnership interest. The Partnership's Property
Interests will be sold to the highest third-party bidder at auction or to the
third party which is willing to purchase the interests for the highest price in
a negotiated sale unless the Managing General Partner purchases the
Partnership's Property Interest in the AWP Olmos Field in the absence of a
third-party bid at auction higher than the appraised value of that interest. The
fairness of making such a sale to the Managing General Partner is discussed in
detail under "Special Factors [Considerations]--Fairness of Possible Sale of AWP
Olmos Field Interest to the Managing General Partner."
Based on the above tables, it is estimated that a Limited Partner could
expect to receive from $2.81 to $7.75 per $100 Unit upon immediate sale of the
Partnership Property Interests. In comparison, it is estimated that a Limited
Partner could expect to receive $5.82 per $100 Unit, discounted to present value
($9.22 per $100 Unit over 17 years on an undiscounted basis), if the Partnership
continued operations. Although the estimates contained under "The
Proposal--Estimates of Liquidating Distribution Amount" above show that
estimated cash distributions to Limited Partners (based on net present value)
from continued operations over 17 years would be approximately 4.6% higher than
estimated cash distributions from selling the Partnership's properties and
liquidating the Partnership at this time (based on the "high" range of
estimates), the Managing General Partner believes there is a substantial
advantage in receiving the liquidating distribution in one lump sum currently.
The estimates of distributions from continued operations are based upon current
prices. It is highly likely that over such a long period of time, oil and gas
prices will vary appreciably and possibly widely from the prices used to prepare
these estimates. Continued operations over such a long period of time subject
Limited Partners to the risk of receiving lower levels of cash distributions if
oil and gas prices over this twenty year period are lower on average than those
used in preparing the estimates of cash distributions from continued operations.
With no further capital to invest, continued operations over twenty years
subject Limited Partners to the risks of price volatility and to possible
changes in costs or need for workover or similar significant remedial work on
the properties in which the Partnership owns Property Interests, for which the
Partnership has no capital. The Managing General Partner also believes that
there is an advantage to Limited Partners taking any funds to be received upon
liquidation and redeploying those assets in other investments, rather than
continuing to receive small distributions over such a long period of time.
Such estimates are based on December 31, 1996 reserve estimates assuming
unescalated pricing throughout the remaining life of the properties in which the
Partnership owns an interest. The actual prices that will be received and the
associated costs may be more or less than those projected. See "--Estimate of
Liquidating Distribution Amount."
Reasons for the Proposal
The Managing General Partner believes that it is in the best interest of
the Partnership and the Limited Partners for the Partnership to sell its
properties at this time and to dissolve the Partnership.
Partnership Cash Flow; Potential Liquidating Distribution. Over the past 19
months, the Partnership has received no net profits payments under the NP/OR
Agreement, principally due to the large amount of excess costs incurred over a
long period in connection with operation and enhancement of the oil and gas
properties in which the Partnership owns a non-operating interest. This large
balance of excess costs reduces significantly the value of the Partnership's net
profits interest, which will reduce the sales proceeds from any sale of the
22
Partnership's Property Interests. Nonetheless, and depending upon the proceeds
from sale of the Partnership's Property Interests, there are likely to be funds
available for a liquidating distribution upon sale of the Partnership's Property
Interests. As discussed above, the Managing General Partner believes that the
ability to receive the estimated liquidating distribution in one lump sum
currently, rather than smaller amounts over a 17 year period, is one of the
benefits of the Proposal, without the risk of such potential distributions being
negatively affected by oil and gas price decreases. It is also the Managing
General Partner's belief that improvements over the last several years in the
level of oil and gas prices, particularly those for natural gas, make this an
appropriate time to consider the sale of the Partnership's Property Interests,
and increases the likelihood of maximizing the value of the Partnership's
assets, although the level of future prices cannot be predicted with any
accuracy.
Small Amount of Remaining Assets in Relation to Expenses. As of December
31, 1996, approximately 72% of the Partnership's ultimate recoverable reserves
had been produced, and the Limited Partners' share of the Partnership's interest
in reserves, before any reduction for costs, is estimated to be less than
242,000 Mcfe. The Partnership's share of oil and gas reserves are expected to
continue to decline as remaining reserves are produced, and distributions to
partners have ceased since January 1, 1996 due to excess costs. Declines in well
production are based principally upon the maturity of the wells, not on market
factors. Each producing well requires a certain amount of overhead costs, as
operating and other costs are incurred regardless of the level of production.
Likewise, direct costs and/or general and administrative expenses such as
compliance with the securities laws, producing reports to partners and filing
partnership tax returns do not decline as revenues decline. It is expected that
in future periods operating costs, excess operating costs incurred which are
offset before paying net profits to the Partnership, and general and
administrative expenses, which are relatively fixed amounts, may exceed
revenues. As a result of the depletion of the Partnership's oil and gas
reserves, the Managing General Partner believes the Partnership's asset base and
future net revenues no longer justify the continuation of operations.
Consequently, the Managing General Partner expects that the Partnership will
have to start selling a portion of its Property Interests to pay the expenses of
future operations and administration. By accelerating the liquidation of the
Partnership, those future administrative costs can be avoided.
Effect of Gas Prices on Value. The Managing General Partner believes that
the key factor affecting the Partnership's long-term performance has been the
decrease in oil and gas prices that occurred subsequent to the purchase of the
Partnership's properties. Additionally, prices are expected to continue to vary
widely over the remaining life of the Partnership, and such changes in gas
prices will affect future estimates of revenues from continued operations of the
Partnership. Based on 1996 year-end reserve calculations, the Partnership had
only about 28% of its ultimate recoverable reserves, before any reduction for
costs, remaining for future production. Because of this small amount of
remaining reserves, even if oil and gas prices were to increase in the future,
such increases would be unlikely to have a net positive impact on the total
return on investment to the partners in view of the expenses of the Partnership
as described above.
Potential of the Properties. Recovery in amounts great enough to
significantly impact the results of the Partnership's operations and the
ultimate cash distributions can only occur with the investment of new capital.
As provided in the Partnership Agreement, the Partnership expended all of the
partners' net commitments for the acquisition of Property Interests many years
ago, and it no longer has capital to invest in improvement of the properties
through secondary or tertiary recovery. No additional development activities are
contemplated by the Operating Partnership on the properties in which the
Partnership has an interest.
Orderly Sale of Properties Through Approval of the Proposal. The oil and
gas market is volatile, making the sale of the properties at optimal prices very
time sensitive. The approval of the Proposal would also allow the Managing
23
the Managing General Partner to begin the winding up and dissolution of the
Partnership following the final sale of the Partnership's Property Interests.
The approval of the Proposal will act as the approval of all future asset sales
without the approval by the Limited Partners of the specific terms of such
future sales.
Limited Partners' Tax Reporting. Even though future distributions to
Partners are expected to cease, each Limited Partner will continue to have a
partnership income tax reporting obligation with respect to his Units as long as
the Partnership continues to exist. There is no trading market for the Units, so
Limited Partners generally are unable to dispose of their interests. See "The
Partnership - No Trading Market." The approval of the Proposal would also allow
the Managing General Partner to begin the winding up and dissolution of the
Partnership. Following the approval of the Proposal and the dissolution and sale
of the properties, the Limited Partners will realize gain or loss or a
combination of both under the federal income tax laws. Thereafter, Limited
Partners will have no further tax reporting obligations with respect to the
Partnership. The dissolution of the Partnership will also allow Limited Partners
to take a capital loss deduction for syndication costs incurred in connection
with formation of the Partnership. See "Federal Income Tax Consequences."
Simultaneous Proposal to Operating Partnerships
Simultaneously with this proposal to the Partnership's Limited Partners to
sell all of its Property Interests, a similar proposal is being made to the
limited partners of the companion Operating Partnership which owns the working
interest in the same properties in which the Partnership owns a non-operating
interest. If both Partnerships approve the proposal, then the working interest
and non-operating interest will be sold simultaneously.
If the Partnership approves the proposal but its companion Operating
Partnership does not, then the Managing General Partner will attempt to sell the
Non-Operating Interest owned by the Partnership to a third party. If no economic
sale can be made to a third party, which may occur due to the difficulty in
selling a net profits interest in a property when operating and spending
decisions are controlled by another entity and when excess costs exist, then the
Managing General Partner will get a fair market appraisal of the value of the
Partnership's Property Interests and will purchase the Partnership's
non-operating interests itself for the highest price for which the Property
Interests are appraised. The Managing General Partner intends to obtain any such
fair market value appraisal from J.R. Butler.
If the Partnership does not approve the proposal but its companion
Operating Partnership approves the proposal to sell its properties, then the
Operating Partnership will be forced to sell its working interests in its
properties subject to the net profits interest owned by the Partnership which
burdens the Operating Partnership's properties. Again this may affect the
saleability of the Operating Partnership's properties due to the burden on cash
flow caused by the existence of the Partnership's net profits interest. If this
burden prevents an economic sale to a third party, then the Managing General
Partner will again obtain a third party appraisal of the Operating Partnership's
properties and purchase those Property Interests itself.
Therefore the likelihood of sale of the Partnership's Property Interests
will be significantly affected by the ability of the Partnership and its
companion Operating Partnership to sell their ownership interests in the same
properties at approximately the same time, which in turn is dependent upon
approval of the proposal being made to the Partnership and the similar proposal
being made simultaneously to the companion Operating Partnership. Failure to
approve the proposal by either partnership could significantly adversely affect
the sale of properties by the other partnership to the NP/OR Agreement.
24
Steps to Implement the Proposal
Following the approval of the Proposal, the Managing General Partner
intends to take the following steps to implement it:
1. Make available to the appropriate persons (that is, the third party,
if any, handling the negotiated sales and/or the auction house and
prospective purchasers) the following types of data:
o Engineering and Geological Data
- Production curve
- Completion report
- Historical production data
- Engineering well files
- Geological maps (if available)
- Logs (if available)
o Land/Legal Data
- Net Profits Interest schedule for all properties
- Land files
- Payout data
o Accounting Data
- Lease operating statements by well
- Gas marketing data
- Oil marketing data
- Gas balancing data
2. Pay or provide for payment of the Partnership's liabilities and
obligations to creditors (See -- "Liquidation") using the
Partnership's cash on hand and proceeds from the sale of Partnership
properties;
3. Conduct a final accounting in accordance with the Partnership
Agreement;
4. Cause final Partnership tax returns to be prepared and filed with the
Internal Revenue Service and appropriate state taxing authorities;
5. Distribute to the Limited Partners final Form K-1 tax information; and
6. File a Certificate of Cancellation on behalf of the Partnership with
the Secretary of State of the State of Texas.
Auction. The Managing General Partner intends to engage the O&G
Clearinghouse or another similar company to conduct live auctions for the sales
working interests of the Operating Partnership and the non-operating interests
of the Partnership. The O&G Clearinghouse (as well as other such auction
companies) is in the business of conducting auctions for oil and gas properties.
The O&G Clearinghouse establishes a data room, which they leave open for a
period of time (generally three to four weeks), after which they hold a live
auction. The O&G Clearinghouse requires advance registration for all bidders.
Bidders may participate by invitation only, after having qualified as
knowledgeable and sophisticated parties routinely or actively engaged in the oil
25
and gas business. The O&G Clearinghouse publishes a brochure regarding the
properties. The O&G Clearinghouse is headquartered in Houston, Texas. In
auctions conducted by the O&G Clearinghouse, properties are generally grouped
into small packages with a single field often comprising a property.
If the Managing General Partner determines it is interested in buying
Property Interests (in addition to interests in the AWP Olmos Field) owned by
the Partnership if no higher price is bid at auction, then the same procedure
described under "Special Factors--AWP Olmos Field Sale" will be used, in each
case with the minimum bid amount to be based upon a prior independent appraisal
of the value of the Property Interest by J.R. Butler, the independent
Consultant, with the property to be offered at auction to third parties before
the Managing General Partner can purchase these Property Interests for the
minimum price, and then only if no higher price is received from third parties.
Estimated Selling Costs. The expenses associated with the auction process
(auctioneer's fee plus advertising fee) is expected to be approximately 7% of
the sales price received. This does not include internal costs of the Managing
General Partner with respect to the sales, nor fees owed to third parties for
services incident to the sale. For example, if the Managing General Partner
engaged a third party to sell the properties, this would entail an additional
fee (although in such a case the Managing General Partner's internal costs would
be lower). This also does not include the costs of the proxy solicitation. See
"General Information-- Solicitation."
Negotiated Sale. Although the Managing General Partner intends to offer
most of the Partnership's and the Operating Partnership's Property Interests at
auction, it is possible that the Managing General Partner or a third party
engaged for the purpose of selling the Partnership's assets may approach other
oil and gas companies and negotiate a sale of certain Property Interests. The
Managing General Partner (or such third party) may solicit bids on the oil and
gas properties for which the Managing General Partner is the operator. If the
Managing General Partner (or third party) solicits bids, it will provide all
interested parties with information about the properties needed to bid on such
properties. Such information would include raw data and historical information
on all of the operated properties that any of the partnerships managed by the
Managing General Partner intends to sell. See "--Steps to Implement the
Proposal." The data will be organized by property. Neither the Managing General
Partner nor its affiliates nor any of the partnerships managed by the Managing
General Partner will purchase any of the Partnership's Property Interests in
this manner. In the event of a bid that is lower than a price the Managing
General Partner believes is reasonable, it may sell the property to a third
party bidder for such lower bid price, use another method of sale such as an
auction, or have the Partnership continue to hold such property for a while
longer. If a property cannot be sold to a third party at auction or on a
negotiated basis, which usually occurs because it has no appreciable value,
often accompanied by the fact that the property requires expenditures to plug
and abandon wells, the Managing General Partner may dispose of such property by
conveying it to the operator or by conveying the property to itself, for no
consideration. Determinations as to whether any such conveyances will be made,
including conveyances to the Managing General Partner in such cases, will be
made solely by the Managing General Partner. The Managing General Partner is not
currently aware of any Property Interests owned by the Partnership which are
likely to be conveyed in this manner. Except as described below with respect to
Property Interests in the AWP Olmos Field, in no event is the Managing General
Partner obligated to purchase any of the Property Interests. See "--AWP Olmos
Field."
Other. Any sale of the Partnership Property Interests and the subsequent
liquidating distributions to the Limited Partners, if any, pursuant to the
Proposal will be taxable transactions under federal and state income tax laws.
See "Federal Income Tax Consequences."
26
Impact on the Managing General Partner
The Managing General Partner may purchase certain of the Partnership's
Property Interests if the Proposal is approved. In addition, the Managing
General Partner will be economically impacted by liquidation in at least two
ways. First, to the extent of its ownership of Units, liquidation will have the
same effect on it as on the Limited Partners. See "--Estimate of Liquidating
Distribution Amount," and "--Estimated Share of Limited Partners' Net
Distributions from Continued Operations." Second, because of the dissolution and
liquidation of the Partnership, together with liquidation of other partnerships,
the Managing General Partner will no longer hold the majority interest in
various wells. Different operators are likely to be selected and the Managing
General Partner will therefore lose revenues that it currently realizes from its
role as operator for those properties. The Managing General Partner is making
its recommendations as set forth below, on the basis of its fiduciary duty to
the Limited Partners, rather than on the basis of the direct economic impact on
the Managing General Partner.
Recommendation of the Managing General Partner
For the foregoing reasons, the Managing General Partner believes that it is
in the best interests of the Limited Partners to dissolve and liquidate the
Partnership. The Managing General Partner believes, based on the estimates of
liquidating distributions and distributions from continued operations contained
herein, that it is in the best interests of the Limited Partners to sell the
Partnership's remaining properties to conclude Partnership activities.
Liquidation will allow the Limited Partners to receive any available liquidating
distribution currently, rather than receiving estimated distributions over the
remaining life of the Partnership, so as not to be subjected to the risk of
future negative changes in oil and gas prices during the lengthy period of 17
years necessary to produce the Partnership's remaining reserves. There is
virtually no prospect for further distributions to Limited Partners without
capital to develop behind pipe and undeveloped reserves, especially given the
large amount of excess costs over future net revenues and the relatively fixed
nature of general and administrative and current operating expenses. Continued
operations of the Partnership would mean continuation of the additional costs
incurred by the Limited Partners, including the costs associated with inclusion
of information from the Schedule K-1 relating to the Partnership in their
personal income tax returns. Termination of the Partnership will allow
preparation of a final tax return, and certain additional deductions may be
generated in connection with this termination.
The Managing General Partner recommends that the Limited Partners vote FOR
the Proposal.
FEDERAL INCOME TAX CONSEQUENCES
General
The following summarizes certain federal income tax consequences to the
Limited Partners arising from the Partnership's proposed sale of its oil and gas
properties and liquidation pursuant to the Proposal. This discussion is not
based upon an opinion of counsel and it is possible that different results than
those described may occur. Statements of legal conclusions regarding tax
consequences are based upon relevant provisions of the Internal Revenue Code of
1986, as amended (the "Code"), and accompanying Treasury Regulations, as in
effect on the date hereof, upon private letter rulings dated October 6, 1987 and
August 22, 1991, upon reported judicial decisions and published positions of the
Internal Revenue Service (the "Service"), and upon further assumptions that the
Partnership constitutes a partnership for federal tax purposes and that the
Partnership will be liquidated as described herein. The laws, regulations,
administrative rulings and judicial decisions which form the basis for
27
conclusions with respect to the tax consequences described herein are complex
and are subject to prospective or retroactive change at any time and any change
may adversely affect Limited Partners.
This summary does not describe all the tax aspects which may affect Limited
Partners because the tax consequences may vary depending upon the individual
circumstances of a Limited Partner. It is generally directed to Limited Partners
that are qualified plans and trusts under Code Section 401(a) and individual
retirement accounts ("IRAs") under Code Section 408 (collectively "Tax Exempt
Plans") and that are the original purchasers of the Units and hold interests in
the Partnership as "capital assets" (generally, property held for investment).
Each Limited Partner that is not a tax-exempt Plan is strongly encouraged to
consult its own tax advisor as to the rules which are specifically applicable to
it. Except as otherwise specifically set forth herein, this summary does not
address foreign, state or local tax consequences, and is inapplicable to
nonresident aliens, foreign corporations, debtors under the jurisdiction of a
court in a case under federal bankruptcy laws or in a receivership, foreclosure
or similar proceeding, or an investment company, financial institution or
insurance company.
Tax Treatment of Tax Exempt Plans
Sale of Property Interest and Liquidation of Partnership
The Managing General Partner is proposing to sell the Partnership's
Property Interest as well as any other royalties and overriding royalties the
Partnership may own. After the sale of the properties, the Partnership's assets
will consist solely of cash, which will be distributed to the partners in
complete liquidation of the partnership.
Tax Exempt Plans are subject to tax on their unrelated business taxable
income ("UBTI"). UBTI is income derived by an organization from the conduct of a
trade or business that is substantially unrelated to its performance of the
function that constitutes the basis of its tax exemption (aside from the need of
such organization for funds). Royalty interests, dividends, interest and gain
from the disposition of capital assets are generally excluded from
classification as UBTI. Notwithstanding these exclusions, royalties, interest,
dividends, and gains will create UBTI if they are received from debt-financed
property, as discussed below.
The Internal Revenue Service has previously ruled that the Partnership's
Property Interest, as structured under the NP/OR, is a royalty, as are any
overriding royalties the Partnership may own. To the extent that the Property
Interest is not debt-financed property, neither the sale of the Property
Interest by the Partnership nor the liquidation of the Partnership is expected
to cause Limited Partners that are Tax Exempt Plans to recognize taxable gain or
loss for federal income tax purposes, even though there may be gain or loss upon
the sale of the Property Interest for federal income tax purposes.
Debt-Financed Property
Debt-financed property is property held to produce income that is subject
to acquisition indebtedness. The income is taxable in the same proportion which
the debt bears to the total cost of acquiring the property. Generally,
acquisition indebtedness is the unpaid amount of (i) indebtedness incurred by a
Tax Exempt Plan to acquire an interest in a partnership, (ii) indebtedness
incurred in acquiring or improving property, or (iii) indebtedness incurred
either before or after the acquisition or improvement of property or the
acquisition of a partnership interest if such indebtedness would not have been
incurred but for such acquisition or improvement, and if incurred subsequent to
such acquisition or improvement, the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisition or improvement.
Generally, property acquired subject to a mortgage or similar lien is considered
28
debt-financed property even if the organization acquiring the property does not
assume or agree to pay the debt. Notwithstanding the foregoing, acquisition
indebtedness excludes certain indebtedness incurred by Tax Exempt Plans other
than IRAs to acquire or improve real property. Although this exception may
apply, its usefulness may be limited due to its technical requirements and the
fact that the debt excluded from classification as acquisition indebtedness
appears to be debt incurred by a partnership and not debt incurred by a partner
directly or indirectly in acquiring a partnership interest.
If a Limited Partner that is a Tax Exempt Plan borrowed to acquire its
Partnership Interest or had borrowed funds either before or after it acquired
its Partnership Interest, its pro rata share of Partnership gain on the sale of
the Property Interest may be UBTI. The Managing General Partner has represented
that (i) the Partnership did not borrowed money to acquire its Property
Interest, and (ii) that the Property Interest of the Partnership is not subject
to any debt, mortgages or similar liens that will cause the Partnership's
Property Interest to be debt-financed property under Code Section 514. If a Tax
Exempt Plan has not caused its Partnership Interest to be debt-financed
property, and based upon the representations of the Managing General, the
Property Interest is not expected to be considered debt-financed property.
Tax Treatment of Limited Partners Subject to Federal Income Tax Due to
Debt-financing or Who are Not Tax Exempt Plans
All references hereinbelow to Limited Partners refers solely to Limited
Partners that either are not Tax Exempt Plans or are Tax Exempt Plans whose
Partnership Interest is debt-financed. To the extent that a Tax Exempt Plan's
Partnership Interest is only partially debt-financed, the percentage of gain or
loss from the sale of the Property Interest and liquidation of the Partnership
that will be subject to taxation as UBTI is the percentage of the Tax Exempt
Plan's share of Partnership income, gain, loss and deduction adjusted by the
following calculation. Section 514(a)(1) includes, with respect to each
debt-financed property, as gross income from an unrelated trade or business an
amount which is the same percentage of the total gross income derived during the
taxable year from or on account of the property as (i) the average acquisition
indebtedness for the taxable year with respect to the property is of (ii) the
average amount of the adjusted basis of the property during the period it is
held by the organization during the taxable year (the "debt/basis percentage").
A similar calculation is used to determine the allowable deductions. For
each debt-financed property, the amount of the deductions directly attributable
to the property are multiplied by the debt/basis percentage, which yields the
allowable deductions. If the average acquisition indebtedness is equal to the
average adjusted basis, the debt/basis percentage is zero and all the income and
deductions are included within UBTI. The debt/basis percentage is calculated on
an annual basis.
Tax Exempt Plans with debt-financed Partnership Interests should consult
their tax advisors to determine the portion of gain or loss that may be
recognized for federal income tax purposes. The following discussion of the tax
consequences of the sale of the Partnership Property Interest and the
liquidation of the Partnership assumes that all of a Limited Partner's income,
gain, loss and deduction from the Partnership is subject to federal taxation.
Taxable Gain or Loss Upon Sale of Properties
A Limited Partner will realize and recognize gain or loss, or a combination
of both, upon the Partnership's sale of its properties prior to liquidation. The
amount of gain realized with respect to each property, or related asset, will be
an amount equal to the excess of the amount realized by the Partnership and
allocated to the Limited Partner (i.e., cash or consideration received) over the
Limited Partner's adjusted tax for such property. Conversely, the amount of
29
loss realized with respect to each property or related asset will be an amount
equal to the excess of the Limited Partner's tax basis over the amount realized
by the Partnership for such property and allocated to the Limited Partner. It is
projected that taxable loss will be realized upon the sale of Partnership
properties and that such loss will be allocated among the Limited Partners in
accordance with the Partnership Agreement. The Partnership Agreement includes an
allocation provision that requires allocations pursuant to a liquidation be made
among Partners in a fashion that equalizes capital accounts of the Partners so
that the amount in each Partner's capital account will reflect such Partner's
sharing ratio of income and loss. The extent to which capital accounts can be
equalized, however, is limited by the amount of gain and loss available to be
allocated.
Realized gains and losses generally must be recognized and reported in the
year the sale occurs. Accordingly, each Limited Partner will realize and
recognize his allocable share of gains and losses in his tax year within which
the Partnership properties are sold.
Liquidation of the Partnership
After sale of its properties, the Partnership's assets will consist solely
of cash which it will distribute to its partners in complete liquidation. The
Partnership will not realize gain or loss upon such distribution of cash to its
partners in liquidation. If the amount of cash distributed to a Limited Partner
in liquidation is less than such Limited Partner's adjusted tax basis in his
Partnership interest, the Limited Partner will realize and recognize a capital
loss to the extent of the excess. If the amount of cash distributed is greater
than such Limited Partner's adjusted tax basis in his Partnership interest, the
Limited Partner will recognize a capital gain to the extent of the excess.
Because each Limited Partner paid a portion of syndication and formation costs
upon entering the Partnership, neither of which costs were deductible expenses,
it is anticipated that liquidating distributions to Limited Partners will be
less than such Limited Partners' bases in their Partnership interests and thusly
will generate capital losses.
Capital Gains Tax
Net long-term capital gains of individuals, trusts and estates will be
taxed at a maximum rate of 28%, while ordinarily income, including income from
the recapture of depletion, will be taxed at a maximum rate depending on that
Limited Partner's taxable income of 36% or 39.6%. With respect to net capital
losses, other than Section 1231 net losses, the amount of net long-term capital
loss that can be utilized to offset ordinary income will be limited to the sum
of net capital gains from other sources recognized by the Limited Partner 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 long-term capital loss may be
carried forward and utilized in subsequent years subject to the same
limitations. Corporations are taxed on net long-term capital gains at their
ordinary Section 11 rates and are allowed to carry net capital losses back three
years and forward five years.
Passive Loss Limitations
Limited Partners that are individuals, trusts, estates, or personal service
corporations are subject to the passive activity loss limitations rules that
were enacted as part of the Tax Reform Act of 1986.
A Limited Partner's allocable share of Partnership income, gain, loss, and
deduction is treated as derived from a passive activity, except to the extent of
Partnership portfolio income, which includes interest, dividends, royalty income
and gains from the sale of property held for investment purposes. A Limited
30
Partner's allocable share of any gain realized on sale of the Partnership's net
profits interest is expected to be characterized as portfolio income and may not
offset, or be offset by, passive activity gains or losses.
THE FOREGOING DISCUSSION IS INTENDED TO BE A SUMMARY OF CERTAIN INCOME TAX
CONSIDERATIONS OF THE SALE OF PROPERTIES AND LIQUIDATION. EACH LIMITED PARTNER
SHOULD CONSULT ITS OWN TAX ADVISOR CONCERNING ITS PARTICULAR TAX CIRCUMSTANCES
AND THE FEDERAL, STATE, LOCAL, FOREIGN AND OTHER TAX CONSEQUENCES TO IT OF THE
SALE OF PROPERTIES AND THE LIQUIDATION OF THE PARTNERSHIP.
31
BUSINESS OF THE PARTNERSHIP
The Partnership is a Texas limited partnership formed March 31, 1991. Units
in the Partnership are registered under Section 12(g) of the Securities Exchange
Act of 1934. In addition to the following information about the business of the
Partnership, see the attached Annual Report on Form 10-K for the year ended
December 31, 1996, and its quarterly report on Form 10-Q for the second quarter
of 1997, both included herewith.
Reserves
For information about the Partnership's interest in oil and gas reserves
and future net revenue expected from the production of those reserves as of
December 31, 1996, see the attached report, which was audited by H. J. Gruy and
Associates, Inc., independent petroleum consultants. It should be noted that the
reserve estimates in the Annual Report on Form 10-K reflect the entire
Partnership reserves and that the reserve report in the attached letter from H.
J. Gruy and Associates, Inc. reflects only the Limited Partners' share of the
Partnership's estimated oil and gas reserves. Neither of these reports reflect
the Partnership's share of existing and future costs of operations which must be
debited from the Partnership's interest in reserves in order to determine the
Partnership's net interest in reserves by virtue of its net profits interest.
This report has not been updated to include the effect of production since
year-end 1996, nor has the annual review of estimated quantities done each
year-end taken place for 1997.
There are numerous uncertainties inherent in estimating quantities of
proved reserves and in projecting the future rates and timing of production,
future costs and future development plans. Oil and gas reserve engineering must
be recognized as a subjective process of estimating underground accumulations of
oil and gas that cannot be measured in an exact way, and estimates of other
engineers might differ from those in the attached report. The accuracy of any
reserve estimate is a function of the quality of available data and of
engineering and geological interpretation and judgment. Results of drilling,
testing and production subsequent to the date of the estimate may justify
revision of such estimate, and, as a general rule, reserve estimates based upon
volumetric analysis are inherently less reliable than those based on lengthy
production history. Accordingly, reserve estimates are often different from the
quantities of oil and gas that are ultimately recovered.
In estimating the Partnership's interest in oil and natural gas reserves,
the Managing General Partner has used flat pricing based upon estimates of 1997
average prices, without escalation, except in those instances where fixed and
determinable gas price escalations are covered by contracts, limited to the
price the Partnership reasonably expects to receive. These pricing assumptions
vary from those mandated by the Securities and Exchange Commission ("SEC") for
reserves disclosures under applicable SEC rules, which require use of prices at
year-end, although the discount rate and lack of escalation are the same. If
estimates of reserves and future net revenues had been prepared using December
31, 1996 prices, as mandated by the SEC, reserves, future net revenues and the
present value thereof would be significantly higher. The Managing General
Partner has determined not to use these higher prices because current estimates
of 1997 average prices more accurately reflect prices purchasers of properties
are willing to pay, rather than higher values which do not reflect the decrease
in prices since year-end 1996. For example, the weighted average price of gas
received by the Partnership during the first six months of 1997 was $2.69 per
Mcf, as compared to $4.83 per Mcf at December 31, 1996. The Managing General
Partner does not believe that any favorable or adverse event causing a
significant change in the estimated quantity of proved reserves set forth in the
attached report has occurred between December 31, 1996, and the date of this
Proxy Statement.
32
Future prices received for the sale of the Partnership's products may be
higher or lower than the prices used in the Partnership's estimates of oil and
gas reserves; the operating costs relating to such production may also increase
or decrease from existing levels.
The Managing General Partner
Subject to certain limitations set forth in the Partnership Agreement, the
Managing General Partner has full, exclusive and complete discretion in the
management and control of the business of the Partnership. The Managing General
Partner has general liability for the debts and obligations of the Partnership.
The Managing General Partner is engaged in the business of oil and gas
exploration, development and production, and the Managing General Partner serves
as the general partner of a number of other oil and gas income and pension
partnerships. The Managing General Partner's common stock is traded on the New
York and Pacific Stock Exchanges.
The principal executive offices of the Managing General Partner are located
at 16825 Northchase Drive, Suite 400, Houston, Texas 77060, telephone number
(281) 874-2700.
Transactions Between the Managing General Partner and the Partnership
The Managing General Partner receives operating fees for wells in which the
Partnership has a net profits interest and for which the Managing General
Partner or its affiliates serve as operator. It is anticipated that, due to the
sale of interests in wells by the Operating Partnership, the Managing General
Partner will no longer serve as operator for a number of the wells in which the
Partnership has a net profits interest. To the extent that the operator changes
because of a change in ownership of the properties, the Managing General Partner
will lose the revenues it currently earns as operator, which are less than 1.0%
of the Managing General Partner's net revenues. The Managing General Partner
believes, however, that it will be positively affected, on the other hand, by
liquidation of the Partnership, on the basis of its ownership interest in the
Partnership. See "The Proposal--Estimates of Liquidating Distribution Amount,"
and "The Proposal--Impact on the Managing General Partner."
Under the Partnership Agreement, the Managing General Partner has received
certain compensation for its services and reimbursement for expenditures made on
behalf of the Partnership, which was paid at closing of the offering of Units,
in addition to revenues distributable to the Managing General Partner with
respect to its general partnership interest or limited partnership interests it
has purchased. In addition to those revenues, compensation and reimbursements,
the following summarizes the transactions between the Managing General Partner
and the Partnership pursuant to which the Managing General Partner has been paid
or has had its expenses reimbursed on an ongoing basis:
o The Managing General Partner has received management fees of $36,225,
internal acquisition costs reimbursements of $76,362 and formation
costs reimbursements of $28,980 from the Partnership from inception
through June 30, 1997.
o The Managing General Partner receives per-well monthly operating fees
from the Operating Partnership for certain producing wells in which
the Partnership owns Property Interests and for which it serves as
operator in accordance with the joint operating agreements for each of
such wells. The fees that are set in the joint operating agreements
are negotiated with the other working interest owners of the
properties.
33
o The Managing General Partner is entitled to be reimbursed for general
and administrative costs incurred on behalf of and allocable to the
Partnership, including employee salaries and office overhead. Amounts
are calculated on the basis of Limited Partner capital contributions
to the Partnership relative to limited partner contributions of all
partnerships for which the Managing General Partner serves as Managing
General Partner. However, in both 1995 and 1996, the Managing General
Partner, under authority provided in the Partnership Agreement,
determined in its discretion that the Partnership would neither accrue
nor pay the general and administrative overhead allowance to which the
Managing General Partner is otherwise entitled under the Partnership
Agreement, thus foregoing receipt of any amounts attributable to that
allowance since that time. These amounts were not material to the
Partnership. Prior to that time, the Managing General Partner had
received $87,102 in the general and administrative overhead allowance.
Given the lack of current revenues of the Partnership, it is unlikely
that such allowance will be paid in future periods.
o The Managing General Partner has been reimbursed $5,668 in direct
expenses, all of which was billed by, and then paid directly to, third
party vendors.
No Trading Market
There is no trading market for the Units, and none is expected to develop.
Under the Partnership Agreement, the Limited Partners have the right to present
their Units to the Managing General Partner for repurchase at a price determined
in accordance with the formula established by Article XVIII of the Partnership
Agreement. Originally 173 Limited Partners invested in the Partnership. Through
December 31, 1996, the Managing General Partner has purchased 175 Units from
Limited Partners pursuant to the right of presentment. As of September 15, 1997,
there were 169 Limited Partners (excluding the Managing General Partner). The
Managing General Partner does not have an obligation to repurchase Limited
Partner interests pursuant to this right of presentment but merely an option to
do so when such interests are presented for repurchase.
Principal Holders of Limited Partner Units
The Managing General Partner holds 1.21% of the Units of the Partnership.
To the knowledge of the Managing General Partner, there is no holder of Units
that holds more than 5% of the Units.
Approvals
No federal or state regulatory requirements must be satisfied or approvals
obtained in connection with the sale of the Partnership's Property Interests.
Legal Proceedings
The Managing General Partner is not aware of any material pending legal
proceedings to which the Partnership is a party or of which any of its property
is the subject.
34
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE AND ATTACHMENT OF
SUCH INFORMATION HERETO
The Partnership's Annual Report on Form 10-K for the year ended December
31, 1996, and its quarterly report on Form 10-Q for the second quarter of 1997,
which are attached hereto and incorporated herein by reference.
OTHER BUSINESS
The Managing General Partner does not intend to bring any other business
before the Meeting and has not been informed that any other matters are to be
presented at the Meeting by any other person.
SWIFT ENERGY COMPANY
as Managing General Partner of
Swift Energy Managed Pension Assets
Partnership 1991-A, Ltd.
/s/ John R. Alden
------------------------------------
John R. Alden
Secretary
35
FORM OF PROXY
SWIFT ENERGY MANAGED PENSION ASSETS PARTNERSHIP 1991-A, LTD.
This Proxy is Solicited by the Managing General
Partner for a Special Meeting of Limited Partners to be
held on October 30, 1997
The undersigned hereby constitutes and appoints A. Earl Swift, Bruce H.
Vincent, Terry E. Swift or John R. Alden, as duly authorized officers of Swift
Energy Company, acting in its capacity as Managing General Partner of the
Partnership, or any of them, with full power of substitution and revocation to
each, the true and lawful attorneys and proxies of the undersigned at a Special
Meeting of the Limited Partners (the "Meeting") of SWIFT ENERGY MANAGED PENSION
ASSETS PARTNERSHIP 1991-A, LTD. (the "Partnership") to be held on October 30,
1997 at 4:00 p.m. Houston time, at 16825 Northchase Drive, Houston, Texas, and
any adjournments thereof, and to vote as designated, on the matter specified
below, the Partnership Units standing in the name of the undersigned on the
books of the Partnership (or which the undersigned may be entitled to vote) on
the record date for the Meeting with all powers the undersigned would possess if
personally present at the Meeting:
The adoption of a proposal FOR AGAINST ABSTAIN
("Proposal") for (a) sale of
substantially all of the [ ] [ ] [ ]
assets of the Partnership
(consisting of its net
profits interest) including
the purchase in certain
circumstances of the Partner-
ship's property interests
underlying its net profits
interests by the Managing
General Partner and/or its
affiliates, and (b) the
dissolution, winding up and
termination of the Partnership.
The undersigned hereby directs
said proxies to vote:
This proxy will be voted in accordance with the specifications made hereon.
If no contrary specification is made, it will be voted FOR the Proposal.
Receipt of the Partnership's Notice of Special Meeting of Limited Partners
and Proxy Statement dated September 30, 1997 is acknowledged.
PLEASE SIGN AND RETURN THE PROXY IN THE ENCLOSED,
POSTAGE-PAID, PRE-ADDRESSED ENVELOPE BY
OCTOBER 24, 1997.
SIGNATURE DATE
--------------------------- -------------------------
SIGNATURE DATE
--------------------------- -------------------------
SIGNATURE DATE
--------------------------- -------------------------
If Limited Partnership Units are held jointly, all joint tenants must sign.
36
THIS TRANSACTION HAS NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION ("COMMISSION") NOR HAS THE COMMISSION PASSED UPON THE
FAIRNESS OR THE MERITS OF SUCH TRANSACTION NOR UPON THE ACCURACY OR ADEQUACY OF
THE INFORMATION CONTAINED IN THIS DOCUMENT. ANY REPRESENTATION TO THE CONTRARY
IS UNLAWFUL.
The Partnership's Annual Report on Form 10-K for the year ended December
31, 1996 and its quarterly report on Form 10-Q for the second quarter of 1997
are included with this Proxy Statement and incorporated herein by reference. See
"Incorporation of Certain Information By Reference and Attachment of Such
Information Hereto." Additionally, a reserve report dated May 20, 1997, prepared
as of December 31, 1996, and audited by H. J. Gruy and Associates, Inc., is
attached hereto together with the appraisal of J. R. Butler and Company dated
May 9, 1997 of the fair market value of the Partnership's Property Interests in
the AWP Olmos Field.
TABLE OF CONTENTS
SUMMARY .................................................................... 1
General ........................................................... 1
Partnership's Property Interests.................................... 1
Method of Sale...................................................... 2
SPECIAL FACTORS.............................................................. 3
Partnership Property Interests...................................... 3
Affiliated Property Sales........................................... 3
AWP Olmos Field Sale................................................ 4
Fair Market Value Opinion of J.R. Butler and Company
Regarding AWP Olmos Field Property Interest................ 4
North Buck Draw Unit Sale........................................... 8
Other Factors....................................................... 8
Managing General Partner Benefits from Sales........................ 8
GLOSSARY OF TERMS............................................................ 11
VOTING ON THE PROPOSAL....................................................... 12
Vote Required....................................................... 12
Proxies; Revocation................................................. 12
Dissenters' Rights.................................................. 12
Solicitation........................................................ 12
RISK FACTORS................................................................. 13
Uncertainty of Liquidating Distributions............................ 13
Undetermined Sales Prices; Volatility of Oil and Gas Prices......... 13
Purchases and Potential Purchases by Affiliates..................... 13
Dependence on Operating Partnerships................................ 13
Prices Used for Calculation of PV-10 Value of Proceeds Reserves..... 14
THE PROPOSAL................................................................. 15
General ........................................................... 15
Partnership Financial Performance and Condition..................... 15
Anticipated Impact of Property Sales and Liquidation................ 17
Estimates of Liquidating Distribution Amount........................ 18
Comparison of Sale Versus Continuing Operations..................... 22
i
Reasons for the Proposal............................................ 23
Simultaneous Proposal to Operating Partnerships..................... 24
Steps to Implement the Proposal..................................... 25
Impact on the Managing General Partner.............................. 27
Recommendation of the Managing General Partner...................... 27
FEDERAL INCOME TAX CONSEQUENCES.............................................. 27
General ........................................................... 27
Tax Treatment of Tax Exempt Plans................................... 28
Tax Treatment of Limited Partners Subject to Federal Income Tax
Due to Debt-financing or Who are Not Tax Exempt Plans...... 29
Taxable Gain or Loss Upon Sale of Properties........................ 29
Liquidation of the Partnership...................................... 30
Capital Gains Tax................................................... 30
Passive Loss Limitations............................................ 30
BUSINESS OF THE PARTNERSHIP.................................................. 32
Reserves ........................................................... 32
The Managing General Partner........................................ 33
Transactions Between the Managing General Partner and the
Partnership................................................ 33
No Trading Market................................................... 34
Principal Holders of Limited Partner Units.......................... 34
Approvals........................................................... 34
Legal Proceedings................................................... 34
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
AND ATTACHMENT OF SUCH INFORMATION HERETO........................... 35
OTHER BUSINESS............................................................... 35
FORM OF PROXY................................................................ 36
ii