<PAGE>
 
                                 UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                               _________________
    
                                  FORM 10-K/A

                                AMENDMENT NO. 1     

              [X]    ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

              FOR THE FISCAL YEAR ENDED
              DECEMBER 31, 1996

                                       OR

              [ ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
                     OF THE SECURITIES EXCHANGE ACT OF 1934

                             COMMISSION FILE NUMBER
                                    0-16861

                         PRUDENTIAL-BACHE/A.G. SPANOS 
                        GENESIS INCOME PARTNERS L.P., I

             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)


                 DELAWARE                                94-3028296
       (STATE OR OTHER JURISDICTION OF                  (IRS EMPLOYER
       INCORPORATION OR ORGANIZATION)               IDENTIFICATION NUMBER)
                          ___________________________

              1341 WEST ROBINHOOD, SUITE B-9, STOCKTON, CA  95207
             (ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)   (ZIP CODE)
      REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE:  (209) 478-0140

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

                                                    NAME OF EACH EXCHANGE
 TITLE OF EACH CLASS                                 ON WHICH REGISTERED
 -------------------                                 -------------------
      NONE                                                   NONE

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:

               DEPOSITORY UNITS OF LIMITED PARTNERSHIP INTERESTS
               -------------------------------------------------
                                (TITLE OF CLASS)

  Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes  X   No_____
                                             -----        

  Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K ((S) 229.405 of this chapter) is not contained herein, and
will not be contained, to the best of registrant's knowledge, in definitive
proxy or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.  [ X ]
<PAGE>
 
                               TABLE OF CONTENTS
<TABLE> 
<CAPTION> 
                                                                                                           PAGE
<S>                                                                                                       <C>
PART I        ............................................................................................   2
  Item 1.     Business....................................................................................   2
  Item 2.     Properties..................................................................................   4
  Item 3.     Legal Proceedings...........................................................................   6
  Item 4.     Submission of Matters to a Vote of Security Holders.........................................   6
PART II       ............................................................................................   6
  Item 5.     Market for Partnership's Depository Units of Limited Partnership                            
              Interest and Related Security Holder Matters................................................   6
  Item 6.     Selected Financial Data.....................................................................   7
  Item 7.     Management's Discussion and Analysis of Financial Condition and Results of Operations.......   7
  Item 8.     Financial Statements and Supplementary Data.................................................  10
  Item 9.     Changes in and Disagreements with Accountants on Accounting and Financial Disclosure........  25
PART III      ............................................................................................  26
  Item 10.    Directors and Executive Officers of the Registrant..........................................  26
  Item 11.    Executive Compensation......................................................................  28
  Item 12.    Security Ownership of Certain Beneficial Owners and Management..............................  28
  Item 13.    Certain Relationships and Related Transactions..............................................  29
PART IV       ............................................................................................  31
  Item 14.    Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................  31
</TABLE>
                                      -i-
<PAGE>
 
                                    PART I

Item 1.  Business

The Registrant, Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I
(the "Partnership"), is a limited partnership formed on January 14, 1987 under
Delaware law. The business of the Partnership is managed and controlled by its
general partners (the "General Partners"), A.G. Spanos Residential Partners-86,
a California Limited Partnership (the "Spanos General Partner") and Prudential-
Bache Properties, Inc. (the "Bache General Partner"). The primary purpose of the
Partnership is to acquire from affiliates of the Spanos General Partner, invest
in, hold, manage, sell, dispose of, and otherwise act with respect to properties
on which multi-family residential developments have been constructed. The
Partnership originally invested in eight apartment properties ("Apartment
Projects") and five land parcels, upon which apartment properties had been
constructed, which were leased back to the seller ("Land/Leases"). The Apartment
Projects and Land/Leases are collectively referred to as the "Properties."
Through 1996, the Partnership had sold one Apartment Project and three
Land/Leases. The remaining Properties are located in six metropolitan areas:
Atlanta (two Properties), Louisville (one Property), Dallas/Fort Worth (two
Properties), Kansas City (two Properties), Albuquerque (one Property) and San
Diego (one Property). The Partnership will continue until December 31, 2021,
unless terminated earlier under the provisions of its Amended and Restated
Agreement of Limited Partnership (the "Partnership Agreement").

Occupancy information is set forth in Item 2. The Properties are subject to
competition from other apartment properties located in close proximity,
including properties owned by affiliates of the Spanos General Partner. The
Properties compete for a variety of tenant groups, including young
professionals, retail, service and trade employees, students and retirees.
Competition for tenants is principally on the basis of location, physical
condition, amenities, and rental rates. The location and condition of the
Properties is considered to be good to above-average. The Properties feature
amenities fairly typical for properties built in the 1980's, including swimming
pools, tennis courts, fitness facilities, microwave ovens and guarded entrances,
and are generally able to compete adequately with similar projects in their
respective markets.

Many areas, including Albuquerque, Kansas City, Dallas/Fort Worth and Atlanta
have seen construction of new apartment properties increase since 1992. This has
led to the emergence of market segmentation between 1980's vintage properties
(such as the Partnership's) and the newer generation of apartment properties
completed recently. The newer properties have a competitive advantage not only
because they are new, but because many are designed with larger unit sizes, have
floor plans and finishes similar to those found in single family homes, and
feature more extensive amenities than do the properties built in the 1980's. To
date, these newer properties generally command higher rents and have competed
with each other for tenants able to pay premium rents, leaving the 1980's
vintage properties to compete with each other for the next tier of apartment
renters. There is a risk, however, that if overbuilding in the upper segment of
the market results in lower rents, the new properties with more extensive
amenities could be highly competitive with the 1980's vintage apartment product.
To date, only Del Rio (a 

                                       2
<PAGE>
 
Land/Lease property located in Albuquerque) has been adversely affected by the
level of new competition. Revenue there declined 7.4% from 1995 to 1996.

Within the greater housing market, the apartment sector competes with single-
family homes. Thus, apartment demand can be affected by the affordability of
owner-occupied housing, which can increase and decrease with changes in mortgage
interest rates.

The Partnership does not segregate revenues or assets by geographic regions. Two
Apartment Projects accounted for 15% or more of annual Apartment Project rental
revenue in each of the prior three years: Chelsea Park (16% to 19%) and Cypress
Pointe (17% to 19%). No single tenant accounted for 10% or more of the revenue
for any of the three years ended December 31, 1996. The Partnership is engaged
solely in the business of real estate investment; therefore, presentation of
industry segment information is not applicable. The General Partners believe the
Properties are adequately insured. For more information regarding the
Properties, see Item 2, Properties. For more information regarding the
Partnership's operations, see Item 7, Management's Discussion and Analysis of
Financial Condition and Results of Operations.

The Partnership has no employees. The officers and employees of the General
Partners and their affiliates perform services for the Partnership pursuant to
the Partnership Agreement.

The General Partners are presently conducting negotiations regarding a potential
auction sale of the Properties in connection with the potential settlement of
certain of the litigation described below in Note F to the financial statements.
There is no assurance that these negotiations will result in an agreement to
sell the Properties.

                                       3
<PAGE>
 
Item 2.      Properties

The Partnership owned the nine Properties described below at March 1, 1997:

<TABLE>
<CAPTION>
                                Location              Purchase    Mortgage
                                                        Date      Holder
Apartment Projects (1):
<S>                             <C>                  <C>           <C>
Le Parc Apartments:             Marietta, Georgia       06/03/87   Great
a 188-unit, midrise             (suburb of                         Western
apartment complex located       Atlanta)                           Bank (3)
on approximately 8 acres.

Casa de Fuentes Apartments:     Overland Park,          07/02/87   Wells Fargo
a 288-unit, garden apartment    Kansas (suburb                     Bank (4)
complex located on              of Kansas City)                    (successor
approximately 30 acres.                                            to Great
                                                                   American
                                                                   First
                                                                   Savings)
 
MacArthur Park Apartments:      Las Colinas,            10/01/87   Mellon
a 276-unit, garden apartment    Texas                              Mortgage
complex located on              (suburb of                         (5)
approximately 13 acres.         Irving/Dallas)                     (successor
                                                                   to American
                                                                   Savings
                                                                   Bank)
 
Cypress Pointe Apartments:      Louisville,             10/01/87   GE Capital
a 444-unit, garden apartment    Kentucky                           (6)
complex located on
approximately 33 acres.

Comanche Place Apartments:      Overland Park,          12/04/87   Wells Fargo
a 306-unit, garden apartment    Kansas (suburb                     Bank (4)
complex located on              of Kansas City)                    (successor
approximately 29 acres.                                            to Great
                                                                   American
                                                                   First
                                                                   Savings)
 
Chelsea Park Apartments:        Norcross, Georgia       03/25/88   Great
a 376-unit, garden apartment    (suburb of                         Western
complex located on              Atlanta)                           Bank (3)
approximately 31 acres.

Mission Trails Apartments:      San Diego,              08/12/88   Union Bank
a 208-unit, garden apartment    California                         (4)
complex located on
approximately 5 acres.

Land Leases (2):

Cameron Creek Apartments:       Fort Worth, Texas       10/01/87   Great
a land parcel of                                                   Western
approximately 20 acres upon                                        Bank (3)
which a 446-unit, garden
apartment complex has been
constructed.

Del Rio Apartments:             Albuquerque, New        12/21/87   Gibraltar
a land parcel of                Mexico                             Savings Bank
approximately 13 acres upon
which a 248-unit, garden
apartment complex has been
constructed.
</TABLE>

                                       4
<PAGE>
 
<TABLE>
<CAPTION>
                                 Average Annual Occupancy         
                           1996    1995    1994    1993    1992   
<S>                        <C>     <C>     <C>     <C>     <C>    
Apartment Projects:                                               
Le Parc                    93.1%   96.1%   95.9%   95.4%   93.7%  
Casa de Fuentes            94.8%   92.5%   91.8%   94.1%   95.2%  
MacArthur Park             95.5%   95.8%   95.8%   95.4%   94.0%  
Cypress Pointe             94.7%   92.0%   94.9%   95.2%   95.6%  
Comanche Place             95.0%   94.5%   94.8%   93.3%   94.9%  
Chelsea Park               93.9%   94.8%   95.4%   95.9%   93.1%  
Mission Trails             95.6%   92.3%   92.5%   91.9%   91.0%  
Land Leases:                                                      
Cameron Creek              93.2%   93.8%   94.4%   94.7%   94.0%  
Del Rio                    92.0%   93.2%   94.6%   95.5%   94.8%  
</TABLE>

<TABLE>
<CAPTION>
                             Average Annual Revenue Per Apt. Unit (7)        1996 Realty Tax Data
                           1996      1995      1994      1993      1992       Amount        Rate
<S>                       <C>       <C>       <C>       <C>       <C>       <C>           <C>
Apartment Projects:      
Le Parc                   $8,567    $8,381    $8,061    $7,698    $7,368      $109,736     1.3060%
Casa de Fuentes           $6,683    $6,389    $6,295    $6,514    $6,097      $185,562     1.7051%
MacArthur Park            $7,468    $7,152    $6,867    $6,463    $6,309      $266,703     2.4330%
Cypress Pointe            $6,520    $5,944    $5,954    $5,476    $5,386      $174,114     1.1350%
Comanche Place            $6,760    $6,474    $6,217    $5,852    $5,718      $144,564     1.3030%
Chelsea Park              $7,391    $7,201    $6,457    $5,905    $5,755      $210,667     1.4380%
Mission Trails            $9,467    $9,044    $9,145    $8,818    $8,949      $154,362     1.1186%
Land Leases:             
Cameron Creek                 (8)       (8)       (8)       (8)       (8)          (10)       (10)
Del Rio                       (9)       (9)       (9)       (9)       (9)          (10)       (10)
</TABLE>

(1) The Partnership has a 100% fee simple ownership interest in each Property
    subject to a first mortgage lien in favor of the indicated holder. Each
    mortgage is secured only by the Property to which it relates and is without
    recourse to either of the General Partners or the Partnership. (See Note C
    and Schedule III to the Financial Statements.)

(2) The Partnership has a 100% fee simple interest in the land with respect to
    the Land/Leases. The lessees, who are affiliates of the Spanos General
    Partner, own the apartment complexes constructed thereon which are
    encumbered by first mortgage liens in favor of the indicated holder. Each
    lienholder has recourse only to the apartment complex owned by the lessee
    and the land owned by the Partnership to which the lien relates, and each
    such lien is without recourse to either of the General Partners or the
    Partnership. (See Note E and Schedule III to the Financial Statements.)

(3) Loan may be prepaid upon payment of a 2% prepayment charge. The lender may
    waive the prepayment charge for principal prepayments during the calendar
    year which do not exceed 20% of the original loan balance and for
    prepayments made within 90 days of a notice of installment adjustment. The
    lender will also waive the prepayment charge so long as A.G. Spanos
    Construction, Inc. or any entity owned and controlled by A.G. Spanos
    Construction or by Alex G. Spanos remains liable on the loan.

(4) Loan may be prepaid without charge at any time unless the Partnership
    has elected for interest to be computed based on a LIBOR fixing, in which
    case prepayment must be accompanied by a yield maintenance prepayment
    charge.

(5) Loan may be prepaid upon payment of prepayment charge of 1% for prepayments
    occuring prior to February 1, 1998. Thereafter, loan may be prepaid without
    charge.

(6) Loan may be prepaid upon payment of prepayment charges of 3%, 2% and 1%,
    respectively, for prepayments occuring prior to June 1, 1997, 1998 and March
    1, 1999.

(7) Average annual revenue per apartment unit is determined by dividing total
    operating revenues for the Property by the number of apartment units.

(8) Ground lease requires payments of $350,000 per year through October 1992,
    and $420,000 per year thereafter.

(9) Ground lease requires payments of $200,000 per year through December 1992,
    and $240,000 per year thereafter.

(10) The ground leases are triple-net, with the tenant responsible for payment
     of all property taxes. Property taxes and tax rate for 1996 for Cameron
     Creek were $398,670 and 3.2066%, respectively, and for Del Rio, $90,231 and
     1.2140%, respectively.

                                       5
<PAGE>
 
Item 3.  Legal Proceedings

This information is incorporated by reference to Note F to the financial
statements in Item 8, Financial Statements and Supplementary Data.

Item 4.  Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of the Unitholders during the fourth quarter
of the fiscal year covered by this report through the solicitation of proxies or
otherwise.

                                     PART II

Item 5.  Market for Partnership's Depository Units of Limited Partnership
         Interest and Related Security Holder Matters

The Partnership had four limited partners as of March 3, 1997: Residential
Portfolio Depository Corp. (the "Assignor Limited Partner"), a wholly owned
subsidiary of AGS Financial Corporation, and three affiliates of the Spanos
General Partner which are holders of Special Limited Partnership Interests
("Special Interests"). The Assignor Limited Partner has transferred and assigned
to the Unitholders all of the Assignor Limited Partner's rights and interest in
and to the assigned Limited Partnership Interests, except for record ownership
and the right to vote directly on matters submitted to the Limited Partners and
Unitholders for a vote. There were 3,338 Unitholders as of March 3, 1997.

A significant secondary market for the Units has not developed, and it is not
expected that one will develop in the future. There are also certain
restrictions set forth in the Partnership Agreement limiting the ability of a
Unitholder to transfer Units. Consequently, Unitholders may not be able to
liquidate their investments in the event of an emergency or any other reason.

Distributions of cash from operations were paid to Unitholders approximately 45
days after the end of the specified quarter. Distributions per Unit in 1995 and
1996 were as follows:

<TABLE>
<CAPTION>
                        Quarter Ended       Distribution  
                    <S>                     <C>           
                    March 31, 1995                 $6.25  
                    June 30, 1995                  $6.25  
                    September 30, 1995             $6.25  
                    December 31, 1995              $6.25  
                    March 31, 1996                 $6.25  
                    June 30, 1996                  $6.25  
                    September 30, 1996             $6.25  
                    December 31, 1996              $6.25  
</TABLE>                               

Approximately $1,374,000 and $1,617,000 of the distributions paid to Unitholders
for 1996 and 1995, respectively, represent a return of capital on a generally
accepted accounting principle 

                                       6
<PAGE>
 
("GAAP") basis. The return of capital on a GAAP basis is calculated as
Unitholder distributions less net income, if any, allocated to Unitholders.

There are no material legal restrictions on the Partnership's present or future
ability to make distributions in accordance with the provisions of the
Partnership Agreement. Future distributions will be dependent upon the
performance of the Partnership. See Item 7, Management's Discussion and Analysis
of Financial Condition and Results of Operations, for a discussion of the
factors affecting future Distributions.

<TABLE>
<CAPTION>
Item 6.  Selected Financial Data (a)
                                                                    For the year ended December 31,                              
                                                     1996           1995          1994           1993            1992            
<S>                                             <C>            <C>            <C>           <C>             <C>                  
Total revenues (excluding gain on                                                                                                
  disposition of property)                        $16,129,902   $14,988,762    $15,534,333   $ 15,568,580    $ 15,104,663        
Gain (loss) on disposition of property                     --            --    $ 3,874,238      ($326,682)             --        
Interest expense                                  $ 4,960,498   $ 4,767,362    $ 4,999,648   $  5,611,979    $  6,506,167        
Provision for loss on impairment of                                                                                              
  assets (b)                                               --            --             --             --    $    570,748        
Net income (loss)                                 $   247,518     ($799,735)   $ 3,282,153    ($1,725,161)    ($3,062,704)        
Net income (loss) per Unit                        $      3.75       ($12.12)   $     49.74        ($26.15)        ($46.42)        
Net income (loss) per Special Interest                     --            --             --             --              --        
Cash distributions per Unit (c)                   $     25.00   $     25.00    $    111.78   $      50.21    $      20.00        
Cash distributions per Special Interest                    --            --    $     86.78   $      27.71              --        
Total assets                                      $76,298,063   $78,463,093    $81,851,130   $ 94,299,558    $100,151,010        
Mortgage loans payable                            $58,897,267   $59,764,780    $60,877,063   $ 68,372,936    $ 69,115,583         
</TABLE>

(a) The above selected financial data should be read in conjunction with the
    financial statements and the related notes (see Item 8).

(b) The Partnership recorded provision for loss on impairment of assets in 1992
    to reduce the carrying amount of the three Land/Leases located in the
    Dallas-Fort Worth Metropolitan area to an amount estimated to be recoverable
    through cash flows from their future operation and disposition proceeds.

(c) The cash distributions did not result in taxable income to the Unitholders.
    Each Unitholder's taxable income or loss from the Partnership is equal to
    his allocable share of the taxable income or loss of the Partnership,
    without regard to the cash generated or distributed by the Partnership.

Item 7. Management's Discussion and Analysis of Financial Condition and Results
        of Operations 

Capital Resources and Liquidity

The Partnership had cash of $4,998,000 at December 31, 1996. There are no
proposed programs for renovation, improvement or development of the Properties
other than maintenance and repairs (including major repairs) in the ordinary
course which will be paid from operations, and the Partnership's liquidity
position is considered satisfactory.

The Partnership's operating activities provided cash of $3,364,000 in 1996, of
which $284,000 reflects timing differences related to current assets and
liabilities. Of the balance, $924,000 was applied to scheduled principal
amortization on the Partnership's mortgage debt, $1,649,000 was 

                                       7
<PAGE>
 
paid in cash distributions, and $507,000 was retained. Cash provided by
operating activities increased $892,000 in 1996 compared to 1995, principally
because of improved operations of the Apartment Projects as described below and
an increase in reported Land/Lease rentals which arose because certain rentals
are no longer accounted for as a recovery of recorded carrying amount as
described in Note B to the financial statements. (Reported cash flows from
investing activities declined $372,000 from 1995 to 1996 for the same reason.)
Cash flows from financing activities includes the payment of the $8,943,000
balance of the matured Mission Trails mortgage with the proceeds from a new
$9,000,000 mortgage from another lender.

The Partnership's long term debt, which consists of seven real estate mortgages
with respect to the remaining Apartment Projects, was $58,897,000 at December
31, 1996. This debt requires monthly installments of principal and interest of
$484,000. The Apartment Projects are currently generating aggregate revenue to
cover operating expenses and debt service. The Casa de Fuentes and Comanche
Place mortgages mature in 1997, however, the Partnership intends to exercise an
option to extend the maturity for two years. Three other mortgages require
balloon payments, Cypress Pointe in 1999, Mission Trails in 2000 and MacArthur
Park in 2001. The General Partners anticipate that the Properties securing the
balloon payment mortgages will be sold or refinanced before the balloon payment
due dates. If the Properties are not sold or refinanced beforehand, the
Partnership would be required to refinance them when the balloon payments become
due subject to then existing conditions in the real estate and mortgage
financing markets or to sell the properties under terms which may not be the
most favorable to the Partnership. If the Partnership were unable to complete
sales or refinancings, then the lenders could institute foreclosure proceedings
against the Properties.

The General Partners are presently conducting negotiations regarding a potential
auction sale of the Properties in connection with the potential settlement of
certain of the litigation described below in Note F to the financial statements.
There is no assurance that these negotiations will result in an agreement to
sell the Properties.

Results of Operations

Operating results for the past three years are not comparable because of the
sale of Prairie Hills in July 1994. For comparative purposes, operating data
relating to the nine-property portfolio remaining at December 31, 1996 ("Same
Property" data) are set forth below.

                                       8
<PAGE>
 
<TABLE>
<CAPTION>
                                              1996          1995           1994
<S>                                        <C>           <C>            <C>
Revenue:
     Apartment project rental              $15,307,834   $14,598,620    $14,099,689
     Land/lease rental                         660,000       240,000        240,000
     Interest income                           162,068       150,142        104,341
                                           -----------   -----------    -----------
                                            16,129,902    14,988,762     14,444,030
                                           -----------   -----------    -----------

Expenses:
     Property operating expenses             5,707,050     5,720,062      4,785,245
     Property taxes                          1,221,069     1,244,270      1,214,905
     Property management fees                  457,754       438,068        423,022
     General and administrative                 91,487        99,511        123,065
     Interest expense                        4,960,498     4,767,362      4,721,878
     Management fees to general partner        612,314       583,944        563,988
     Depreciation                            2,832,212     2,935,280      3,372,517
                                           -----------   -----------    -----------
Net income (loss)                          $   247,518   $  (799,735)   $  (760,590)
                                           ===========   ===========    ===========
</TABLE>

1996 Compared to 1995. Same Property rental revenue was $15,308,000 in 1996, an
increase of 4.9% compared to 1995. Revenue increased at all seven Apartment
Projects, principally as a result of increased effective rental rates. Same
Property average occupancy was 94.7% in 1996 compared to 93.8% in 1995.

Same Property operating expenses declined slightly from 1995 to 1996 as small
decreases in maintenance expenses offset smaller increases in other operating
expenses. Property taxes also declined slightly from 1995 because an appeal of
the Le Parc taxes resulted in a $63,000 reduction which more than offset tax
increases at the other properties. Interest expense was higher in 1996 because
the interest rates on the Casa de Fuentes, Comanche Place and Mission Trails
mortgages increased. Depreciation expense declined $103,000 because certain
personal property assets were fully depreciated in 1995. Interest income
increased because cash balances and money market interest rates were higher in
1996.

1995 Compared to 1994. Same Property rental revenue was $14,599,000 in 1995, an
increase of 3.5% compared over 1994. Revenue increased at five of the seven
Apartment Projects, principally as a result of increased effective rental rates.
Revenue at Cypress Pointe was unchanged from 1994, while revenue at Mission
Trails was down about 1% because of lower rents and occupancy. Operations at
Mission Trails reflect the generally soft market conditions which had been
prevalent in the San Diego area. Same Property average occupancy was 93.8% in
1995 compared to 94.5% in 1994.

Same Property operating expenses increased $935,000 over 1994. Major repairs
(i.e., exterior painting, asphalt work and other expensive repairs that do not
recur on an annual basis) was $623,000 in 1995 compared to $222,000 in 1994. All
the Apartment Projects had major repairs done in 1995. The more significant work
includes $205,000 of exterior painting and roof repairs at Cypress Pointe and
$153,000 of elevator, roof and common area rehabilitation at Le Parc. Furnished
unit expense was up $55,000 over 1994, reflecting the increased furnished unit
rentals, but this expense was offset by the higher rents received for those
apartments. Operating expenses excluding major repairs and furnished unit
expense increased $479,000 or approximately 11% over 1994. Expense categories
showing the greatest increases were maintenance, up $223,000 or 

                                       9
<PAGE>
 
17% reflecting the generally higher costs of operating an aging property
portfolio; payroll, up $59,000 or 5% reflecting higher compensation and fringe
benefit costs; and advertising and promotion, up $47,000 or 22% reflecting
higher advertising and referral fee costs. Depreciation expense declined
$437,000 because certain personal property assets were fully depreciated in
1994. Interest income increased because cash balances and money market interest
rates were higher in 1995.

Item 8.  Financial Statements and Supplementary Data
<TABLE> 
<CAPTION> 
                                                                                 Page

<S>                                                                              <C>
Independent Auditors' Report                                                      11

Balance sheets at December 31, 1996 and 1995                                      12

Statements of operations for the years ended December 31, 1996, 1995 and 1994     13

Statements of changes in partners' equity (deficit) for the years ended           
 December 31, 1996, 1995 and 1994                                                 14

Statements of cash flows for the years ended December 31, 1996, 1995 and 1994     15

Notes to financial statements                                                     16

Schedule to financial statements                                                  37
</TABLE>

                                       10
<PAGE>
 
                          INDEPENDENT AUDITORS' REPORT

General and Limited Partners
Prudential-Bache/A.G. Spanos
Genesis Income Partners, L.P., I:

We have audited the accompanying balance sheets of Prudential-Bache/A.G. Spanos
Genesis Income Partners L.P., I (a limited partnership) (the "Partnership") as
of December 31, 1996 and 1995, and the related statements of operations, changes
in partners' equity (deficit) and cash flows for each of the three years in the
period ended December 31, 1996. Our audits also included the financial statement
schedule of the Partnership listed at Item 14(a)(2). These financial statements
and financial statement schedule are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements and financial statement schedule based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such financial statements present fairly, in all material
respects, the financial position of Prudential-Bache/A.G. Spanos Genesis Income
Partners L.P., I as of December 31, 1996 and 1995, and the results of its
operations and its cash flows for each of the three years in the period ended
December 31, 1996 in conformity with generally accepted accounting principles.
Also, in our opinion, such financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information set forth therein.
    
Deloitte & Touche, LLP
San Francisco, California
February 21, 1997     

                                       11
<PAGE>
 
          PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            (A LIMITED PARTNERSHIP)

                                 BALANCE SHEETS
                           DECEMBER 31, 1996 AND 1995

<TABLE>
<CAPTION>
                                               1996           1995
                                           -----------    ----------- 
<S>                                        <C>            <C> 
             ASSETS
Property, net                              $71,009,033    $73,841,245
Cash and cash equivalents                    4,997,867      4,151,047
Accounts receivable, affiliate                 163,476        328,476
Other assets                                   127,687        142,325
                                           -----------    ----------- 
                                           $76,298,063    $78,463,093
                                           -----------    ----------- 
 
LIABILITIES AND PARTNERS' EQUITY
 (DEFICIT)
Liabilities:
Mortgage loans payable                     $58,897,267    $59,764,780
Accounts payable                               459,065        502,389
Accounts payable, affiliate                    189,914        187,329
Distributions payable                          412,373        412,373
Accrued interest                               409,605        398,296
Accrued property taxes                         596,829        465,828
Unearned rent and tenant deposits              453,497        450,611
                                           -----------    ----------- 
                                            61,418,550     62,181,606
                                           -----------    ----------- 
Partners' equity (deficit):
Limited partners' equity (64,660 units       
 authorized and outstanding)                 8,998,812     10,372,744 
Special limited partners' equity             
 (7,749.5 units authorized and
 outstanding)                                6,862,188      6,862,188 
General partners' deficit                     (981,487)      (953,445)
                                           -----------    ----------- 
                                            14,879,513     16,281,487
                                           -----------    ----------- 
                                           $76,298,063    $78,463,093
                                           ===========    ===========
</TABLE>
See notes to financial statements.

                                       12
<PAGE>
 
          PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            (A LIMITED PARTNERSHIP)

                            STATEMENTS OF OPERATIONS
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                1996           1995            1994
                                            -----------    -----------     -----------
<S>                                        <C>            <C>             <C>
Revenues:
Rental                                      $15,307,834    $14,598,620     $15,189,992
Land/Lease rentals from affiliates              660,000        240,000         240,000
Gain on disposition of property                     -0-            -0-       3,874,238
Interest                                        162,068        150,142         104,341
                                            -----------    -----------     -----------
                                             16,129,902     14,988,762      19,408,571
                                            -----------    -----------     -----------
Expenses:
Property operating expenses                   5,707,050      5,720,062       5,118,615
Property taxes                                1,221,069      1,244,270       1,259,776
Property management fees to affiliates          457,754        438,068         455,015
General and administrative expense               91,487         99,511         123,065
Interest expense                              4,960,498      4,767,362       4,999,648
Management fees to affiliates                   612,314        583,944         607,600
Depreciation                                  2,832,212      2,935,280       3,562,699
                                            -----------    -----------     -----------
                                             15,882,384     15,788,497      16,126,418
                                            -----------    -----------     -----------
Net income (loss)                           $   247,518    $  (799,735)    $ 3,282,153
                                            ===========    ===========     ===========
Net income (loss) allocated to General
 Partners                                   $     4,950    $   (15,995)    $    65,643
                                            ===========    ===========     ===========
Net income (loss) allocated to Limited
 Partners                                   $   242,568    $  (783,740)    $ 3,216,510
                                            ===========    ===========     ===========
Net income (loss) allocated to Special
 Limited Partners                           $       -0-    $       -0-     $       -0-
                                            ===========    ===========     ===========
Net income (loss) per unit of limited
 partnership interest                       $      3.75    $    (12.12)    $     49.74
                                            ===========    ===========     ===========
</TABLE>
See notes to financial statements.

                                       13
<PAGE>
 
          PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            (A LIMITED PARTNERSHIP)

              STATEMENTS OF CHANGES IN PARTNERS' EQUITY (DEFICIT)
              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>
                                                                                     Special
                                                                  Limited            Limited              General
                                              Total               Partners           Partners             Partners
                                            -----------         -----------         ----------           ---------
<S>                                        <C>                 <C>                 <C>                  <C>
Partners' equity (deficit)-
December 31, 1993                           $23,510,518         $16,784,631         $7,534,746           $(808,859)
Net income                                    3,282,153           3,216,510                -0-              65,643
Distributions                                (8,061,957)         (7,228,157)          (672,558)           (161,242)
                                            -----------         -----------         ----------           ---------

Partners' equity (deficit)-
December 31, 1994                            18,730,714          12,772,984          6,862,188            (904,458)
Net loss                                       (799,735)           (783,740)               -0-             (15,995)
Distributions                                (1,649,492)         (1,616,500)               -0-             (32,992)
                                            -----------         -----------         ----------           ---------

Partners' equity (deficit)-
December 31, 1995                            16,281,487          10,372,744          6,862,188            (953,445)
Net income                                      247,518             242,568                -0-               4,950
Distributions                                (1,649,492)         (1,616,500)               -0-             (32,992)
                                            -----------         -----------         ----------           ---------
Partners' equity (deficit)-
December 31, 1996                           $14,879,513         $ 8,998,812         $6,862,188           $(981,487)
                                            ===========         ===========         ==========           =========

</TABLE>
See notes to financial statements.

                                       14
<PAGE>
 
          PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            (A LIMITED PARTNERSHIP)

                            STATEMENTS OF CASH FLOWS

              FOR THE YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

<TABLE>
<CAPTION>

                                                                      1996           1995           1995
                                                                  -----------    -----------    ------------
<S>                                                              <C>            <C>            <C>
Cash flows from operating activities:
Net income (loss)                                                 $   247,518   $  (799,735)    $  3,282,153
                                                                  -----------   -----------     ------------
Adjustments to reconcile net income
 (loss) to net cash provided by
 operating activities:
     Depreciation                                                   2,832,212     2,935,280        3,562,699
     Gain on disposition of property                                      -0-           -0-       (3,874,238)
     Decrease in other assets                                          14,638        16,987           46,958
     Decrease in account receivable,
      affiliate                                                       165,000       145,802          470,479
     Increase (decrease) in accounts
      payable, affiliate                                                2,585         8,123          (29,495)
     Increase (decrease) in accounts
      payable                                                         (43,324)      105,362          (36,897)
     Increase (decrease) in accrued
      interest                                                         11,309         3,615          (58,395)
     Increase in accrued property taxes                               131,001        42,453           20,295
     Increase (decrease) in unearned
     rent and tenant deposits                                           2,886        13,920          (68,259)
                                                                  -----------   -----------     ------------
     Total adjustments                                              3,116,307     3,271,542           33,147
                                                                  -----------   -----------     ------------
Net cash provided by operating
 activities                                                         3,363,825     2,471,807        3,315,300
                                                                  -----------   -----------     ------------
Cash flows from investing activities:
     Sale of properties                                                   -0-           -0-       12,219,264
     Land/lease payments                                                  -0-       372,498          483,525
                                                                  -----------   -----------     ------------
Net cash provided by investing
 activities                                                               -0-       372,498       12,702,789
                                                                  -----------   -----------     ------------
Cash flows from financing activities:
     Proceeds from mortgage loan payable                            9,000,000           -0-              -0-
     Mortgage loan principal
      amortization                                                   (924,033)     (978,940)        (946,283)
     Other mortgage loan repayments                                (8,943,480)     (133,343)      (6,549,590)
     Distributions to partners                                     (1,649,492)   (1,649,492)      (8,061,957)
                                                                  -----------   -----------     ------------
Net cash used in financing activities                              (2,517,005)   (2,761,775)     (15,557,830)
                                                                  -----------   -----------     ------------
Net increase in cash and cash
 equivalents                                                          846,820           -0-              -0-
Cash and cash equivalents,
beginning of period                                                 4,151,047           -0-              -0-

                                                                  -----------   -----------     ------------
Cash and cash equivalents, end of period                          $ 4,997,867   $       -0-     $  2,084,946
                                                                  ===========   ===========     ============
</TABLE>
See notes to financial statements.

                                       15
<PAGE>
 
         PRUDENTIAL-BACHE/A. G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            (A LIMITED PARTNERSHIP)

                         NOTES TO FINANCIAL STATEMENTS
                  YEARS ENDED DECEMBER 31, 1996, 1995 AND 1994

NOTE A -  ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization

Prudential-Bache/A.G. Spanos Genesis Income Partners L.P., I (the "Partnership")
is a Delaware limited partnership organized for the purpose of acquiring and
operating thirteen specified apartment properties (the "Properties") consisting
of eight apartment projects (the "Apartment Projects") and five land parcels,
upon which apartment complexes have been constructed, to be leased back to the
sellers for up to 25 years (the "Land/Leases"). Through December 31, 1996, the
Partnership had sold three of the Land/Leases and one of the Apartment Projects.
The General Partners of the Partnership are Prudential-Bache Properties, Inc.
(the "Bache General Partner") and A.G. Spanos Residential Partners-86, A
California Limited Partnership (the "Spanos General Partner"). The Partnership
will continue until December 31, 2021, unless previously terminated in
accordance with the provisions of its Amended and Restated Agreement of Limited
Partnership (the "Partnership Agreement").

The Partnership sold 64,660 depository units of limited partnership interest
("Units") between February 1987 and August 1988 for aggregate capital
contributions (net of certain volume selling commission discounts) of
$64,641,610. The Partnership has also issued non-voting Special Limited
Partnership Interests ("Special Interests") to affiliates of the Spanos General
Partner in consideration for capital contributions, payments under a cash flow
guaranty, and certain refinancing costs paid on behalf of the Partnership by
such affiliates.

Financial Statement Preparation

The Partnership has a fiscal year ending December 31. The books and records of
the Partnership are maintained on the accrual basis of accounting in accordance
with generally accepted accounting principles. Certain reclassifications have
been made to prior year amounts in order to be in conformity with the current
year presentation.

Accounting Estimates

In preparing the financial statements, management makes estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities (see Note F) at the date of the
financial statements and the reported amounts of revenues and expenses from the
reporting period. Actual results could differ from those estimates.

                                       16
<PAGE>
 
Cash Equivalents

Cash equivalents consist of money market funds containing money market
instruments with an original maturity date of 90 days or less whose cost
approximates market value.

Property

Property, which includes land, buildings and equipment, is carried at the lower
of depreciated cost or the amount estimated to be recoverable through future
cash flows from property operations and dispositions on an undiscounted basis.
Depreciated cost was reduced by certain payments received under the cash flow
guaranty (see Note D). Depreciation on buildings and equipment is recorded on a
straight-line basis over their estimated useful lives, which range from 7 to
27.5 years.

Statement of Financial Accounting Standards ("SFAS") No. 121, "Accounting for
the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed
Of," was adopted by the Partnership as of January 1, 1996 for its financial
statements for the year ended December 31, 1996. Under SFAS No.121, impairment
for properties to be held and used is determined to exist when estimated amounts
recoverable through future operations on an undiscounted basis are below the
properties' carrying value. If a property is determined to be impaired, it
should be recorded at the lower of its carrying value or its estimated fair
value. For properties that are held for sale, SFAS No. 121 states that they
should be reported at the lower of carrying amount or estimated fair value less
cost to sell. The implementation of SFAS No. 121 did not affect the
Partnership's results of operations or financial position for the year ended
December 31, 1996.

Prior to 1996, property investments were carried at the lower of depreciated
cost or estimated amounts recoverable through future operations and ultimate
disposition of the property. A provision for loss on impairment of assets would
be recorded when the property carrying amounts exceeded the amounts estimated to
be recoverable through future cash flows from property operations (before debt
service) and disposition proceeds on an undiscounted basis.

Other Assets

Other assets include prepaid expenses and tenant receivables.

Income Taxes

No provision has been made for federal or state income taxes (or credits) since
such items are the responsibility of the partners. A reconciliation of the net
income (loss) in the financial statements to the net taxable loss is set forth
below:

                                       17
<PAGE>
 
<TABLE>
<CAPTION>
                                                                1996         1995          1994
<S>                                                         <C>          <C>           <C>
Net income (loss) per financial statements                   $247,518      $(799,735)   $ 3,282,153
Land/Lease revenue accounted for as a                             -0-        420,000        483,525
 reduction of recorded carrying amount
Book income in excess of tax loss on sale of
 property                                                         -0-            -0-     (4,745,037)
Cancellation of debt recognized as                                -0-            -0-        319,663
 income for tax purposes, net of
 interest expense adjustment
Loan fee amortization and interest expense
 adjustment                                                   (49,365)        49,204            -0-
Unearned rent and non refundable deposits                     (15,046)         8,627         (1,322)
recognized as income for tax
 purposes when received
                                                             --------      ---------    -----------
Net taxable loss                                             $183,107      $(321,904)   $  (661,018)
                                                             ========      =========    ===========
</TABLE>
The book and tax bases of partners' equity differ by the cumulative effect of
the book to tax income adjustments.

Allocations and Distributions

Pursuant to the Partnership Agreement, operating income, losses and cash
distributions are generally allocated 98% to the Unitholders and 2% to the
General Partners. Taxable income and losses are allocated in the same manner.
Cash distributions resulting from sales or refinancings of the Properties are
generally allocable as follows: First, 98% to the limited partners and 2% to the
General Partners until (i) the aggregate of all such distributions equals the
limited partners' aggregate capital contributions and (ii) the aggregate of all
other cash distributions (including operating cash distributions, but excluding
distributions in repayment of capital contributions) equals the limited
partners' 10% per annum cumulative noncompounded return on their adjusted
capital contributions (the "First Level Sale or Refinance Distributions").
Thereafter, cash distributions resulting from a sale or refinancing are
generally allocable 85% to the Unitholders and 15% to the General Partners (the
"Second Level Sale or Refinance Distributions").

The Special Interests entitle the holders to receive First Level Sale or
Refinance Distributions (and corresponding allocations of income on sales), but
no allocations of operating income, losses or cash distributions and no
allocations of Second Level Sale or Refinance Distributions.

Cash distributions to the partners are recorded in the periods to which they
relate for financial reporting purposes. The Partnership paid fourth quarter
cash distributions of $412,373 in February 1997 and 1996. These distributions
were accrued at December 31, 1996 and 1995.

Revenue Recognition

Rental income is accrued as rents are due.

                                       18
<PAGE>
 
Fair Value of Financial Instruments

SFAS 107, "Disclosures about Fair Value of Financial instruments," requires the
determination of fair value for certain of the Partnership's assets and
liabilities. The following methods and assumptions were used to estimate the
fair value of those financial instruments included in the following categories:

Cash and Cash Equivalents - The carrying amount approximates fair value based on
the liquidity of the assets.

Mortgage Loans Payable (see Note C) - The carrying value approximates fair value
based on interest rates available to the Partnership on debt instruments with
similar terms.

NOTE B -      PROPERTY

Property is comprised of the following at December 31, 1996 and 1995:

<TABLE>
<CAPTION>
                                        1996            1995
 
<S>                                 <C>             <C>
Apartment buildings                 $ 77,245,362    $ 77,245,362
Equipment                              4,937,209       4,937,209
Land                                  17,147,732      17,147,732
Land held for lease                    2,479,098       2,479,098
                                    ------------    ------------
                                     101,809,401     101,809,401
Less: Accumulated depreciation       (30,800,368)    (27,968,156)
                                    ------------    ------------
                                    $ 71,009,033    $ 73,841,245
                                    ============    ============
</TABLE>

The Partnership leases apartments under lease agreements with terms ranging from
one to twelve months. The ground leases for the Land/Leases are described in
Note E.

The Partnership recorded provisions for loss on impairment of assets in 1992 and
1991 to reduce the carrying amount of the three Land/Leases located in the
Dallas-Fort Worth Metropolitan area to an amount estimated to be recoverable
through cash flows from their future operation and proceeds from disposition on
an undiscounted basis. Additionally, in 1993, 1994 and 1995, the Partnership
accounted for the rentals from those Land/Leases ($2,936,775 of which $1,620,851
relates to the one Dallas-Fort Worth Land/Lease unsold at December 31, 1996) as
a reduction of their recorded carrying amounts rather than as revenue. Based on
current market conditions, further reductions in the carrying value of the
Land/Lease were not required in 1996, and the Partnership is currently recording
rental receipts as revenue.

In February 1994, the Partnership and the lessees of the Randol Mill and Valley
Creek Land/Leases sold the apartment projects to an unaffiliated third party for
$18,000,000. The transaction resulted in gross sale proceeds of $17,717,965
after payment of selling costs and closing expenses of $282,035. The aggregate
principal amount of the projects' mortgage loans was $21,600,000 at the time of
the sale. An affiliate of the Spanos General Partner purchased the loans from
the lender in 1993 for $16,700,000 and extended to the Partnership the economic
benefit of the discounted purchase by accepting $16,700,000 of the sale proceeds
in full 

                                       19
<PAGE>
 
satisfaction of the mortgages. As a result, the Partnership received $1,017,965
from the sale of the Land/Leases. The Partnership purchased Randol Mill in 1987
and Valley Creek in 1988 for a total of $5,775,000. No loss was recognized as a
result of the sales because the Partnership has previously recorded provisions
for impairment of assets in 1991 and 1992.

In July 1994, the Partnership sold the Prairie Hill Apartments to an
unaffiliated third party for $11,286,580. The sale resulted in net proceeds of
$5,394,497 after $85,281 of closing costs and $5,806,802 to pay off the
outstanding balance of the mortgage loan. The Partnership purchased the property
in 1987 for $10,015,000, of which $3,806,000 was paid in cash. The gain of
$3,874,238 was recognized on the full accrual method in 1994.

NOTE C -  MORTGAGE LOANS PAYABLE

The mortgage loans payable are collateralized by first deeds of trust on the
respective Properties and security interests in the equipment contained therein.
Detailed information regarding the mortgage loans is set forth below.

<TABLE>
<CAPTION>

Property Pledged as                                                                                   Final     
Collateral                                            Obligation      Obligation       Interest      Maturity    
                                                      at 12/31/96     at 12/31/95        Rate         Date      
                                                     -----------     -----------      --------      --------    
<S>                                                 <C>             <C>             <C>            <C>          
Le Parc Apartments                                      7,494,808       7,669,581          7.25%      06/01/16  
Marietta,  Georgia          
Casa de Fuentes Apartments                              7,160,608       7,262,608          8.16%      11/01/97  
Overland Park, Kansas                                                                                          
MacArthur Park Apartments                               6,481,910       6,592,475          8.00%      02/01/01  
Irving, Texas                                                                                                  
Cypress Pointe Apartments                              11,171,607      11,264,637         10.02%      05/31/99  
Louisville, Kentucky                                                                                           
Comanche Place Apartments                               7,791,262       7,902,262          8.16%      11/01/97  
Overland Park, Kansas                                                                                          
Chelsea Park Apartments                                 9,900,202      10,102,585          7.33%      06/01/17  
Norcross, Georgia                                                                                              
Mission Trails Apartments                               8,896,870       8,970,632          8.13%      03/01/00  
San Diego, California      
                                                       ----------      ---------- 
                                                       58,897,267      59,764,780                               
                                                       ==========      ==========
</TABLE>

<TABLE>
<CAPTION>

Property Pledged as                                      Monthly      Principal      Estimated
Collateral                                               Payment      Due During      Balloon
                                                          Terms          1997         Payment
                                                         -------      ----------     ---------
<S>                                                    <C>          <C>            <C>
Le Parc Apartments                                         61,190        187,865            N/A
Marietta,  Georgia                     
Casa de Fuentes Apartments                                 58,886      7,160,608      7,076,000
Overland Park, Kansas                                 
MacArthur Park Apartments                                  47,144         67,725      5,942,000
Irving, Texas                                         
Cypress Pointe Apartments                                 101,480        100,962     10,917,000
Louisville, Kentucky                                  
Comanche Place Apartments                                  64,133      7,791,262      7,698,000
Overland Park, Kansas                                 
Chelsea Park Apartments                                    78,041        217,733            N/A
Norcross, Georgia                                     
Mission Trails Apartments                                  72,651        123,756      8,443,000
San Diego, California
                                                       ----------      ----------                                  
                                                          483,525      15,649,911
                                                       ==========      ==========
</TABLE>

  Interest paid in 1996, 1995 and 1994 was $4,949,189, $4,763,747 and $5,057,572
  respectively.
  
  
  In February 1994, the Partnership completed a restructuring of the MacArthur
  Park mortgage loan pursuant to which the lender wrote down $359,081 of the
  outstanding principal in exchange for a $598,085 principal payment by the
  Partnership. No gain or loss was recognized on the restructuring; the discount
  is accounted for as a reduction of interest expense over the new loan term.
  
  In December 1995, the Partnership and the lender entered into an agreement to
  extend the maturity date of the Casa de Fuentes and Comanche Place mortgage
  loans through November 1, 1997. Pursuant to the extension agreement, the loans
  bear interest at the lender's prime interest rate or, at the option of the
  Partnership, a rate 2.5% above the London Interbank Offered Rate 

                                       20
<PAGE>
 
(LIBOR) based upon 3, 6, 9, or 12 month fixings. In August 1996, the Partnership
elected to fix the rate on the loans for six months at 8.16%. The loans require
monthly payments of interest plus fixed principal reductions of $8,500 per month
for Casa de Fuentes and $9,250 for Comanche Place. The Partnership paid the
lender loan fees and other costs totalling $98,730 in connection with the
extensions. The Partnership has an option to extend the loans for an additional
two years under the same terms.

In March 1996, the Partnership refinanced the Mission Trails mortgage loan with
the proceeds of a new $9,000,000 first mortgage loan. The new loan bears
interest at 0.5% above the lender's prime interest rate or, at the option of the
Partnership, a rate 2.5% above the London Interbank Offered Rate (LIBOR) based
upon 3, 6, 9, or 12 month fixings. In April and October 1996, the Partnership
elected to fix the rate on the loan for six months at 8.13%. The loan requires
monthly payments of interest plus fixed monthly principal reductions ranging
from $10,313 to $12,978. The Partnership paid the lender loan fees and other
costs totalling $60,480.

Aggregate maturities of mortgage loans payable for each of the five years ending
December 31, 2001 and thereafter are as follows:

<TABLE>
             <S>             <C>          
              1997            $15,649,911 
              1998                744,842 
              1999             11,631,357 
              2000              9,116,079 
              2001              6,717,869 
              Thereafter       15,037,209 
                              -----------
                              $58,897,267  
                              ===========
</TABLE>

NOTE D -  RELATED PARTY TRANSACTIONS

The Partnership acquired the Properties from affiliates of the Spanos General
Partner (the "Sellers"). Under the terms of the acquisitions, the Sellers
guaranteed that if the Apartment Projects as a group did not meet certain annual
net cash flow levels between their acquisition dates and December 31, 1990, then
the Sellers would make up any deficiency by periodic cash payments ("Support
Payments") to the Partnership. The first $7,623,000 of Support Payments were
non-refundable, and the Partnership accounted for them as a reduction of the
purchase price of the Apartment Projects. The Partnership issued Special
Interests in exchange for Support Payments in excess of that amount; however,
the Special Interests were cancelable by the Partnership to the extent that the
aggregate net cash flow from any of the Apartment Projects (treated individually
and not collectively) was negative during the guaranty period. The cancellations
were also accounted for as a reduction of the purchase price of the Apartment
Projects.

Support Payments of $10,978,307 accrued to the Partnership based upon the
operating results of the Apartment Projects from inception of the Partnership
through the conclusion of the guaranty on December 31, 1990. The Partnership
issued 3,355 Special Interests to a Seller in exchange for $3,355,307 of Support
Payments in excess of the $7,623,000 non-refundable amount. Two 

                                       21
<PAGE>
 
properties had aggregate negative net cash flow totalling $1,158,870;
accordingly, the Partnership canceled 1,159 Special Interests.

Affiliates of the Spanos General Partner are the lessees under the Land/Leases.
Rentals accrued under the leases from such affiliates were $660,000, $612,498
and $723,525, respectively, in 1996, 1995 and 1994, of which $163,476 was
receivable at December 31, 1996. The apartment complexes owned by the lessees
and the land owned by the Partnership on which the apartment complexes are
constructed have been pledged as collateral for the borrowings used to finance
the development of the Properties.

An affiliate of the Spanos General Partner manages the Apartment Projects.
Property management fees totalled $457,754, $438,068 and $455,015, respectively,
in 1996, 1995 and 1994. Under the management agreements, the affiliate employs
property managers and other on-site personnel, and the Partnership bears the
expense for their compensation (including employment taxes and fringe benefits).
That expense was approximately $1,346,000, $1,324,000 and $1,369,000,
respectively in 1996, 1995 and 1994. Accruals of $37,132 and $38,771 for
property management fees and $118,148 and $121,310 for salary expense
reimbursements were outstanding at December 31, 1996 and 1995, respectively.

Under the Partnership Agreement, the Spanos General Partner is entitled to a
supervisory management fee and the Bache General Partner is entitled to a
special distribution. The fee and distribution are each equal to two percent of
the revenues from the Apartment Projects. The special distribution is reduced to
the extent of reimbursements to the Bache General Partner for certain expenses
incurred in the administration of the Partnership. Amounts accrued during the
past three years were as follows.

<TABLE>
<CAPTION>
                                             1996       1995       1994
 
<S>                                        <C>        <C>        <C>
Supervisory management fee                 $306,157   $291,972   $303,800
Special distribution                        259,299    245,114    256,942
Administrative expense reimbursements        46,858     46,858     46,858
                                           --------   --------   --------
                                           $612,314   $583,944   $607,600
                                           ========   ========   ========
</TABLE>

Accruals of $152,782 and $148,558 for management fees payable to the General
Partners were outstanding at December 31, 1996 and 1995, respectively.

Under the Partnership Agreement, the General Partners are entitled to
subordinated real estate commissions equal to the lesser of 3% of the sales
price of the Properties or one-half of the normal and competitive rate
customarily charged by unaffiliated parties. The subordinated real estate
commissions are not payable until the limited partners have received aggregate
distributions of sales and refinancing proceeds equal to the limited partners'
aggregate capital contributions and aggregate distributions from all other
sources except distributions in repayment of capital contributions equal to the
limited partners' 6% per annum cumulative noncompounded return on their adjusted
capital contributions. No provision for subordinated real estate commissions
have been made because this distribution threshold has not been achieved.

                                       22
<PAGE>
 
The General Partners' capital account deficit for financial accounting purposes
exceeds the amount the General Partners would be obligated to restore if the
Partnership were to dissolve.

Prudential Securities Incorporated ("PSI"), an affiliate of the Bache General
Partner, owned 1,920 Units at December 31, 1996.

NOTE E -  LAND/LEASES

The Land/Leases are leased to affiliates of the Spanos General Partner (see
Notes B and D). Under the leases either the Partnership, as owner of the land,
or the lessees, as the owners of the buildings, have the power to sell the
entire project to any third party purchaser. As a result, the Partnership may be
required to dispose of the Land/Leases at a time and on terms which it might not
otherwise have approved. The leases provide that upon the sale of the project,
the proceeds, if any, remaining after payment of the related mortgage
indebtedness will be allocated first to the Partnership to the extent of its
purchase price for the land, then to the lessee to the extent of its specified
"tenant's equity," and then 42.5% to the Partnership and 57.5% to the lessee.

NOTE F -  CONTINGENCIES

On or about October 18, 1993 a putative class action, captioned Kinnes et al. v.
Prudential Securities Group Inc. et al. (93 Civ. 654) was filed in the United
States District Court for the District of Arizona, purportedly on behalf of
investors in the Partnership against the Partnership, the Bache General Partner,
PSI and a number of other defendants. On or about November 16, 1993, a putative
class action captioned Connelly et al. v. Prudential-Bache Securities Inc. et
al. (93 Civ. 713) was filed in the United States District Court for the District
of Arizona, purportedly on behalf of investors in the Partnership against the
Partnership, the Bache General Partner, PSI and a number of other defendants. On
or about November 9, 1993, a putative class action entitled Bottner v. A.G.
Spanos Residential Partners-86 et al. (93 Civ. 7708) was filed in the United
States District Court for the Southern District of New York, purportedly on
behalf of investors in the Partnership against the General Partners, PSI,
Prudential Insurance Company of America and certain of their affiliates and
officers.

On or about May 11, 1994 a policyholder derivative action and putative class
action, captioned Romano et al. v. The Prudential Insurance Company of America
et al., was filed in the United States District Court for the Southern District
of New York, purportedly on behalf of policyholders of The Prudential Insurance
Company of America ("The Prudential") against The Prudential and PSI as nominal
defendants and against certain officers of The Prudential and its affiliates,
including the present and former chief executive officers of PSI, and present
and former members of The Prudential's board of directors, the Spanos General
Partner and certain of its affiliates as defendants. In substance the suit
alleged that the wrongful acts of the defendants (essentially the same
conspiracy regarding the sales of limited partnership interests alleged in the
consolidated complaint discussed below) have resulted in substantial losses to
PSI as a consequence of fines and litigation settlements. Because PSI is a
wholly owned subsidiary of The Prudential, its losses allegedly diminished the
value of plaintiffs' interests in The Prudential as policyholders. The complaint
contains counts based upon RICO, intentional and negligent misrepresentation,
and unjust enrichment. Plaintiffs sought unspecified compensatory, general,

                                       23
<PAGE>
 
consequential, incidental and punitive damages as well as interest, costs and
attorneys' fees. A motion to dismiss the case was filed January 20, 1995 on
behalf of The Prudential and the outside directors. On October 2, 1996, The
Prudential and PSI entered into a stipulation of settlement with legal counsel
representing plaintiffs. By order dated October 16, 1996 the court certified a
settlement class, preliminarily approved the class and derivative action
settlement agreement and notice, scheduled a hearing on the fairness and
adequacy of the settlement and on the application for awards of attorneys' fees
and disbursements. Following a hearing on December 4, 1996 the court approved
the settlement as being fair, reasonable and adequate and by order dated
December 18, 1996, dismissed the case with prejudice as to all the settling
defendants.

On or about February 13, 1995 an individual action, captioned Estate of Jean
Adams v. Prudential Securities, Inc. et al. (Case No. 1995 CV 00265) was filed
in the Court of Common Pleas in Stark County, Ohio against PSI, The Prudential,
the General Partners, the Partnership and affiliates of the Spanos General
Partner. The action was removed to the United States District Court for the
Northern District of Ohio (Eastern Division) on March 15, 1995. Plaintiff
alleged misrepresentations, breach of fiduciary duties and civil conspiracy by
defendants in connection with the sale of units of the Partnership. Plaintiff
sought unspecified damages, including punitive damages.
    
By order of the Judicial Panel on Multidistrict Litigation dated April 14, 1994,
the Kinnes and Bottner cases, by order dated June 8, 1994, the Connelly case, by
order dated June 27, 1994, the Romano case, and by order dated April 7, 1995,
the Adams case, were transferred to a single judge of the United States District
Court for the Southern District of New York and, except for Romano, consolidated
for pretrial proceedings under the caption In re Prudential Securities
Incorporated Limited Partnerships Litigation (MDL Docket 1005). The Romano case
was coordinated for pretrial discovery purposes. On June 8, 1994, plaintiffs in
the transferred cases filed a complaint that consolidated the previously filed
complaints and named as defendants, among others, PSI, certain of its present
and former employees and the General Partners. The Partnership is not named a
defendant in the consolidated complaint, but the name of the Partnership is
listed as being among the limited partnerships at issue in the case. The
consolidated complaint alleges violations of the federal and New Jersey
Racketeer Influenced and Corrupt Organizations Act ("RICO") statutes, fraud,
negligent misrepresentation, breach of fiduciary duties, breach of third- party
beneficiary contracts and breach of implied covenants in connection with the
marketing and sales of limited partnership interests. Plaintiffs request relief
in the nature of rescission of the purchase of securities and recovery of all
consideration and expenses in connection therewith, as well as compensation for
lost use of money invested less cash distributions; compensatory damages;
consequential damages; treble damages for defendants' RICO violations (both
federal and New Jersey); general damages for all injuries resulting from
negligence, fraud, breaches of contract, and breaches of duty in an amount to be
determined at trial; disgorgement and restitution of all earnings, profits,
benefits, and compensation received by defendants as a result of their unlawful
acts; and costs and disbursements of the action. On November 28, 1994 the
transferee court deemed each of the complaints in the constituent actions
(including Kinnes and Bottner) amended to conform to the allegations of the
consolidated complaint. On August 9, 1995 the Bache General Partner, PSI and
other Prudential defendants entered into a Stipulation and Agreement of Partial
Compromise and Settlement with legal counsel representing plaintiffs in the
consolidated actions. The court      

                                       24
<PAGE>
     
preliminarily approved the settlement agreement by order dated August 29, 1995
and, following a hearing held November 17, 1995, found that the agreement was
fair, reasonable, adequate and in the best interests of the plaintiff class. The
court gave final approval to the settlement, certified a class of purchasers of
specific limited partnerships, including the Partnership, released all settled
claims by members of the class against the PSI settling defendants and
permanently barred and enjoined class members from instituting, commencing or
prosecuting any settled claim against the released parties. The full amount due
under the settlement agreement has been paid. The consolidated action remains
pending against the Spanos General Partner and certain of its affiliates.
Although the order approving the partial settlement agreement dismissed the
consolidated complaint on the merits and with prejudice as against the PSI
settling defendants, it expressly continued the action against all nonsettling
defendants, including the Spanos General Partner, and preserved all claims
against them. The Partnership is not named a defendant in the consolidated
complaint and the action is not expected to have a material effect on the
Partnership's financial statements; accordingly, no provision for any loss that
may result upon resolution of this matter has been made in the accompanying
financial statements.     

On or about April 15, 1994 a multiparty petition entitled Schreiber, et al. v.
Prudential Securities, Inc., et al. (Cause No. 94-17696) was filed in the 189th
Judicial District Court of Harris County, Texas, purportedly on behalf of
investors in the Partnership against the Partnership, the General Partners, PSI,
The Prudential Insurance Company of America and a number of other defendants.
The Petition alleges common law fraud, fraud in the inducement and negligent
misrepresentation in connection with the offering of limited partnership
interests and negligence, breach of fiduciary duty, civil conspiracy, and
violations of the federal Securities Act of 1933 (sections 11 and 12) and of the
Texas Securities and Deceptive Trade Practices statutes. The suit seeks, among
other things, compensatory and punitive damages, costs and attorney's fees. The
ultimate outcome of this action as well as the impact on the Partnership cannot
presently be determined. Accordingly, no provision for any loss that may result
upon resolution of this matter has been made in the accompanying financial
statements. The General Partners, PSI and the Partnership, where applicable,
believe they have meritorious defenses to this complaint and intend to
vigorously defend themselves in this action.

The General Partners are presently conducting negotiations regarding a potential
auction sale of the Properties in connection with the potential settlement of
certain of the litigation described above. There is no assurance that these
negotiations will result in an agreement to sell the Properties.

Item 9.  Changes in and Disagreements with Accountants on Accounting and
         Financial Disclosure 

Not applicable.

                                       25
<PAGE>
 
                                   PART III

Item 10.  Directors and Executive Officers of the Registrant 

The Partnership does not have directors or executive officers. The Partnership
is managed by the General Partners, which have formed, and may continue to form,
other real estate investment entities with investment policies similar to those
of the Partnership and which may compete with the Partnership for management
services. The Spanos General Partner is a California limited partnership whose
general partners are AGS Financial Corporation and A.G. Spanos Realty, Inc. AGS
Financial Corporation is the managing general partner of the Spanos General
Partner. The directors and executive officers of AGS Financial Corporation and
of the Bache General Partner who perform services for the Partnership are listed
below, together with a brief description of their experience. All have
indefinite terms.

AGS Financial Corporation is owned by Dean A. Spanos, Michael A. Spanos, Barry
L. Ruhl, Dea Economou and a Spanos family trust. Dean A. Spanos, Michael A.
Spanos and Dea Economou are children of Alex G. Spanos, Chairman of the Board of
AGS Financial Corporation. Barry L. Ruhl is a son-in-law of Alex G. Spanos.
There are no other family relationships among the directors and executive
officers of AGS Financial Corporation or the Bache General Partner.

The General Partners and their directors and executive officers, and any persons
holding more than ten percent of the Partnership's Units are required to report
their initial ownership of such units and any subsequent changes in that
ownership to the Securities and Exchange Commission on Forms 3, 4 and 5. Such
executive officers, directors and greater than ten percent Unitholders are
required by Securities and Exchange Commission regulations to furnish the
Partnership with copies of all Forms 3, 4 and 5 they file. All of these filing
requirements were satisfied on a timely basis. In making the disclosures, the
Partnership has relied solely on written representations of the General
Partners' directors and executive officers and greater than ten percent
Unitholders or copies of the reports that they have filed with the Securities
and Exchange Commission during and with respect to its most recent fiscal year.

                           AGS FINANCIAL CORPORATION

<TABLE>
<CAPTION>
   Name                                          Position
   <S>                       <C>
 
   Alex G. Spanos                    Chairman of the Board
   Dean A. Spanos               Vice Chairman and Director
   Barry L. Ruhl                                  Director
   Michael A. Spanos                              Director
   Arthur J. Cole                   President and Director
   Jeremiah T. Murphy         Executive Vice President and 
                                   Chief Financial Officer
</TABLE>

ALEX G. SPANOS, age 73, has been Chairman of the Board of AGS Financial
Corporation since its founding in 1981. In addition, he serves as Chairman of
the Board or President of each 

                                       26
<PAGE>
 
of the other Spanos companies and owns a controlling interest in the San Diego
Chargers, a professional football team. Mr. Spanos founded the combined Spanos
organizations in the early 1960's and has been the driving force behind the
development of approximately 60,000 apartments and over 3 million square feet of
office space. Mr. Spanos maintains close contact with the key executives of each
of his companies and lends his judgment and experience to all major land
acquisitions, development and property financing decisions, and the investment
activities of AGS Financial Corporation. Mr. Spanos attended the University of
the Pacific.

DEAN A. SPANOS, age 46, has been Vice Chairman and a Director of AGS Financial
Corporation since its founding in 1981. He is the chief operating officer of the
property development and management companies within the Spanos organization,
responsible for land acquisitions, financing construction and property sales.
Mr. Spanos holds a bachelor's degree in business administration from the
University of the Pacific.

MICHAEL A. SPANOS, age 37, has served as a Director of AGS Financial Corporation
since its founding in 1981. He is Executive Vice President of A.G. Spanos
Construction, Inc. He holds a bachelor's degree from the University of the
Pacific.

BARRY L. RUHL, age 45, has been a Director of AGS Financial Corporation since
its founding in 1981. He is Executive Vice President of A.G. Spanos
Construction, Inc. He holds a D.D.S. from the University of the Pacific Dental
School.

ARTHUR J. COLE, age 42, has served as President of AGS Financial Corporation
since August 1990 and as a director since 1986. He joined AGS Financial
Corporation in 1983. He holds a bachelor's degree from Golden Gate University.

JEREMIAH T. MURPHY, age 52, has served as an Executive Vice President of AGS
Financial Corporation and is the Chief Financial Officer for all the A.G. Spanos
Companies. He has been employed by the Spanos companies since 1983. Prior to
joining the Spanos companies he was a partner with the accounting firm, Bowman &
Company, which he joined in 1970. Mr. Murphy is a Certified Public Accountant
and a graduate of Bernard Baruch College.

                       PRUDENTIAL-BACHE PROPERTIES, INC.

<TABLE>
<CAPTION>
         Name                                                         Position
        <S>                             <C>
         Thomas F. Lynch, III     President, Chief Executive Officer, Director
                                        and Chairman of the Board of Directors
         Barbara J. Brooks                        Vice President - Finance and 
                                                       Chief Financial Officer
         Eugene D. Burak                                        Vice President
         Chester A. Piskorowski                          Senior Vice President
         Frank W. Giordano                                            Director
         Nathalie P. Maio                                             Director
</TABLE>

THOMAS F. LYNCH, III, age 38, is the President, Chief Executive Officer,
Chairman of the Board of Directors and a Director of the Bache General Partner.
He is a Senior Vice President of 

                                       27
<PAGE>
 
Prudential Securities Incorporated ("PSI"), an affiliate of the Bache General
Partner. Mr. Lynch also serves in various capacities for other affiliated
companies. Mr. Lynch joined PSI in November 1989.

BARBARA J. BROOKS, age 48, is the Vice President-Finance and Chief Financial
Officer of the Bache General Partner. She is a Senior Vice President of PSI. Ms.
Brooks also serves in various capacities for other affiliated companies. She has
held several positions within PSI since 1983. Ms. Brooks is a certified public
accountant.

EUGENE D. BURAK, age 51, is a Vice President of the Bache General Partner. He is
a First Vice President of PSI. Prior to joining PSI in September 1995, he was a
management consultant for three years and was with Equitable Capital Management
Corporation from March 1990 to May 1992. Mr. Burak is a certified public
accountant.

CHESTER A. PISKOROWSKI, age 53, is a Senior Vice President of the Bache General
Partner. He is a Senior Vice President of PSI and is the Senior Manager of the
Specialty Finance Asset Management area. Mr. Piskorowski has held several
positions within PSI since April 1972. Mr. Piskorowski is a member of the New
York and Federal Bars.

FRANK W. GIORDANO, age 54, is a Director of the Bache General Partner. He is a
Senior Vice President of PSI and Executive Vice President and General Counsel of
Prudential Mutual Fund Management, LLC, an affiliate of PSI. Mr. Giordano also
serves in various capacities for other affiliated companies. He has been with
PSI since July 1967.

NATHALIE P. MAIO, age 46, is a Director of the Bache General Partner. She is a
Senior Vice President and Deputy General Counsel of PSI and supervises non-
litigation legal work for PSI. She joined PSI's Law Department in 1983;
presently, she also serves in various capacities for other affiliated companies.

Item 11.  Executive Compensation

The Partnership is not required to and did not pay remuneration to the officers
and directors of the General Partners. Certain officers and directors of the
General Partners receive compensation from the General Partners and/or their
affiliates (but not from the Partnership) for services performed for various
affiliated entities, which may include services performed for the Partnership;
however, the General Partners believe that any compensation attributable to
services performed for the Partnership is immaterial. See Item 13 "Certain
Relationships and Related Transactions" for a discussion of compensation and
fees to which the General Partners and their affiliates are entitled.

Item 12.  Security Ownership of Certain Beneficial Owners and Management  

No Unitholder is known by the Partnership to own beneficially more than 5% of
the outstanding Units. The percentage of outstanding Units held by all directors
and officers of the General Partners is less than 1%.

                                       28
<PAGE>
 
The Partnership has issued 7,749.5 Special Interests to affiliates of the Spanos
General Partner at March 3, 1997, all of which Interests are beneficially owned
by members of the Spanos family, certain of whom are directors and officers of
the general partners of the Spanos General Partner.

As of March 3, 1997, the individual directors and the directors and officers, as
a group, of AGS Financial Corporation and A.G. Spanos Realty, Inc., the general
partners of the Spanos General Partner, beneficially owned shares of the common
stock of AGS Financial Corporation and A.G. Spanos Realty, Inc. as follows:

<TABLE>
<CAPTION>
                                             AGS Financial Corporation     A.G. Spanos Realty, Inc.
Name                                          Shares        % of Class      Shares      % of Class
<S>                                        <C>            <C>              <C>         <C>
Alex G. Spanos                                   -0-          0-             20            100%
Dean A. Spanos                                 1,000          10%
Barry L. Ruhl                                  1,000          10%
Michael A. Spanos                              1,000          10%
All directors and officers as a group          
(8 persons)                                    9,000(1)       90%            20            100% 
</TABLE>

(1) These amounts include shares beneficially owned by virtue of certain
    beneficial interests in a Spanos family trust which owns 6,000 shares (60%)
    of the shares of AGS Financial Corporation.

Item 13.  Certain Relationships and Related Transactions 

The General Partners and their affiliates are permitted to engage in
transactions with the Partnership as described in the Partnership Agreement.
Specific information regarding these transactions is set forth below.

Certain affiliates of the Spanos General Partner are the lessees under the
ground leases for the Partnership's Land/Lease properties. Set forth below is
information regarding the ground leases.

<TABLE>
<CAPTION>

Property        Lessee                          Termination Date(1)   Annual Rent (2)(3)
<S>             <C>                             <C>                  <C>
Cameron Creek   A.G. Spanos Construction, Inc.      10/01/2012          $420,000
Del Rio         A.G. Spanos Construction, Inc.      12/21/2012          $240,000
</TABLE>

(1) Under the ground lease, the lessor and lessee each have the power to sell
    the land and improvements without the consent of the other party. Such a
    sale would terminate the lease before the nominal termination date.

(2) In addition to the base rental income, the Partnership is entitled to
    proceeds upon the sale or refinancing of the Land/Leases and improvements.

(3) Of the total annual rent, $163,476 was receivable at December 31, 1996.

The General Partners and certain affiliates thereof have, during the
Partnership's year ended December 31, 1996 earned or received compensation or
payments for services from the Partnership as set forth below. In addition,
under the Partnership Agreement, the General Partners are entitled to
subordinated real estate commissions equal to the lesser of 3% of the sales
price of the Properties or one-half of the normal and competitive rate
customarily charged 

                                       29
<PAGE>
 
by unaffiliated parties. The subordinated real estate commissions are not
payable until the limited partners have received certain priority distributions.
See note D to the financial statements.

<TABLE>
<CAPTION>
Recipient                       Capacity in            Form of Compensation                      Cash
                                Which Served                                             Compensation
<S>                            <C>                    <C>                              <C>
Spanos General Partner          General Partner        Supervisory Management Fee(1)         $306,157
                                                                                       
Bache General Partner           General Partner        Special Distribution(2)                259,299
                                                                                       
A.G. Spanos Management Inc.     Property Manager       Property Management Fees(3)            457,754
                                                                                       
General Partners                General Partner        Cash from Operations(4)                 32,992
                                                                                       
Bache General Partner           General Partner        Expense Reimbursements                 457,754
</TABLE>

(1) Supervisory Property Management Fee for supervising the management of the
    Properties equal to 2% of gross receipts from the Apartment Projects.

(2) Special Distribution for services in managing and administering the
    Partnership equal to 2% of gross receipts from the Apartment Projects,
    reduced to the extent of reimbursements, if any, for certain expenses
    incurred in the administration of the Partnership.

(3) Property Management Fees for property management services equal to 3% of
    gross receipts from the Apartment Projects.

(4) Cash from Operations equal to 2% of Adjusted Cash from Operations remaining
    after payment of the Special Distribution.

                                       30
<PAGE>
 
                                    PART IV

Item 14.  Exhibits, Financial Statement Schedules, and Reports on Form 8-K

     (a)(1)  Financial Statements:

          See Index to Financial Statements and Schedule on page 14.

       (2)  Financial Statement Schedule:

          III. Real Estate and Accumulated Depreciation, page 37.

          All other schedules have been omitted because they are inapplicable or
          not required, or the information is included in the financial
          statements or notes thereto.

          Exhibits

          4(a) Certificate of Limited Partnership of Registrant as filed with
               the Secretary of State of Delaware, incorporated by reference to
               Exhibit 4(a) to Amendment No. 1 to Registration Statement on Form
               S-11, File No. 33-9139, filed with the Securities and Exchange
               Commission on January 28, 1987.

          4(b) Amendment to Certificate of Limited Partnership of Registrant as
               filed with the Secretary of State of Delaware, incorporated by
               reference to Exhibit 4(b) to Amendment No. 2 to Registration
               Statement on Form S-11, File No. 33-9139, filed with the
               Securities and Exchange Commission on February 20, 1987.

          4(c) Amended and Restated Agreement of Limited Partnership of
               Registrant, incorporated by reference to Exhibit 4(c) to
               Amendment No. 2 to Registration Statement on Form S-11, File No.
               33-9139, filed with the Securities and Exchange Commission on
               February 20, 1987.

          4(d) Amendments No. 1 through 6 dated June 3, July 2, August 3 and 20,
               September 10 and October 2, 1987, respectively, to the Amended
               and Restated Agreement of Limited Partnership of Registrant,
               incorporated by reference to Exhibit 4(d) to Post-Effective
               Amendment No. 1 to Registration Statement on Form S-11, File No.
               33-9139, filed with the Securities and Exchange Commission on
               November 12, 1987.

       42 4(e) Amendments No. 7 through 13 dated December 4 and 18, 1987 and
               February 1, March 8 and 25, April 27 and August 12, 1988,
               respectively, to the Amended and Restated Agreement of Limited
               Partnership of 

                                       31
<PAGE>
 
               Registrant, incorporated by reference to Exhibit 4(e) of the
               Annual Report on Form 10-K dated December 31, 1988, File No. 33-
               9139.

          27   Financial Data Schedule (filed herewith)

(b)  Reports on Form 8-K:

     There were no reports on Form 8-K filed during the last quarter of the
     period covered by this Report.

                                       32
<PAGE>
 
                                   SIGNATURES
    
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to report to be
signed on its behalf by the undersigned, thereunto duly authorized.     

PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I (Registrant)

By:  Prudential-Bache Properties, Inc.
     A Delaware corporation, General Partner
    
     By: /s/ Brian J. Martin                       Date: February 27, 1998
         -----------------------------------
          Brian J. Martin
          Chairman of the Board of Directors and Director     
    
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to report has been signed below by the following person on behalf of
the Registrant in the capacities (with respect to the General Partners) and on
the dates indicated.     

By:  Prudential-Bache Properties, Inc.

     A Delaware corporation, General Partner

     By: /s/ Brian J. Martin                       Date: February 27, 1998
         -----------------------------------
          Brian J. Martin
          Chairman of the Board of Directors and Director
          (Principal Executive Officer)

     By: /s/ Barbara J. Brooks                     Date: February 27, 1998
         -----------------------------------
          Barbara J. Brooks
          Vice President-Finance and Chief Financial Officer
          (Principal Financial Officer)


     By: /s/ Nathalie P. Maio                      Date: February 27, 1998
         -----------------------------------
          Nathalie P. Maio
          Director

                                       33
<PAGE>
 
                                   SIGNATURES
    
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this amendment to report to be
signed on its behalf by the undersigned, thereunto duly authorized.     

PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I (Registrant)

By:  A.G. Spanos Residential Partners-86, A California Limited Partnership

     General Partner

     By:  AGS Financial Corporation, a general partner


           By: /s/ Arthur J. Cole                     Date: February 27, 1998
               ------------------------------         
               Arthur J. Cole
               President
               (Principal Accounting Officer)


     By:  A.G. Spanos Realty, Inc., a general partner


          By: /s/ Arthur J. Cole                      Date: February 27, 1998
              --------------------------------
              Arthur J. Cole
              Vice President

RESIDENTIAL PORTFOLIO DEPOSITORY CORP. (Registrant as to the issuance of
     Depository Receipts with respect to the Assigned Limited Partnership
     Interests)


     By: /s/ Arthur J. Cole                        Date: February 27, 1998
         -----------------------------------
          Arthur J. Cole
          Vice President

                                       34
<PAGE>
 
                                   SIGNATURES
    
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amendment to report has been signed below by the following person on behalf of
the Registrant in the capacities (with respect to the General Partners) and on
the dates indicated.     

By:  A.G. Spanos Residential Partners-86, A California Limited Partnership

     General Partner

     By:  AGS Financial Corporation, a general partner


     By: /s/ Alex G. Spanos                       Date: February 27, 1998
         -----------------------------------
          Alex G. Spanos
          Chairman of the Board of Directors
 
 
     By: /s/ Dean A. Spanos                       Date: February 27, 1998
         -----------------------------------
          Dean A. Spanos
          Vice Chairman and Director
 
 
     By: /s/ Michael A. Spanos                    Date: February 27, 1998
         -----------------------------------
          Michael A. Spanos
          Director
 
 
     By: /s/ Barry L. Ruhl                        Date: February 27, 1998
         -----------------------------------
          Barry L. Ruhl
          Director


     By: /s/ Arthur J. Cole                       Date: February 27, 1998
         -----------------------------------
          Arthur J. Cole
          President and Director
          (Principal Executive Officer)


     By: /s/ Jeremiah T. Murphy                   Date: February 27, 1998
         -----------------------------------
          Jeremiah T. Murphy
          Executive Vice President and Chief Financial Officer
          (Principal Financial and Accounting Officer)

                                       35
<PAGE>
 
                                   SIGNATURES

By:  A.G. Spanos Realty, Inc., a general partner


     By: /s/ Alex G. Spanos                       Date: February 27, 1998
         -----------------------------------
          Alex G. Spanos
          President and Director (Principal Executive Officer)
 
 
     By: /s/ Dean A. Spanos                       Date: February 27, 1998
         -----------------------------------
          Dean A. Spanos
          Executive Vice President and Director
 
 
     By: /s/ Michael A. Spanos                    Date: February 27, 1998
         -----------------------------------
          Michael A. Spanos
          Executive Vice President and Director
 
 
     By: /s/ Barry L. Ruhl                        Date: February 27, 1998
         -----------------------------------
          Barry L. Ruhl
          Executive Vice President and Director
 
 
     By: /s/ Jeremiah T. Murphy                   Date: February 27, 1998
         -----------------------------------
          Jeremiah T. Murphy
          Vice President (Principal Financial and Accounting Officer)

Residential Portfolio Depository Corp.
 
 
     By: /s/ Alex G. Spanos                       Date: February 27, 1998
         -----------------------------------
          Alex G. Spanos
          Director, President and Chief Financial Officer
          (Principal Executive, Financial and Accounting Officer


     By: /s/ Dean A. Spanos                       Date: February 27, 1998
         -----------------------------------
          Dean A. Spanos
          Director


     By: /s/ Jeremiah T. Murphy                   Date: February 27, 1998
         -----------------------------------
          Jeremiah T. Murphy
          Director

                                       36
<PAGE>
 
          PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            (A LIMITED PARTNERSHIP)

                                  SCHEDULE III
                    REAL ESTATE AND ACCUMULATED DEPRECIATION
                               DECEMBER 31, 1996

<TABLE>
<CAPTION>
Column A                                                Column B                Column C  
Description (Note 1)                                Land       Bldgs. &      Imps   Carrying     Land    
                                                                  Equip               Cost                     
                                                                                                          
<S>                                                <C>          <C>          <C>      <C>      <C>        
Apartment Projects:                                                                                       
Le Parc Marietta, GA                                1,865,589   12,069,597    -0-        -0-    1,290,008 
Casa de Fuentes                                                                                           
Overland Park, KS                                   2,320,250   11,016,653    -0-        -0-    2,120,968 
MacArthur Park Irving, TX                           2,945,824    9,482,602    -0-        -0-    2,249,379 
Cypress Pointe                                                                                            
Louisville, KY                                      3,351,303   15,552,843    -0-        -0-    2,315,883 
Comanche Place                                                                                            
Overland Park, KS                                   2,298,429   12,558,324    -0-        -0-    1,509,771 
Chelsea Park                                                                                              
Chamblee, GA                                        3,945,526   14,157,150    -0-        -0-    2,991,645 
Mission Trails                                                                                            
San Diego, CA                                       5,411,288   10,398,770    -0-        -0-    4,670,078 
Land Leases:                                                                                              
Cameron Creek                                                                                             
Fort Worth, TX                                      3,508,024          -0-    -0-        -0-    1,887,173 
Del Rio                                                                                                   
Albuquerque, NM                                     2,004,585          -0-    -0-        -0-    2,004,585 
                                                   ----------   ----------    ---        ---   ---------- 
                                                   27,650,818   85,235,939    -0-        -0-   21,039,490 
                                                   ==========   ==========    ===        ===   ==========  
                                                                                      
</TABLE>
<TABLE>
<CAPTION>
Column A                                          Column D                   Column E       Column F      Column G
Description (Note 1)                              Building &   Total Note 2  Accumulated     Date of        Date 
                                                  equipment                  Depr. (Note 4)    Con-       Acquired 
                                                                                             struction    
<S>                                              <C>          <C>           <C>             <C>          <C>      
Apartment Projects:                                                                                                
Le Parc Marietta, GA                              9,907,346    11,197,354     4,040,052         1986      06/03/87 
Casa de Fuentes                                                                                                    
Overland Park, KS                                10,343,379    12,464,347     4,098,207         1986      07/02/87 
MacArthur Park Irving, TX                         9,375,318    11,624,697     3,395,362         1985      10/01/87 
Cypress Pointe                                                                                                     
Louisville, KY                                   15,351,195    17,667,078     5,916,896         1986      10/01/87 
Comanche Place                                                                                                     
Overland Park, KS                                12,368,550    13,878,321     4,607,164         1987      12/04/87 
Chelsea Park                                                                                                       
Chamblee, GA                                     14,194,635    17,186,280     5,213,192         1986      03/25/88 
Mission Trails                                                                                                     
San Diego, CA                                    10,642,148    15,312,226     3,529,495         1987      08/12/88 
Land Leases:                                                                                                       
Cameron Creek                                                                                                      
Fort Worth, TX                                          -0-     1,887,173           -0-         1985      10/01/87 
Del Rio                                                                                                            
Albuquerque, NM                                         -0-     2,004,585           -0-         1985      12/21/87 
                                                 ----------   -----------    ----------                            
                                                 82,182,571   103,222,061    30,800,368                            
                                                 ==========   ===========    ==========                             
</TABLE>

See notes.

                                       37
<PAGE>
 
          PRUDENTIAL-BACHE/A.G. SPANOS GENESIS INCOME PARTNERS L.P., I
                            ( A LIMITED PARTNERSHIP)

                             NOTES TO SCHEDULE III

                    REAL ESTATE AND ACCUMULATED DEPRECIATION

Note 1 - See description of mortgage notes payable in note C of the Notes to
Financial Statements. Depreciable property is depreciated over useful lives of 7
to 27.5 years.

Note 2 - Reconciliation of real estate:
<TABLE> 
<CAPTION> 
                                               1996           1995           1994
<S>                                        <C>            <C>            <C>
Balance at beginning of period             $103,222,061   $103,594,559   $118,358,639
Additions during period:
 Acquisitions                                       -0-            -0-            -0-
                                           ------------   ------------   ------------
                                            103,222,061    103,594,559    118,358,639
Deductions during period:
 Dispositions                                       -0-            -0-     14,280,575
 Land/Lease revenue accounted for                   -0-        372,498        483,505
  as a recovery of recorded
  carrying amount
                                           ------------   ------------   ------------
Balance at close of period                  103,222,061    103,222,061    103,594,559
                                           ============   ============   ============
</TABLE> 
 
Note 3 - The aggregate cost of real estate for federal income tax purposes
 is $103,816,029.

Note 4 - Reconciliation of accumulated depreciation:

<TABLE> 
<CAPTION> 
                                                1996           1995           1994
<S>                                        <C>            <C>            <C>
Balance at beginning of period               27,968,156     25,032,876     23,951,356
Additions during period:
 Depreciation                                 2,832,212      2,935,280      3,562,699
                                             30,800,368     27,968,156     27,514,055
Deductions during period:
 Dispositions                                       -0-            -0-      2,481,179
                                           ------------   ------------   ------------
Balance at close of period                   30,800,368     27,968,156     25,032,876
                                           ============   ============   ============
</TABLE>
Note 5 - The Partnership has recorded aggregate provisions for loss on
impairment of assets of $1,412,660 with respect to the Cameron Creek Land/Lease
at December 31, 1996.

                                       38