<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 6, 1998
REGISTRATION NO. 333-7979
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-------------------------------------------
POST-EFFECTIVE AMENDMENT NO. 5 TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
-------------------------------------------
WELLS REAL ESTATE FUND X, L.P.
and
WELLS REAL ESTATE FUND XI, L.P.
(Exact name of registrant as specified in governing instruments)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(Address of principal executive offices)
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309-3400
(Name and address of agent for service)
-------------------------------------------
<PAGE>
CROSS REFERENCE SHEET PURSUANT TO RULE 404(A)
<TABLE>
<CAPTION>
Form Number and Caption Location of Heading in Prospectus
----------------------- ---------------------------------
<C> <S> <C>
1. Forepart of Registration Statement and
Outside Front Cover Page of Prospectus............ Facing Page, Cover Page
2. Inside Front and Outside Back Cover Pages Inside Front Cover and Outside Back Cover Page of Prospectus
of Prospectus.....................................
3. Summary Information, Risk Factors and Outside Front Cover Page; Summary of the Offering; Risk
Ratio of Earnings to Fixed Charges................ Factors; Compensation of the General Partners and Affiliates;
Estimated Use of Proceeds
4. Determination of Offering Price................... Risk Factors
5. Dilution.......................................... Risk Factors
6. Selling Security Holders.......................... *
7. Plan of Distribution.............................. Outside Front Cover Page; Summary of the Offering; Estimated
Use of Proceeds; Plan of Distribution
8. Use of Proceeds................................... Estimated Use of Proceeds; Investment Objectives and Criteria
9. Selected Financial Data........................... *
10. Management's Discussion and Analysis of Management's Discussions and Analysis of Financial Conditions
Financial Condition and Results of and Results of Operations
Operations........................................
11. General Information as to Registrant.............. Summary of the Offering; Summary of Partnership Agreement;
Management
12. Policy with Respect to Certain Activities......... Investment Objectives and Criteria; Reports to Investors
13. Investment Policies of Registrant................. Investment Objectives and Criteria; Real Property Investments;
Conflicts of Interest
14. Description of Real Estate........................ Investment Objectives and Criteria; Real Property Investments
15. Operating Data.................................... *
16. Tax Treatment of Registrant and its Security Federal Income Tax Consequences; Investment by Tax-Exempt
Holders........................................... Entities and ERISA Considerations
17. Market Price of and Dividends on the *
Registrant's Common Entry and Related
Stockholder Matters...............................
18. Description of Registrant's Securities............ Description of the Units; Distributions and Allocations;
Summary
of the Partnership Agreement
19. Legal Proceedings................................. Management
20. Security Ownership of Certain Beneficial Management; Compensation of the General Partners and
Owners and Management............................. Affiliates
21. Directors and Executive Officers.................. Management
22. Executive Compensation............................ Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
23. Certain Relationships and Related Conflicts of Interest; Compensation of the General Partners and
Transactions...................................... Affiliates; Management
24. Selection, Management and Custody of Management; Compensation of the General Partners and
Registrant's Investments.......................... Affiliates; Conflicts of Interest; Custodial Agency Agreement;
Investment Objectives and Criteria; Real Property Investments
25. Policies with Respect to Certain Transactions..... Conflicts of Interest; Compensation of the General Partners and
Affiliates; Management
26. Limitations of Liability.......................... Fiduciary Duty of the General Partners; Summary of Partnership
Agreement
27. Financial Statements and Information.............. Appendix I; Exhibit A
28. Interests of Named Experts and Counsel............ Conflicts of Interest, Experts, Legal Opinions
29. Disclosure of Commission Position on
Indemnification for Securities Act Liabilities.... Fiduciary Duty of the General Partners
</TABLE>
*Not Applicable.
<PAGE>
[THE FOLLOWING IS TEXT TO A STICKER TO BE ATTACHED TO THE FRONT COVER PAGE OF
THE PROSPECTUS IN A MANNER THAT WILL NOT OBSCURE THE RISK FACTORS:]
SUPPLEMENTAL INFORMATION - The Prospectus of Wells Real Estate Fund XI,
L.P. consists of this sticker, the Prospectus dated December 31, 1997, and
Supplement No. 1 dated April 1, 1998 (the Supplement is contained inside the
back cover page of the Prospectus). Supplement No. 1 includes updated financial
statements and Prior Performance Tables and updates the status of the offering
of the units of Wells Real Estate Fund XI, L.P.
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
$1,250,000 MINIMUM OFFERING
--------------------------------------
Class A and Class B Status Units
at a purchase price of $10.00 per Unit
--------------------------------------
Wells Real Estate Fund XI, L.P. (the "Partnership") is a newly organized
Georgia limited partnership which has been formed to acquire and operate
commercial properties on an all cash basis, including properties which are under
development or construction, are newly constructed or have been constructed and
have operating histories. The General Partners of the Partnership are Leo F.
Wells, III ("Wells") and Wells Partners, L.P., a Georgia limited partnership
("Wells Partners"; Wells and Wells Partners are collectively referred to as the
"General Partners").
The Partnership hereby offers for sale to the public 3,500,000 units of
limited partnership interest (the "Units"). Each holder of Units may elect to
have them treated as Class A Status Units (entitled to distributions of cash
flow from operations) or Class B Status Units (entitled to a higher percentage
of appreciation of the Partnership's real property investments and tax
allocations). The Partnership will offer the Class A Status Units and Class B
Status Units in combination, such that the Partnership will not sell more than
an aggregate of 3,500,000 Units. The minimum purchase is 100 Units ($1,000)
(except in certain states as described herein). The purchasers of the Units
will become the Limited Partners of the Partnership. It is estimated that
approximately 84% of the proceeds from the sale of Units will be used to acquire
properties and the balance will be used to pay fees and expenses.
AN INVESTMENT IN UNITS INVOLVES SIGNIFICANT RISKS INCLUDING THE FOLLOWING:
. The Partnership Agreement imposes restrictions on transfers of Units. No
public market for the Units currently exists or is likely to develop. If
investors are able to sell their Units at all, they will likely be able to
sell their Units only at a discount. (See "SUMMARY OF PARTNERSHIP AGREEMENT--
Transferability of Units.")
. The number of properties that the Partnership will acquire and diversification
of its investments will be reduced to the extent that less than the maximum
number of Units are sold.
. This Offering involves payment of substantial fees to the General Partners and
their Affiliates, which will be payable regardless of the success or failure
of the Partnership.
. Certain real estate programs previously sponsored by the General Partners and
their Affiliates have experienced fluctuating financial performance.
. The Partnership does not own any real property, and the General Partners have
not identified any properties in which there is a reasonable probability that
the Partnership will invest. Accordingly, investors will not have the
opportunity to evaluate the properties that the Partnership will acquire and
must rely totally upon the ability of the General Partners with respect to the
acquisition of properties. The unspecified nature of the offering may impair
the ability of investors to make an informed decision as to whether to elect
Class A Status or Class B Status for their Units in light of the different
features of Class A Status Units and Class B Status Units.
. It is anticipated that the Partnership will not be liquidated until at least
ten to twelve years after the date the Partnership invests in its final
property.
. There are no restrictions as to the mix of Class A Status Units and Class B
Status Units, and, accordingly, holders of Class A Status Units may receive
lower cash distributions than otherwise anticipated if the percentage of
Class A Status Units outstanding is substantially greater than the percentage
of Class B Status Units, and holders of Class B Status Units may receive
smaller tax allocations and a lesser amount of appreciation on investments
than otherwise anticipated if the percentage of Class B Status Units
outstanding is substantially greater than the percentage of Class A Status
Units.
. The effect of any advantage associated with the election of Class A Status
Units or Class B Status Units may be significantly reduced (or eliminated),
depending upon the ratio of each class outstanding.
. Some or all of the proceeds available for investment in real properties may be
invested in the acquisition and construction of undeveloped properties, which
would involve risks relating to the builder's ability to control construction
costs, failure to perform, or failure to build in conformity with plan
specifications and timetables.
. The General Partners are involved in other real estate programs and activities
and, accordingly, will face certain conflicts of interest in managing the
Partnership's operations.
FOR A DISCUSSION OF THE RISK FACTORS CONCERNING THIS INVESTMENT, SEE "RISK
FACTORS" (PAGE 7).
WELLS REAL ESTATE FUND XI, L.P. IS NOT A MUTUAL FUND OR ANY OTHER TYPE OF
INVESTMENT COMPANY AND IS NOT REGISTERED OR SUBJECT TO REGULATION UNDER THE
INVESTMENT COMPANY ACT OF 1940.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS
A CRIMINAL OFFENSE.
THE ATTORNEY GENERAL OF THE STATE OF NEW YORK HAS NOT PASSED ON OR ENDORSED
THE MERITS OF THIS OFFERING. ANY REPRESENTATION TO THE CONTRARY IS UNLAWFUL.
==========================================================================
SELLING COMMISSIONS
PRICE TO AND DEALER PROCEEDS TO
PUBLIC (1) MANAGER FEE (1) PARTNERSHIP (2)
-------------- ------------------- ---------------
Per Unit..... $ 10.00 $ 0.95 $ 9.05
MINIMUM...... $ 1,250,000.00 $ 118,750.00 $ 1,131,250.00
MAXIMUM...... $35,000,000.00 $3,325,000.00 $31,675,000.00
==========================================================================
(See footnotes on following page)
---------------------------------
WELLS INVESTMENT SECURITIES, INC.
---------------------------------
THE DATE OF THIS PROSPECTUS IS DECEMBER 31, 1997.
<PAGE>
(Cover Page Continued From Previous Page)
Footnotes:
(1) Price to Public and Selling Commissions may be reduced in connection with
certain large volume purchases and under other circumstances described
herein; however, in no event will the proceeds to the Partnership be reduced
thereby. In addition to Selling Commissions in the amount of up to 7% of
the Gross Offering Proceeds, the Partnership will pay a dealer manager fee
in the amount of 2.5% of the Gross Offering Proceeds and may reimburse
nonaffiliated broker-dealers participating in this Offering expenses paid
for due diligence purposes up to a maximum of .5% of the Gross Offering
Proceeds. Selling commissions are payable to Wells Investment Securities,
Inc., the Dealer Manager of the Offering and an Affiliate of the General
Partners, except to the extent reallowed to other broker-dealers
participating in the Offering. (See "PLAN OF DISTRIBUTION.")
(2) These figures are before deducting other expenses of the Offering to be paid
by the Partnership in the estimated amount of $1,050,000, assuming the sale
of all 3,500,000 Units. The General Partners or their Affiliates will pay
Organization and Offering Expenses (not including underwriting compensation)
in excess of 3% of Gross Offering Proceeds. (See "ESTIMATED USE OF PROCEEDS"
and footnote 3 thereto.)
The offering of Units of the Partnership will commence upon the effective
date of this Prospectus and will continue until and terminate upon the earlier
of (i) December 31, 1998, or (ii) the date on which all $35,000,000 in Units of
the Partnership have been sold. Subscription proceeds will be placed in an
interest-bearing escrow account with The Bank of New York, Atlanta, Georgia
until subscriptions aggregating at least $1,250,000 (125,000 Units) (the
"Minimum Offering") have been received and accepted by the General Partners, at
which time the proceeds will be released to the Partnership to be held in trust
for the benefit of investors. If the Minimum Offering is not met by June 30,
1998, the Offering will be terminated and subscribers' funds (plus interest net
of escrow expenses) will be promptly refunded.
PROSPECTIVE INVESTORS ARE ENCOURAGED TO READ THE ENTIRE PROSPECTUS WHICH
CONTAINS A COMPLETE COPY OF THE PARTNERSHIP AGREEMENT AND WHICH INCLUDES THE
CURRENT SUPPLEMENT, IF ANY, INSIDE THE BACK COVER PAGE.
THE USE OF PROJECTIONS OR FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM ARE NOT PERMITTED.
FOR FLORIDA RESIDENTS
DISTRIBUTION REINVESTMENT PLAN. UNITS PURCHASED PURSUANT TO THE
------------------------------
DISTRIBUTION REINVESTMENT PLAN WHICH ARE UNITS OF A SUBSEQUENT REAL ESTATE
LIMITED PARTNERSHIP MUST BE REGISTERED OR EXEMPT FROM REGISTRATION IN FLORIDA.
OFFERS AND SALES OF SUCH UNITS MUST BE CONDUCTED THROUGH BROKER-DEALERS WHICH
ARE REGISTERED IN FLORIDA OR EXEMPT FROM REGISTRATION IN FLORIDA. (SEE "SUMMARY
OF PARTNERSHIP AGREEMENT--DISTRIBUTION REINVESTMENT PLAN.")
INDETERMINATE MIX OF UNITS. LIMITED PARTNERS MUST ELECT TO HAVE EACH UNIT
--------------------------
TREATED EITHER AS A CLASS A STATUS UNIT OR CLASS B STATUS UNIT. THERE ARE NO
RESTRICTIONS AS TO THE MIX OF THE CLASS A STATUS UNITS AND CLASS B STATUS UNITS
AND, THEREFORE, THERE CAN BE NO ASSURANCE AS TO THE ACTUAL IMPACT OF THE SPECIAL
RIGHTS AND PRIORITIES TO WHICH HOLDERS OF THE TWO CLASSES OF UNITS ARE
RESPECTIVELY ENTITLED. THE EFFECT OF ANY ADVANTAGE ASSOCIATED WITH THE ELECTION
OF CLASS A OR CLASS B STATUS UNITS MAY BE SIGNIFICANTLY REDUCED (OR ELIMINATED),
DEPENDING UPON THE RATIO OF CLASS A STATUS UNITS TO CLASS B STATUS UNITS WHICH
ARE OUTSTANDING. (SEE "RISK FACTORS.")
FOR PENNSYLVANIA RESIDENTS
BECAUSE THE MINIMUM OFFERING IS LESS THAN $5,000,000, YOU ARE CAUTIONED TO
CAREFULLY EVALUATE THE PARTNERSHIP'S ABILITY TO FULLY ACCOMPLISH ITS STATED
OBJECTIVES AND INQUIRE AS TO THE CURRENT DOLLAR VOLUME OF PARTNERSHIP
SUBSCRIPTIONS.
<PAGE>
TABLE OF CONTENTS
Page
----
SUMMARY OF THE OFFERING........................................ 1
RISK FACTORS................................................... 7
Investment Risks............................................. 7
Limited Transferability and Lack
of Liquidity of the Units................................. 7
Risks Regarding Reliance on the General Partners........... 7
Risks Relating to Conflicts of Interest.................... 8
Limited and Illiquid Net Worth of the General Partners..... 8
Limitations of Rights of the Limited Partners.............. 8
Possible Lack of Diversification Resulting from
Subscriptions for Less than the Maximum Number of Units... 8
Potential Conflict Relating to the General Partners'
Right to Purchase Units................................... 9
Restrictions and Limitations on Repurchase Reserve......... 9
Potential Liability of Limited Partners.................... 9
Offering Price Arbitrarily Established..................... 9
Risks Relating to Management Compensation.................. 9
Risks Relating to the Availability
and Timing of Cash Distributions.......................... 10
Risk of Lack of Sources for Funding of Future
Capital Needs............................................. 10
Risks Relating to Joint Ventures........................... 10
Risks Relating to Acquisition of Properties from Wells
Development Corporation................................... 11
Special Risks Regarding Classes of Units..................... 12
Special Risks Relating to an Election of
Class A Status Units..................................... 12
Special Risks Relating to an Election of
Class B Status Units..................................... 12
Effect of Unspecified Nature of Offering on Relative
Performance of Class A Status Units and
Class B Status Units...................................... 12
Risks Regarding Indeterminate Ratio of Class A
Status Units to Class B Status Units...................... 13
Real Estate Risks............................................ 13
Fluctuating Financial Performance of Previously
Sponsored Partnerships.................................... 13
Potential Adverse Economic and Regulatory Changes.......... 13
Risks Relating to Blind Pool Offerings..................... 13
Risks Regarding Development and Construction of
Unimproved Properties..................................... 13
Risks Resulting from Competition for Investments........... 14
Potential Adverse Effects of Delays in Investments......... 14
Uncertainty of Timing of and Market Conditions on Future
Disposition of Properties................................. 14
Environmental Matters...................................... 14
Federal Income Tax Risks..................................... 15
Risk of Failure of Counsel to Form an Opinion on Certain
Material Tax Issues....................................... 15
Potential Adverse Income Tax Effects relating to
Limited Partners holding Class A Status Units............. 15
Potential Loss of Partnership Tax Status................... 16
Potential Publicly Traded Partnership Classification....... 16
Limitations on Deductibility of Losses..................... 16
Possibility of IRS Challenge to Allocations of
Profit and Loss........................................... 16
Risk of Potential Dealer Status............................ 16
Possibility of Disallowance of Deductibility of Fees and
Expenses Paid by the Partnership.......................... 17
Risk of Taxable Income Without Cash Distributions.......... 17
Risks Regarding Characterization
of Sale-Leaseback Transactions............................ 17
Applicability of Anti-Abuse Rules.......................... 17
Potential Application of Alternative Minimum Tax........... 17
Audit Risk, Interest and Penalties......................... 18
Risks Regarding State and Local Taxation and Requirements to
Withhold State Taxes...................................... 18
Risk of Legislative or Regulatory Action................... 18
Risks Relating to Retirement Plan Investors.................. 19
Plan Assets Risk........................................... 19
Risks Relating to Minimum Distribution Requirements........ 19
Unrelated Business Taxable Income ("UBTI")................. 20
SUITABILITY STANDARDS.......................................... 20
DESCRIPTION OF THE UNITS....................................... 24
Election of Class A Status or Class B Status................. 24
Summary of Distributions..................................... 25
Summary of Allocations....................................... 26
Class A Status Units......................................... 27
Class B Status Units......................................... 28
Effect of Change of Status of Units.......................... 28
ESTIMATED USE OF PROCEEDS...................................... 28
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES............ 30
CONFLICTS OF INTEREST.......................................... 32
FIDUCIARY DUTY OF THE GENERAL PARTNERS......................... 36
PRIOR PERFORMANCE SUMMARY...................................... 37
Publicly Offered Unspecified Real Estate Programs............ 38
MANAGEMENT..................................................... 42
The General Partners......................................... 42
Management................................................... 45
INVESTMENT OBJECTIVES AND CRITERIA............................. 46
General...................................................... 46
Acquisition and Investment Policies.......................... 47
Development and Construction of Properties................... 49
Acquisition of Properties from Wells
Development Corporation..................................... 49
Terms of Leases and Lessee Creditworthiness.................. 51
Borrowing Policies........................................... 51
Joint Venture Investments.................................... 52
Disposition Policies......................................... 53
Other Policies............................................... 54
CUSTODIAL AGENCY AGREEMENT..................................... 55
REAL PROPERTY INVESTMENTS...................................... 56
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..................................... 57
INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS..... 57
Plan Assets - Generally...................................... 58
Plan Assets.................................................. 58
Exemptions Under Plan Asset Regulations...................... 59
(i)
<PAGE>
Plan Asset Consequences -
Prohibited Transaction Excise Tax........................... 60
Annual Valuation............................................. 61
FEDERAL INCOME TAX CONSEQUENCES................................ 62
Tax Opinion.................................................. 62
Partnership Status Generally................................. 64
Publicly Traded Partnerships................................. 65
General Principles of Partnership Taxation................... 66
Anti-Abuse Rules............................................. 66
Basis Limitations............................................ 67
Passive Loss Limitations..................................... 67
At Risk Limitations.......................................... 68
Allocations of Profit and Loss............................... 68
Risk of Taxable Income Without Cash Distributions............ 70
Investment by Qualified Plans and Other
Tax-Exempt Entities......................................... 70
Investment by Charitable Remainder Trusts.................... 72
Depreciation and Cost Recovery............................... 72
Syndication and Organizational Expenses...................... 72
Activities Not Engaged in for Profit......................... 72
Federal Income Tax Consequences Relating to the Custodial
Agency Agreement and Other Potential Uses of Nominee
Corporations................................................ 73
Characterization of Leases................................... 74
Property Held Primarily for Sale............................. 74
Sales of Partnership Properties.............................. 75
Sales of Limited Partnership Units........................... 75
Dissolution and Liquidation of the Partnership............... 75
Capital Gains and Losses..................................... 75
Election for Basis Adjustments............................... 76
Alternative Minimum Tax...................................... 76
Penalties.................................................... 76
Tax Shelter Registration..................................... 77
Audits....................................................... 77
Foreign Investors as Limited Partners........................ 78
Tax Legislation and Regulatory Proposals..................... 78
State and Local Taxes........................................ 79
SUMMARY OF PARTNERSHIP AGREEMENT............................... 79
Powers of the General Partners............................... 80
Liabilities of the Limited Partners.......................... 80
Other Activities of the General Partners..................... 80
Rights and Obligations of Limited Partners;
Nonassessability of Units................................... 80
Voting Rights of the Limited Partners........................ 80
Mergers and Consolidations................................... 81
Special Partnership Provisions............................... 81
Removal of General Partners.................................. 81
Assignability of General Partners' Interests................. 82
Books and Records; Rights to Information; Annual Audits...... 82
Meetings of Limited Partners................................. 82
Transferability of Units..................................... 82
Partnership Borrowing........................................ 83
Repurchase of Units.......................................... 84
Distribution Reinvestment Plan............................... 85
Proxy to Liquidate........................................... 87
Dissolution and Termination.................................. 87
DISTRIBUTIONS AND ALLOCATIONS.................................. 88
Distributions of Net Cash From Operations.................... 88
Distribution of Net Sale Proceeds............................ 88
Liquidating Distributions.................................... 90
Return of Unused Capital Contributions....................... 90
Partnership Allocations...................................... 90
Monthly Distributions........................................ 92
REPORTS TO INVESTORS........................................... 93
PLAN OF DISTRIBUTION........................................... 94
SUPPLEMENTAL SALES MATERIAL.................................... 99
LEGAL OPINIONS................................................. 99
EXPERTS........................................................ 99
ADDITIONAL INFORMATION......................................... 100
GLOSSARY....................................................... 100
------------
FINANCIAL STATEMENTS........................................... APPENDIX I
PRIOR PERFORMANCE TABLES....................................... EXHIBIT A
FORM OF AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP
OF WELLS REAL ESTATE FUND XI, L.P............................. EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT AND SUBSCRIPTION AGREEMENT
SIGNATURE PAGE................................................ EXHIBIT C
(ii)
<PAGE>
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL INVESTORS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS IN ORDER TO EVALUATE AN INVESTMENT IN THE
PARTNERSHIP. THE FOLLOWING SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS. ALL
MATERIAL TERMS OF THE SUPPORTING DOCUMENTS ARE DESCRIBED IN THE PROSPECTUS.
TERMS THAT APPEAR WITH AN INITIAL CAPITAL LETTER ARE MORE FULLY DEFINED IN THE
GLOSSARY.
THE PARTNERSHIP: The Partnership is a newly formed Georgia limited
partnership whose principal place of business and registered
office is located at the office of its General Partners,
3885 Holcomb Bridge Road, Norcross, Georgia 30092.
(Telephone: 770-449-7800 or 800-448-1010 - outside of
Georgia.)
GENERAL PARTNERS: Leo F. Wells, III and Wells Partners, L.P., a Georgia
limited partnership, are the General Partners and will make
all investment decisions for the Partnership. (See
"MANAGEMENT--The General Partners.") For information
regarding the previous experience of the General Partners
and their Affiliates in the management of real estate
limited partnerships, see "PRIOR PERFORMANCE SUMMARY."
SECURITIES OFFERED: A minimum of 125,000 Units (the "Minimum Offering") and a
maximum of 3,500,000 Units in the Partnership are being
offered at $10 per Unit. Upon subscription for Units,
investors will elect to have their Units treated as either
Class A Status Units or Class B Status Units.
DIFFERENCES BETWEEN Class A Status Units and Class B Status Units are entitled
CLASS A STATUS to different rights and priorities as to allocations of
UNITS AND CLASS B depreciation, amortization, cost recovery and net loss
STATUS UNITS: deductions and cash distributions. Holders of Class A
Status Units will be entitled to receive annual
distributions of operating cash flow but will be allocated a
lower percentage return on the potential appreciation of the
Partnership's real estate investments. However, since Class
A Status Units will be allocated substantially all of the
Partnership's net income without being allocated any
deductions for depreciation, amortization, cost recovery or
net losses, it is expected that Limited Partners holding
Class A Status Units will be allocated taxable income in
excess of distributions of cash flow from operations
received. Although holders of Class B Status Units will not
be allocated any current cash distributions, they will be
allocated a disproportionately larger share of the
Partnership's deductions for depreciation, amortization,
cost recovery and net loss, and will be allocated a higher
percentage return on the potential appreciation of the
Partnership's real estate investments. However, since all
such losses allocated to holders of Class B Status Units
will be treated as "passive" losses, which may only be used
to offset "passive" income and, thus, may not be used to
offset active or portfolio income, such allocation of losses
may have no current benefit to holders of Class B Status
Units unless such holders of Class B Status Units are being
allocated passive income from other sources with respect to
such year. The effect of any advantage associated with the
election of Class A Status or Class B Status may be
significantly reduced (or eliminated), depending upon the
ratio of Class A Status Units to Class B Status Units
outstanding during any given period. There are no
restrictions as to the mix of Class A Status Units to Class
B Status Units, and the General Partners will not attempt to
establish or maintain any particular ratio. Therefore,
there can be no assurance as to the actual impact of the
special rights and priorities to which holders of the two
classes of Units are respectively entitled. To the extent
that there are fewer Class A Status Units outstanding in
relation to the number of Class B Status Units outstanding,
in the event that the General Partners or their Affiliates
purchase Units, they would benefit, along with other Class A
Limited Partners, in terms of increased distributions of
operating cash flow, due to the fact that the General
Partners and their Affiliates may only acquire and own Class
A Status Units. Limited Partners will have the right to
change their prior election to have some or all of their
Units treated as Class A Status Units or Class B Status
Units one time during each quarterly accounting period,
unless prohibited by applicable state law. Any such changed
election shall be effective commencing as of the first day
of the next succeeding accounting period following notice to
the Partnership. Limited Partners converting from Class A
Status to Class B Status will be entitled from the effective
date of the changed election to deductions for depreciation,
amortization, cost recovery and net losses but no
distributions of cash flow from operations, and Limited
Partners converting from Class B Status to Class A Status
will be entitled from the effective date of the changed
election to receive annual distributions of net cash flow
from operations. Distributions of proceeds from the sale of
properties will be prorated to Limited Partners based on the
<PAGE>
number of days during which such Units were treated as Class
A Status Units and the number of days during which such
Units were treated as Class B Status Units (Class B Status
Units being allocated a higher percentage return on the
potential appreciation of the Partnership's real estate
investments). (See "DESCRIPTION OF THE UNITS," "RISK
FACTORS" and "DISTRIBUTIONS AND ALLOCATIONS.")
RISK FACTORS: Investment in the Units involves various risks including the
following:
. The Partnership Agreement imposes restrictions on
transfers of Units. No public market for the Units
currently exists or is likely to develop. If investors are
able to sell their Units at all, they will likely be able
to sell their Units only at a discount. (See "SUMMARY OF
PARTNERSHIP AGREEMENT--Transferability of Units.")
. Limited Partners will have limited voting rights and,
therefore, will have minimal control over the
Partnership's operations.
. The Limited Partners must rely on the General Partners and
their Affiliates, who will have full responsibility for
the day-to-day management of the Partnership.
. The net worth of the General Partners is limited in
amount, substantially illiquid and not readily marketable.
Accordingly, there can be no guarantee that the General
Partners will be able to fulfill their financial
obligations and responsibilities to the Partnership.
. The number of properties that the Partnership will acquire
and diversification of its investments will be reduced to
the extent that less than the maximum number of Units are
sold. Lack of diversification of the Partnership's
investments will have the effect of increasing the risks
associated with an investment in the Units.
. This Offering involves payment of substantial fees to the
General Partners and their Affiliates, which will be
payable regardless of the success or failure of the
Partnership.
. Holders of Class A Status Units will be allocated
substantially all of the Partnership's net income, while
substantially all deductions for depreciation,
amortization, cost recovery and net losses will be
allocated to holders of Class B Status Units. As a result,
it is expected that Limited Partners holding Class A
Status Units will be allocated taxable income in excess of
distributions of Cash Flow From Operations received,
although the General Partners expect that cash
distributions will be sufficient to cover the income tax
liability resulting from such allocations.
. Potential investors who plan to elect Class B Status for
their Units should be aware that they will not receive any
distributions of Cash Flow From Operations from the
Partnership, but will be allocated a disproportionately
larger share of the Partnership's deductions for
depreciation, amortization, cost recovery and net losses.
. Certain real estate programs previously sponsored by the
General Partners and their Affiliates have experienced
fluctuating financial performance, and there are no
assurances that properties acquired by the Partnership
will be profitable.
. The Partnership will be subject to market risks associated
with investments in real estate, which means that both the
amount of cash the Partnership will receive from the
lessees of its properties and the future value of its
properties cannot be predicted. Accordingly, the extent to
which investors will receive cash distributions and
realize potential appreciation on real estate investments
will be dependent upon fluctuating market conditions.
. This is a "blind pool" offering in that the Partnership
does not own any real property and the General Partners
have not identified any properties in which there is a
reasonable probability that the Partnership will invest.
Accordingly, investors will not have the opportunity to
evaluate the properties that the Partnership will acquire
and must rely totally upon the ability of the General
Partners with respect to the acquisition of properties.
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. Some or all of the proceeds available for investment in
real properties may be invested in the acquisition and
construction of undeveloped properties, which would
involve risks relating to the builder's ability to control
construction costs, failure to perform, or failure to
build in conformity with plan specifications and
timetables, thus potentially subjecting the Partnership to
cost overruns and time delays for properties under
construction. Increased costs of newly constructed
properties may have the effect of reducing returns to
Limited Partners, while construction delays may have the
effect of delaying distributions of cash flow from
operations.
. As a result of the fact that the General Partners are also
involved in other real estate programs and will continue
to engage in other business activities, the General
Partners will have conflicts of interest in allocating
their time between the Partnership and such other real
estate programs and activities. They will also have
conflicts of interest when evaluating potential
investments for the Partnership in deciding which entity
will acquire a particular property, and in leasing
properties in the event that the Partnership and another
program managed by the General Partners were to compete
for the same tenants in negotiating leases.
. The Partnership is authorized to borrow amounts up to 25%
of the total purchase price of Partnership Properties in
order to finance the maintenance and repair or improvement
of Partnership Properties under certain conditions;
provided, however, that (i) the Partnership will be
acquiring properties only on an all cash basis and the
General Partners do not intend to cause the Partnership to
borrow any funds and (ii) the Partnership will not borrow
any funds until it first obtains an opinion that more
likely than not the indebtedness to be obtained will not
cause its income to be taxed as unrelated business taxable
income (UBTI). (See "INVESTMENT OBJECTIVES AND CRITERIA--
Borrowing Policies.")
See the "RISK FACTORS" section of this Prospectus for a
discussion of the risk factors relating to an investment in
the Units.
TERMS OF THE The offering of Units of the Partnership will commence upon
OFFERING: the date of this Prospectus and will continue until and
terminate upon the earlier of (i) December 31, 1998, or (ii)
the date on which all $35,000,000 in Units of the
Partnership have been sold. Subscription proceeds will be
held in escrow until subscriptions for at least $1,250,000
(125,000 Units) have been received and accepted by the
General Partners.
PROPERTIES: The Partnership will seek to acquire and operate commercial
properties, including without limitation, office buildings,
shopping centers, business and industrial parks and other
commercial and industrial properties, on an all cash basis,
including properties which are under construction or
development, are newly constructed, or have been constructed
and have operating histories. All such properties may be
acquired, developed and operated by the Partnership alone or
jointly with another party. The Partnership is likely to
enter into one or more joint ventures with Affiliated
entities for the acquisition of properties. In this
connection, the Partnership may enter into joint ventures
for the acquisition of properties with prior or future real
estate programs or other publicly registered entities
sponsored by the General Partners or their Affiliates. As
of the date of this Prospectus, the Partnership has neither
purchased nor contracted to purchase any properties, nor
have the General Partners identified any properties in which
there is a reasonable probability that the Partnership will
invest. (See "REAL PROPERTY INVESTMENTS," "INVESTMENT
OBJECTIVES AND CRITERIA" and "CONFLICTS OF INTEREST.")
ESTIMATED USE It is anticipated that approximately 84% of the proceeds of
OF PROCEEDS OF this Offering will actually be invested in Partnership
OFFERING: Properties, and the remainder will be used to pay selling
commissions and fees and expenses relating to the selection
and acquisition of properties and the costs of organizing
the Partnership and the Offering. (See "ESTIMATED USE OF
PROCEEDS" for a breakdown of the Partnership's estimated use
of the capital raised in the Offering. See also
"COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES"
regarding the compensation and fees to be paid to the
General Partners and their Affiliates.)
INVESTMENT The Partnership's objectives are: (i) to maximize Net Cash
OBJECTIVES: From Operations; (ii) to preserve, protect and return the
Capital Contributions of the Partners; and (iii) to realize
capital appreciation upon the ultimate sale of Partnership
Properties. These investment objectives may not be changed
except upon
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approval of a majority in interest of the Limited Partners.
Certain real estate programs previously sponsored by the
General Partners and their Affiliates, each of which have
investment objectives similar to those of the Partnership,
have experienced fluctuating financial performance, as shown
in the tables included in Exhibit "A" hereto. Many of the
real properties in which such prior programs have invested
have experienced the same economic problems as other real
estate investments in recent years, including without
limitation, general over-building and an excess of supply in
many markets, along with increased operating costs and a
general downturn in the real estate industry. These prior
programs have not yet sold any real property investments and
thus no evaluation can be made as to whether these prior
programs will achieve their objectives of returning Capital
Contributions or realizing capital appreciation upon the
sale of such properties. (See "INVESTMENT OBJECTIVES AND
CRITERIA" and "PRIOR PERFORMANCE SUMMARY.")
CONFLICTS OF The General Partners and their Affiliates will experience
INTEREST: conflicts of interest in connection with the management of
the Partnership, including the following:
. The General Partners and their Affiliates are also
involved with other real estate programs and expect that
they will organize additional real estate programs in the
future. As a result, investors should be aware that the
General Partners and their Affiliates will have to
allocate their time between the Partnership and such other
real estate programs and activities and may have conflicts
of interest in deciding which real estate program or other
entity will acquire a particular property.
. The Partnership may acquire properties in the same
geographic areas where other properties owned or managed
by the General Partners and their Affiliates are located,
resulting in potential conflicts in the leasing or resale
of the Partnership's properties in the event that the
Partnership and another program managed by the General
Partners or their Affiliates were to attempt to compete
for the same tenants in negotiating leases or to sell
similar properties at the same time.
. Since it is anticipated that the Partnership's properties
will be managed by an Affiliate of the General Partners,
the Partnership will not have the benefit of independent
property management, and investors must rely on the
General Partners and their Affiliates for management of
the Partnership's properties.
. The Partnership is likely to enter into one or more joint
ventures for the acquisition and operation of specific
properties with Affiliates of the General Partners,
resulting in potential conflicts of interest in
determining which real estate program or other entity
should enter into a particular joint venture, in
structuring the terms of the relationship and in managing
the joint venture.
. Fees payable to the General Partners and their Affiliates
in connection with Partnership transactions involving the
purchase, management and sale of Partnership Properties
are not the result of arm's-length negotiations and will
be payable regardless of the quality of the property
acquired or the services provided to the Partnership.
See the "CONFLICTS OF INTEREST" section of this Prospectus
for a discussion of the various conflicts of interest
relating to an investment in the Units.
PRIOR OFFERING The General Partners and their Affiliates have previously
SUMMARY: sponsored eleven publicly offered real estate limited
partnerships on an unspecified property or "blind pool"
basis. The total amount of funds raised from the
approximately 24,156 investors in these limited partnerships
as of October 31, 1997 was approximately $262,525,733.
Certain of these previously sponsored real estate programs
have experienced fluctuating financial performance in recent
years. The "PRIOR PERFORMANCE SUMMARY" section of this
Prospectus contains a discussion of the public real estate
limited partnerships sponsored previously by the General
Partners and their Affiliates. Certain statistical data
relating to prior public limited partnerships with
investment objectives similar to those of the Partnership
are contained in the "PRIOR PERFORMANCE TABLES" included as
Exhibit "A" to this Prospectus.
COMPENSATION TO The General Partners and their Affiliates will receive
GENERAL PARTNERS compensation and fees for services relating to this Offering
AND AFFILIATES: and in connection with the investment and management of the
Partnership's assets which are not the result of arm's-
length
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negotiations and will be paid regardless of the quality of
the property acquired or the services provided to the
Partnership. The most significant items of compensation are:
Offering Stage: Sales commissions of 7% of Gross Offering
Proceeds payable to an Affiliate of the General Partners,
all or a part of which may be reallowed to unaffiliated
participating broker-dealers; a dealer manager fee of 2.5%
of Gross Offering Proceeds payable to an Affiliate of the
General Partners, a portion of which may be reallowed to
unaffiliated participating broker-dealers as a marketing
fee; and up to 3% of Gross Offering Proceeds as a
reimbursement of costs and expenses of organizing the
Partnership, including legal, accounting, printing,
marketing and other offering expenses, a majority of which
will be paid to third parties unaffiliated with the General
Partners.
Acquisition Stage: A fee of up to 3% of Gross Offering
Proceeds in connection with the selection, valuation and
acquisition of properties (subject to certain overall
limitations), which is payable regardless of the quality of
the properties acquired by the Partnership; and
reimbursement of costs and expenses for the acquisition of
properties.
Operational Stage: A property management and leasing fee in
the amount of up to 4.5% of gross revenues plus a one-time
initial rent-up or leasing-up fee for the leasing of newly
constructed properties in an amount not to exceed the
customary fee payable in an arm's-length transaction; and,
after Limited Partners holding Class A Status Units have
received cash distributions equal to 10% of their remaining
capital invested in the Partnership, 10% of current cash
flow distributions of the Partnership.
Liquidation Stage: After (i) each Limited Partner holding
Units which at any time have been treated as Class B Status
Units has received cash distributions in an amount which,
when added to any cash previously distributed to such
Limited Partner, will equal the amount of cash distributions
previously paid to Limited Partners holding Units which at
all times have been treated as Class A Status Units, (ii)
Limited Partners have received a return of their invested
capital, and (iii) Limited Partners holding Class A Status
Units have received a 10% per annum return on their invested
capital and Limited Partners holding Class B Status Units
have received a 15% per annum return on their invested
capital, then the General Partners are entitled to receive
the following amounts of Nonliquidating Net Sale Proceeds
and Liquidating Distributions: (a) an amount equal to their
Capital Contributions, and (b) 20% of remaining amounts of
Nonliquidating Net Sale Proceeds and Liquidating
Distributions available for distribution (provided, however,
that in no event will the General Partners receive in the
aggregate more than the NASAA Guidelines Resale Proceeds
Maximum Amount); and a real estate brokerage commission of
up to 3% of the sale price of properties sold by the
Partnership, the payment of which is subordinated to
distributions to Limited Partners in aggregate amounts so
that Limited Partners will receive a return of their
remaining capital invested in the Partnership plus a 6% per
annum return on their remaining capital invested in the
Partnership.
There may be a number of other smaller items of incidental
expense reimbursement that the General Partners and their
Affiliates may receive during the operation and liquidation
stages of the Partnership. (See "COMPENSATION OF THE GENERAL
PARTNERS AND AFFILIATES" and "CONFLICTS OF INTEREST.")
DEPRECIATION AND For income tax purposes, the Partnership intends to use the
COST RECOVERY straight-line method of depreciation for the real properties
METHOD: to be acquired. (See "FEDERAL INCOME TAX CONSEQUENCES.")
PARTNERSHIP TERM: The Partnership was formed on June 20, 1996, and will
continue in existence until all the Partnership's properties
have been sold or the occurrence of certain other events
but, in any event, will terminate no later than December 31,
2026.
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The Partnership will be liquidated upon the ultimate
disposition of the Partnership's Properties, which the
General Partners currently anticipate will occur a minimum
of ten to twelve years after acquisition and development of
the last Partnership Property acquired. (See "SUMMARY OF
PARTNERSHIP AGREEMENT--Dissolution and Termination.")
REPURCHASE RESERVE: One year following the termination of this Offering, the
General Partners will have the option, in their sole
discretion, of establishing a Repurchase Reserve in an
amount of up to 5% of Cash Flow on an annual basis, pursuant
to which the Limited Partners may be able to resell their
Units to the Partnership at a discount. The General
Partners may also terminate the Repurchase Reserve at any
time in their sole discretion. (See "SUMMARY OF PARTNERSHIP
AGREEMENT.")
DISTRIBUTION The General Partners may establish a Distribution
REINVESTMENT PLAN: Reinvestment Plan which will be available for Limited
Partners who wish to participate, pursuant to which
distributions of Net Cash From Operations from the
Partnership may be automatically invested in (a) Units of
the Partnership during the Offering period of the
Partnership, or (b) units of subsequent real estate limited
partnerships sponsored by the General Partners or their
Affiliates which have substantially identical investment
objectives as the Partnership following the expiration of
the Offering period. The General Partners in their
discretion may elect not to provide a Distribution
Reinvestment Plan. Limited Partners who participate in the
Distribution Reinvestment Plan will be allocated their share
of the Partnership's taxable income even though such
Partners will receive no cash distributions from the
Partnership, which may result in tax liability for such
participants even though they would receive no cash
distributions with which to pay such tax liability. (See
"SUMMARY OF PARTNERSHIP AGREEMENT--Distribution Reinvestment
Plan" and "RISK FACTORS--Federal Income Tax Risks.")
DISTRIBUTIONS AND See the "DESCRIPTION OF THE UNITS" and "DISTRIBUTIONS AND
ALLOCATIONS: ALLOCATIONS" sections of this Prospectus for a description
of the allocation and distribution of current cash flow from
operations and the net proceeds from the sale or exchange of
Partnership Properties and the allocation of taxable income
and loss of the Partnership.
Distributions of cash flow from operations to Limited
Partners holding Class A Status Units are expected to
commence no later than the end of the sixth full quarter of
Partnership operations. No distributions of cash flow from
operations will be allocated to Limited Partners holding
Class B Status Units.
PARTNERSHIP The respective rights and obligations of the Partners and
AGREEMENT: the relationship between the Limited Partners and the
General Partners will be governed by the Partnership's
Amended and Restated Agreement of Limited Partnership (the
"Partnership Agreement"). Some of the significant features
of the Partnership Agreement include the following:
. Voting Rights. Limited Partners owning a majority of the
Units may vote to: (a) amend the Partnership Agreement,
subject to certain limitations, (b) change the business
purpose or investment objectives of the Partnership, and
(c) remove a General Partner. In the event of any such
vote, Limited Partners not voting with the majority will
nonetheless be bound by the majority vote.
. Mergers and Consolidations. The Partnership Agreement
prohibits the General Partners from initiating any
transaction wherein the Partnership is merged or
consolidated with any other partnership or corporation,
and the General Partners are not authorized to merge or
consolidate the Partnership with any other partnership or
corporation unless such action is approved by Limited
Partners owning a majority of the Units.
. Restrictions on Transferability of Units. While the
Partnership Agreement does allow certain transfers, there
are a number of
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significant restrictions on the transferability of Units,
including: (a) securities laws restrictions, (b) the
application of suitability standards to the proposed
transferees of Units, (c) restrictions regarding the
potential of the Partnership becoming a "publicly traded
partnership" (generally a partnership whose interests are
publicly traded or frequently transferred), and (d)
restrictions regarding potential termination of the
Partnership for tax purposes. No public market for the
Units currently exists or is expected to develop.
For a more detailed discussion concerning the terms of the
Partnership Agreement, please refer to the "SUMMARY OF
PARTNERSHIP AGREEMENT" section of this Prospectus. All
statements made herein and elsewhere in this Prospectus are
qualified in their entirety by reference to the Partnership
Agreement which is set forth in its entirety as Exhibit "B"
to this Prospectus.
GLOSSARY: Certain terms which have initial capital letters in this
Prospectus are defined under the caption "GLOSSARY."
RISK FACTORS
The purchase of Units involves a number of risk factors. In addition to the
factors set forth elsewhere in this Prospectus, prospective investors should
consider specifically the following:
INVESTMENT RISKS
LIMITED TRANSFERABILITY AND LACK OF LIQUIDITY OF THE UNITS. Except for
intra-family transfers by gift or inheritance, the Units have limited
transferability, including transfer limitations under the provisions of the
Partnership Agreement relating to the Repurchase Reserve. The Partnership and
certain state regulatory agencies have imposed certain restrictions relating to
the number of Units which may be transferred by a Limited Partner and, with the
exception of intra-family transfers or transfers made by gift, inheritance or
family dissolution, the suitability standards applied to initial purchasers of
the Units may also be applied to assignees as a condition to their substitution
as Limited Partners. It is not anticipated that a public trading market will
develop for the Units and, in fact, the Partnership Agreement restricts the
ability of the Partnership to participate in a public trading market or the
substantial equivalent thereof. Specifically, the Partnership Agreement
provides that any transfer which may cause the Partnership to be classified as a
"publicly traded partnership" shall be deemed void and shall not be recognized
by the Partnership. Because of the fact that the classification of the
Partnership as a "publicly traded partnership" would significantly decrease the
value of the Units, the General Partners intend to exercise fully their rights
to prohibit transfers of Units which could cause the Partnership to be
classified as a "publicly traded partnership." Limited Partners may not,
therefore, be able to liquidate their investment in the event of an emergency,
and the Units may not be readily accepted as collateral for a loan.
Consequently, Units in the Partnership should be considered only as a long-term
investment. (See "SUMMARY OF PARTNERSHIP AGREEMENT--Transferability of
Units.")
RISKS REGARDING RELIANCE ON THE GENERAL PARTNERS. All decisions with
respect to the management of the Partnership will be made exclusively by the
General Partners. The Limited Partners will have no right or power to take part
in the management of the Partnership except through the exercise of their voting
rights, which are limited. The General Partners may be removed under certain
conditions, as set forth in the Partnership Agreement, subject to their receipt
of payment equal to the fair market value of their interests in the Partnership.
(See "SUMMARY OF PARTNERSHIP AGREEMENT.")
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RISKS RELATING TO CONFLICTS OF INTEREST. The Partnership will be subject to
various conflicts of interest arising out of its relationship with the General
Partners and their Affiliates. The General Partners of the Partnership are Leo
F. Wells, III and Wells Partners, L.P., a Georgia limited partnership having
Wells Capital, Inc., a Georgia corporation, as its sole general partner. Leo F.
Wells, III owns all of the outstanding capital stock of Wells Real Estate Funds,
Inc., a Georgia corporation which owns all of the outstanding capital stock of
Wells Capital, Inc., Wells Investment Securities, Inc. (the Dealer Manager) and
Wells Management Company, Inc. (the Property Manager). The General Partners and
their Affiliates are also general partners and sponsors of other real estate
limited partnerships and programs having investment objectives and legal and
financial obligations similar to those of the Partnership. As a result of the
General Partners and their Affiliates having interests in other partnerships and
programs, and the fact that they engage in other business activities, the
General Partners and their Affiliates will have conflicts of interest in
allocating their time between the Partnership and the other activities in which
they are involved. The Partnership may be in the market for properties at the
same time as one or more of such other partnerships and programs are in the
market for similar properties. In addition, the Partnership may acquire
properties in geographic areas where the General Partners and their Affiliates
own properties resulting in a potential conflict of interest whereby the
Partnership and another program managed by the General Partners or their
Affiliates are competing for the same tenants in negotiating leases or selling
similar properties at the same time. (See "CONFLICTS OF INTEREST" and
"MANAGEMENT.")
LIMITED AND ILLIQUID NET WORTH OF THE GENERAL PARTNERS. The General
Partners have represented that, as of August 31, 1997, they have a combined net
worth on an estimated fair market value basis in excess of $3,308,000 (exclusive
of home, automobiles and home furnishings). When the net worth of Wells
Partners is calculated on a generally accepted accounting principles (GAAP)
basis (i.e., Wells Partners' investments are valued at cost instead of estimated
fair market value) as of August 31, 1997, the combined net worth of the General
Partners is approximately $2,268,000. The net worth of the General Partners,
however, consists primarily of interests in real estate and interests in
retirement plans and closely-held businesses, and thus such net worth is
substantially illiquid and not readily marketable. The limited net worth of the
General Partners and illiquid nature of such net worth, together with the other
commitments of the General Partners, may be relevant in evaluating the ability
of the General Partners to fulfill their financial obligations and
responsibilities to the Partnership, including but not limited to, the General
Partners' obligation to advance on an interest-free basis an amount of up to 1%
of Gross Offering Proceeds for maintenance and repairs of Partnership Properties
to the extent that the Partnership has insufficient funds for such purposes.
Such commitments include those relating to other real estate programs which have
been formed in the past and other real estate programs which the General
Partners may organize in the future. (See "CONFLICTS OF INTEREST--Interests in
Other Partnerships," "PRIOR PERFORMANCE SUMMARY" and "MANAGEMENT.")
LIMITATIONS OF RIGHTS OF THE LIMITED PARTNERS. The Partnership is a
limited partnership formed under the Georgia Revised Uniform Limited Partnership
Act ("GRULPA"), and accordingly, the rights of the Limited Partners are limited
to rights provided either under GRULPA or contained in the Partnership
Agreement. In this regard, the Partnership Agreement provides that Limited
Partners owning a majority of the outstanding Units may exercise certain voting
rights, including the right to amend the Partnership Agreement, to change the
business purpose or investment objectives of the Partnership, to remove the
General Partners, or to authorize a merger or a consolidation of the Partnership
under certain circumstances. Because Limited Partners owning a majority of the
Units may approve any of the foregoing actions, Limited Partners not voting with
the majority will nonetheless be bound by the majority vote. (See "SUMMARY OF
LIMITED PARTNERSHIP AGREEMENT.")
POSSIBLE LACK OF DIVERSIFICATION RESULTING FROM SUBSCRIPTIONS FOR LESS THAN
THE MAXIMUM NUMBER OF UNITS. To the extent that less than the maximum number
of Units are sold, the diversification of the Partnership's investments will be
decreased and the extent to which the Partnership's profitability will be
affected by any one of its investments will increase. For example, in the event
that the gross proceeds from the Offering of Units of the Partnership total only
$1,250,000 (the minimum amount needed for the Partnership to release initial
funds from escrow and commence operations), the Partnership may acquire an
interest in only one property and, therefore,
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would not achieve diversification of its investments. Lack of diversification of
the Partnership's investments will have the effect of increasing the risks
associated with an investment in the Units.
POTENTIAL CONFLICT RELATING TO THE GENERAL PARTNERS' RIGHT TO PURCHASE
UNITS. Pursuant to the terms of the Offering, the General Partners or their
Affiliates may purchase Units for their own account. In addition, as set forth
above, the General Partners have broad discretion in choosing between
investments in various types of income-producing and non-income-producing
properties, which will affect the relative performance between the Class A
Status Units and the Class B Status Units. Units acquired and held by the
General Partners or their Affiliates shall at all times be treated as Class A
Status Units. Accordingly, in the event the General Partners or their
Affiliates do purchase Units, they would then have an incentive to acquire
properties which would produce more favorable results for the Class A Status
Units, which could adversely affect Limited Partners electing Class B Status for
their Units. (See "INVESTMENT OBJECTIVES AND CRITERIA" and "PLAN OF
DISTRIBUTION.")
RESTRICTIONS AND LIMITATIONS ON REPURCHASE RESERVE. The Partnership may
establish a Repurchase Reserve of up to 5% of Cash Flow annually, whereby the
Partnership may, in the sole discretion of the General Partners and upon the
request of a Limited Partner, repurchase the Units held by such Limited Partner.
The Repurchase Reserve may be established only after the expiration of one year
following the termination of the Offering, and if established, the Repurchase
Reserve may be terminated at any time in the sole discretion of the General
Partners. Since the establishment of a Repurchase Reserve is in the sole
discretion of the General Partners, the Partnership is under no obligation to
establish a Repurchase Reserve or to repurchase Units from any Limited Partner.
In addition, even if a Repurchase Reserve is established, the Partnership
Agreement limits repurchases out of the Repurchase Reserve to an aggregate of
not more than 2% of Gross Offering Proceeds throughout the life of the
Partnership (excluding repurchases relating to death or legal incapacity of the
owner and repurchases relating to a substantial reduction in the owner's net
worth or income). Accordingly, in considering an investment in the Partnership,
prospective investors should not assume that they will be able to sell any of
their Units back to the Partnership. However, in the event that the Partnership
does establish a Repurchase Reserve, the purchase price per Unit will be equal
to 85% of the fair market value of the Units until three years from the
effective date of the Registration Statement and 90% of the fair market value of
the Units thereafter. Fair market value will be determined by the General
Partners based upon an estimate of the amount the Limited Partners would receive
if the Partnership's real estate investments were sold for their estimated value
and if such proceeds were distributed in a liquidation of the Partnership.
Accordingly, Limited Partners liquidating their Units by selling them back to
the Partnership may receive less than they would receive if the Partnership's
real estate investments were sold for their estimated value and such proceeds
were distributed in a liquidation of the Partnership. (See "SUMMARY OF
PARTNERSHIP AGREEMENT--Repurchase of Units.")
POTENTIAL LIABILITY OF LIMITED PARTNERS. A Limited Partner's liability, in
general, will be limited to the amount he agrees to contribute to the capital of
the Partnership plus his share of any undistributed profits and assets. While
GRULPA provides that Limited Partners would retain their limited liability even
if they exercise their rights under the Partnership Agreement, including without
limitation, the right to vote on certain matters such as the right to remove
General Partners and elect successor general partners, this provision of GRULPA
has not yet been interpreted by a court, and accordingly, no assurance can be
given that courts will ultimately uphold the limited liability of Limited
Partners in this regard. (See "SUMMARY OF PARTNERSHIP AGREEMENT--Voting Rights
of the Limited Partners.")
OFFERING PRICE ARBITRARILY ESTABLISHED. The selling price of the Units
offered hereby was determined arbitrarily by the General Partners and bears no
relationship to any established criteria for valuing issued or outstanding units
of limited partnership interest or other ownership interests at the present
time.
RISKS RELATING TO MANAGEMENT COMPENSATION. The General Partners and their
Affiliates will perform services for the Partnership in connection with the
offer and sale of Units, the selection and acquisition of the Partnership's
properties, and the management and leasing of the Partnership's properties, and
will receive substantial
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compensation from the Partnership in consideration for these services. Such
compensation includes (i) Acquisition and Advisory Fees in a maximum amount of
up to $1,050,000, (ii) reimbursement of Organizational and Offering Expenses in
a maximum amount of up to $1,050,000, and (iii) Selling Commissions and dealer
manager fees in the maximum amount of up to $3,325,000, a majority of which will
be reallowed to unrelated broker-dealers participating in the Offering. The
foregoing does not include all of the compensation to be paid to the General
Partners and their Affiliates. For a complete description of such compensation,
see "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES" on page 30 of this
Prospectus. The amount of such compensation has not been determined in arm's-
length negotiations, and such amounts will be payable regardless of the quality
of services provided to the Partnership and prior to any distributions to
Limited Partners. (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES" and
"CONFLICTS OF INTEREST.")
RISKS RELATING TO THE AVAILABILITY AND TIMING OF CASH DISTRIBUTIONS. There
is no assurance as to when or whether sufficient cash will be available for
distributions to the Limited Partners from either Net Cash From Operations or
Sale Proceeds. The Partnership bears all expenses incurred in its operations,
which are deducted from cash funds generated by operations prior to computing
the amount of Net Cash From Operations to be distributed to the General and
Limited Partners. In addition, the General Partners, in their discretion, may
retain any portion of such funds for working capital purposes of the
Partnership. Although gains from the sales of properties typically represent a
substantial portion of any profits attributable to a real estate investment,
there can be no assurance as to the ability of the Partnership to realize gains
on the resales of its properties, and, in any event, distribution of such
proceeds should not be expected to occur during the early years of Partnership
operations. Sales of properties developed by the Partnership generally will not
occur until after completion of the development and construction of the
properties and a period of ownership of at least ten years thereafter. Further,
receipt of the full proceeds of such sales may be extended over a substantial
period of time following the sales. In addition, the amount of taxable gain
allocated to a Limited Partner with respect to the sale of a Partnership
Property could exceed the cash proceeds received from such sale. While Sale
Proceeds will generally be distributed to Partners, Sale Proceeds need not be
distributed to the Partners if such proceeds are, in the discretion of the
General Partners, (i) used to purchase land underlying any of the Partnership's
Properties, (ii) used to buy out the interest of any co-venturer or joint
venture partner in a property which is jointly owned, (iii) held as working
capital reserves, or (iv) used to make capital improvements in existing
Partnership Properties. Notwithstanding the foregoing, reinvestment of Sale
Proceeds will not occur unless sufficient cash will be distributed to pay any
federal or state income tax (assuming Limited Partners will be subject to a 35%
combined federal and state tax bracket) created by the sale of the property.
(See "INVESTMENT OBJECTIVES AND CRITERIA--Disposition Policies" and "FEDERAL
INCOME TAX CONSEQUENCES--Sales of Partnership Properties.")
RISK OF LACK OF SOURCES FOR FUNDING OF FUTURE CAPITAL NEEDS. As the
Partnership raises capital from investors, substantially all of the gross
proceeds of the Offering will be used for investment in Partnership Properties
and for payment of various fees and expenses. (See "ESTIMATED USE OF
PROCEEDS.") In addition, it is not anticipated that the Partnership will
maintain any permanent working capital reserves. Accordingly, in the event that
the Partnership develops a need for additional capital in the future for the
improvement of its properties or for any other reason, no sources for such
funding have been identified, and no assurance can be made that such sources of
funding will be available to the Partnership for potential capital needs in the
future.
RISKS RELATING TO JOINT VENTURES. The Partnership is likely to enter into
one or more joint ventures with Affiliated entities for the acquisition,
development or improvement of properties. In this regard, the Partnership may
enter into joint ventures with Prior Wells Public Programs, future real estate
programs or other publicly registered entities sponsored by the General Partners
or their Affiliates. The Partnership may purchase and develop properties in
joint ventures or in partnerships, co-tenancies or other co-ownership
arrangements with Affiliates of the General Partners, the sellers of the
properties, affiliates of the sellers, developers or other persons. Such
investments may involve risks not otherwise present, including, for example, the
possibility that the Partnership's co-venturer, co-tenant or partner in an
investment might become bankrupt, that such co-venturer, co-tenant or partner
may at any time have economic or business interests or goals which are or which
become inconsistent with
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the business interests or goals of the Partnership, or that such co-venturer,
co-tenant or partner may be in a position to take action contrary to the
instructions or the requests of the Partnership or contrary to the Partnership's
policies or objectives. Actions by such a co-venturer, co-tenant or partner
might have the result of subjecting the property to liabilities in excess of
those contemplated and may have the effect of reducing returns to Limited
Partners. In addition, the General Partners and their Affiliates are currently
also sponsoring a public offering on behalf of Wells Real Estate Investment
Trust, Inc. (the "Wells REIT"), an unspecified real estate program which intends
to qualify as a real estate investment trust. (See "PRIOR PERFORMANCE SUMMARY.")
In the event that the Partnership enters into a joint venture with the Wells
REIT, certain additional risks and potential conflicts of interest may arise.
For example, upon becoming listed on a securities exchange, the Wells REIT will
automatically become a perpetual life entity, which may no longer have similar
goals and objectives with respect to the resale of properties in the future. In
addition, in the event that the Wells REIT is not listed on a securities
exchange within ten years, the organizational documents of the Wells REIT
provide for an immediate orderly liquidation of its assets, in which event any
joint venture between the Partnership and the Wells REIT may also be required to
sell its properties at such time notwithstanding the fact that the General
Partners might not otherwise desire to do so. Although the terms of any joint
venture agreement between the Partnership and the Wells REIT would grant the
Partnership a right of first refusal to buy such properties, it is unlikely that
the Partnership would have sufficient funds to exercise its right of first
refusal under these circumstances. Further, since there is no requirement that
any joint venture partner, co-tenant or other co-owner of properties purchased
jointly with the Partnership be subject to a custodial agency agreement, such
investments may not be afforded the same protections as investments in
properties made directly by the Partnership or in joint ventures with Affiliates
of the General Partners. Under certain joint venture arrangements, neither co-
venturer may have the power to control the venture, and an impasse could be
reached regarding matters pertaining to the joint venture, possibly
detrimentally impacting the success of the joint venture and decreasing
potential returns to Limited Partners. In the event a co-venturer has a right of
first refusal to buy out the other co-venturer, it may be unable to finance such
buy-out at that time. It may also be difficult for the Partnership to sell its
interest in any such joint venture or partnership or as a co-tenant in property.
In addition, to the extent that the Partnership's co-venturer or partner is an
Affiliate of the General Partners, certain conflicts of interest will exist.
(See "CONFLICTS OF INTEREST--Joint Ventures with Affiliates of the General
Partners.")
RISKS RELATING TO ACQUISITION OF PROPERTIES FROM WELLS DEVELOPMENT
CORPORATION. The Partnership may enter into one or more contracts, either
directly or indirectly through joint ventures with Affiliates, to acquire real
property from Wells Development Corporation, an Affiliate of the General
Partners ("Wells Development"). The properties to be acquired from Wells
Development would be either existing income-producing properties or properties
to be developed or under development. It is anticipated that contracts to
acquire properties between the Partnership and Wells Development will obligate
the Partnership to pay a substantial earnest money deposit at the time of
contracting and, in the case of properties to be developed by Wells Development,
would require the Partnership to close the purchase of the property upon
completion of the development of the property by Wells Development and the
tenant taking possession of the property. At the time of contracting and the
payment of the earnest money deposit by the Partnership, Wells Development will
not have acquired title to any real property, but will have only a contract to
acquire land, development agreements to develop a building on the land, and an
agreement with a tenant to lease the property upon its completion. The
Partnership may enter into such a contract notwithstanding the fact that at the
time of contracting the Partnership has not yet raised sufficient proceeds in
its Offering to enable it to close the purchase of such property. In the event
that Wells Development fails to develop the property or the tenant fails to take
possession under its lease for any reason, or in the event that the Partnership
is unable to raise sufficient proceeds in its Offering to pay the purchase price
at closing, the Partnership would not be required to close, and Wells
Development would be obligated to refund the amount of the earnest money deposit
to the Partnership. Such obligation is unsecured, however, and it is unlikely
that the Partnership would be able to collect its earnest money deposit from
Wells Development under such circumstances since Wells Development is a newly
formed entity without substantial assets or operations. Although Wells
Development's obligation to refund the earnest money deposit to the Partnership
under such circumstances will be guaranteed by Wells Management Company, Inc.,
an Affiliated entity ("Wells Management"), Wells Management has no substantial
assets other than
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contracts for property management and leasing services pursuant to which it
receives substantial monthly fees and, therefore, there are no assurances that
Wells Management would be able to refund to the Partnership all of the earnest
money deposit in a lump sum. If the Partnership were forced to collect its
earnest money deposit by enforcing the guaranty of Wells Management, it is
likely that the Partnership would be required to accept installment payments
over time from Wells Management out of the revenues of Wells Management's
property management and leasing operations. There is no assurance that the
Partnership would be able to collect the entire amount of its earnest money
deposit under such circumstances. (See "INVESTMENT OBJECTIVES AND CRITERIA--
Acquisition of Properties from Wells Development Corporation.")
SPECIAL RISKS REGARDING CLASSES OF UNITS
SPECIAL RISKS RELATING TO AN ELECTION OF CLASS A STATUS UNITS. Since
holders of Class A Status Units will be allocated substantially all of the
Partnership's net income, while substantially all deductions for depreciation,
amortization, cost recovery and net losses will be allocated to holders of Class
B Status Units, it is expected that Limited Partners holding Class A Status
Units will be allocated taxable income in excess of distributions of cash flow
from operations received. However, while there is no assurance that cash flow
will be available for distribution to Class A Limited Partners in any year,
based upon the cash distributions and taxable income allocations to Class A
Limited Partners in Prior Wells Public Programs, the General Partners expect
that cash distributions to Limited Partners holding Class A Status Units will be
sufficient to cover the income tax liability resulting from allocations of
taxable income of the Partnership. In addition, potential investors who plan to
elect Class A Status for their Units should be aware that, in the event that the
Partnership sells substantially more Class A Status Units than Class B Status
Units, Limited Partners purchasing Class A Status Units in the Partnership may
not receive appreciably greater cash flow distributions from the Partnership due
to the capital raised from the sale of Class B Status Units. There are no
restrictions as to the mix between Class A Status Units and Class B Status
Units, and the General Partners will not attempt to establish or maintain any
particular ratio between Class A Status Units and Class B Status Units.
SPECIAL RISKS RELATING TO AN ELECTION OF CLASS B STATUS UNITS. Potential
investors who plan to elect Class B Status for their Units should be aware that
they will not receive any distributions of cash flow from operations from the
Partnership. Further, although Limited Partners holding Class B Status Units
will be allocated a disproportionately larger share of the Partnership's
deductions for depreciation, amortization, cost recovery and net losses, all
such losses will be treated as "passive" losses, which may only be used to
offset "passive" income and may not be used to offset active or portfolio
income. Accordingly, a Class B Status Limited Partner's pro rata share of the
Partnership's passive losses may have no current benefit to such Class B Status
Limited Partner unless he is being allocated passive income from other sources
with respect to such year. Further, there are no assurances that any such
losses will be available to be allocated to Class B Status Limited Partners.
EFFECT OF UNSPECIFIED NATURE OF OFFERING ON RELATIVE PERFORMANCE OF CLASS A
STATUS UNITS AND CLASS B STATUS UNITS. As set forth above, the General
Partners have not identified any properties in which there is a reasonable
probability that the Partnership will invest. In addition, the General Partners
have broad discretion in choosing between investments in various types of
income-producing and non-income-producing properties, which will have an effect
on the relative performance between Class A Status Units and Class B Status
Units. It is anticipated that holders of Class A Status Units would potentially
benefit to a greater extent than holders of Class B Status Units if the majority
of the Partnership's investments are in properties which generate relatively
high cash flows but have lower potential for appreciation; conversely, a greater
percentage of investments in properties generating less current cash flow but
having greater potential for appreciation in value may benefit holders of Class
B Status Units to a greater extent than holders of Class A Status Units. The
unspecified nature of the Offering may impair the ability of investors to make
an informed decision as to whether to elect Class A Status or Class B Status in
light of the different features of Class A Status Units and Class B Status
Units. (See "INVESTMENT OBJECTIVES AND CRITERIA.")
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RISKS REGARDING INDETERMINATE RATIO OF CLASS A STATUS UNITS TO CLASS B
STATUS UNITS. Class A Status Units and Class B Status Units each entitle the
holder thereof to different rights and priorities as to allocation of
depreciation, amortization and cost recovery deductions and as to Net Cash From
Operations. However, the effect of any advantage associated with the election of
Class A Status or Class B Status may be significantly reduced (or eliminated),
depending upon the ratio of Class A Status Units to Class B Status Units
outstanding during any given period. There are no restrictions as to the mix of
Class A Status Units to Class B Status Units, and the General Partners will not
attempt to establish or maintain any particular ratio. Therefore, there can be
no assurance as to the actual impact of the special rights and priorities to
which holders of the two classes of Units are respectively entitled.
REAL ESTATE RISKS
FLUCTUATING FINANCIAL PERFORMANCE OF PREVIOUSLY SPONSORED PARTNERSHIPS.
The real properties in which partnerships previously sponsored by the General
Partners and their Affiliates have invested have experienced the same economic
problems as other real estate investments in recent years, including without
limitation, general over-building and an excess of supply in many markets, along
with increased operating costs and a general downturn in the real estate
industry. The historical fluctuations in net income of partnerships previously
sponsored by the General Partners and their Affiliates were primarily due to
tenant turnover, resulting in increased vacancies and the requirement to expend
funds for tenant refurbishments, and increases in administrative and other
operating expenses. Specifically, certain of the prior public partnerships
suffered decreases in net income during the real estate recession of the late
1980s and early 1990s, which decreases were generally attributable to the
overall downturn in the economy and in real estate markets in particular.
Because of the cyclical nature of the real estate market, such decreases in net
income of the public partnerships could occur at any time in the future when
economic conditions decline. None of these prior programs has liquidated or
sold any of its real properties to date and, accordingly, no assurance can be
made that prior programs will ultimately be successful in meeting their
investment objectives. There are no assurances that properties acquired by the
Partnership will not also experience fluctuating financial performance. (See
"PRIOR PERFORMANCE SUMMARY" and the "PRIOR PERFORMANCE TABLES" included in
Exhibit "A" hereto.)
POTENTIAL ADVERSE ECONOMIC AND REGULATORY CHANGES. The Partnership will be
subject to risks generally incident to the ownership of real estate, including
changes in general economic or local conditions, changes in supply of or demand
for similar or competing properties in an area, changes in interest rates and
availability of permanent mortgage funds which may render the sale of a property
difficult or unattractive, and changes in tax, real estate, environmental and
zoning laws. Periods of high interest rates and tight money supply may make the
sale of properties more difficult. For these and other reasons, no assurance of
profitable operation or realization of gains from the sales of Partnership
Properties can be given.
RISKS RELATING TO BLIND POOL OFFERINGS. This offering is commonly referred
to as a "blind pool" offering in that the General Partners have not identified
any properties in which there is a reasonable probability that the Partnership
will invest. Investors must rely upon the ability of the General Partners with
respect to the investment and management of the unspecified properties and will
not have an opportunity to evaluate for themselves the relevant economic,
financial and other information regarding the specific properties in which the
proceeds of this Offering will be invested. Accordingly, the risk of investing
in the Units may be increased. While the Partnership is required to obtain an
independent appraisal for each property purchased reflecting an appraised value
at least equal to the purchase price paid for such property, it should be noted
that appraisals are merely estimates of value and should not be relied upon as
precise measures of true worth or realizable value. No assurance can be given
that the Partnership will be successful in obtaining suitable investments or
that, if investments are made, the objectives of the Partnership will be
achieved.
RISKS REGARDING DEVELOPMENT AND CONSTRUCTION OF UNIMPROVED PROPERTIES. The
Partnership may invest some or all of the net proceeds available for investment
in the acquisition and development of properties upon which
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it will develop and construct improvements at a fixed contract price, provided
that the Partnership may not invest more than 15% of the net offering proceeds
available for Investment in Properties in properties which are not expected to
produce income within two years of their acquisition. In this regard, the
Partnership will be subject to risks relating to the builder's ability to
control construction costs or to build in conformity with plans, specifications
and timetables. The builder's failure to perform may necessitate legal action by
the Partnership to rescind its purchase or the construction contract or to
compel performance. Performance may also be affected or delayed by conditions
beyond the builder's control. Delays in completion of construction could also
give lessees the right to terminate preconstruction leases for space at a newly
developed project. Additional risks may be incurred where the Partnership makes
periodic progress payments or other advances to such builders prior to
completion of construction. However, the Partnership will make such payments
only after having received a certification from an independent architect or an
independent engineer, or both, as to the percentage of the project which has
been completed and as to the dollar amount of the construction then completed.
Factors such as those discussed above can result in increased costs of a project
and a corresponding depletion of the Partnership's working capital reserves or
loss of the Partnership's investment. In addition, the Partnership will be
subject to normal lease-up risks relating to newly constructed projects.
Furthermore, the price to be paid for a property upon which improvements are to
be constructed or completed, which price is normally agreed upon at the time of
acquisition, of necessity must be based upon projections of rental income and
expenses or fair market value of the property upon completion of construction
which are not certain until after a number of months of actual operation.
RISKS RESULTING FROM COMPETITION FOR INVESTMENTS. The Partnership will
experience competition for real property investments from individuals,
corporations and bank and insurance company investment accounts, as well as
other real estate investment partnerships, real estate investment trusts and
other entities engaged in real estate investment activities. Competition for
investments may have the effect of increasing costs and reducing returns to
Limited Partners.
POTENTIAL ADVERSE EFFECTS OF DELAYS IN INVESTMENTS. Delays which may take
place in the selection, acquisition and development of properties could
adversely affect the return to an investor as a result of corresponding delays
in the commencement of distributions to Limited Partners holding Class A Status
Units and in the availability to the holders of Class B Status Units of income
tax deductions for depreciation, amortization and cost recovery. Also, where
properties are acquired prior to the commencement of construction or during the
early stages of construction, it will typically take several months to complete
construction and rent available space.
UNCERTAINTY OF TIMING OF AND MARKET CONDITIONS ON FUTURE DISPOSITION OF
PROPERTIES. The Partnership generally will hold the various real properties in
which it invests until such time as the General Partners determine that the sale
or other disposition appears to be advantageous to achieve the Partnership's
investment objectives or until it appears that such objectives will not be met.
The General Partners intend to sell properties acquired for development after
holding such properties for a minimum period of ten years from the date the
development is completed, and intend to sell existing income-producing
properties within ten to twelve years after their acquisition, or as soon
thereafter as market conditions permit. However, the General Partners may
exercise their discretion as to whether and when to sell a property, and the
Partnership will have no obligation to sell properties at any particular time,
except in the event that Limited Partners holding a majority of the Units vote
to liquidate the Partnership in response to a formal proxy to liquidate. (See
"SUMMARY OF PARTNERSHIP AGREEMENT--Proxy to Liquidate.") It is impossible to
predict with any certainty the various market conditions affecting real estate
investments which will exist at any particular time in the future. Due to the
uncertainty of market conditions which may affect the future disposition of the
Partnership's properties, there are no assurances that the Partnership will be
able to sell its properties at a profit in the future. Accordingly, the timing
of liquidation of the Partnership and the extent to which Limited Partners will
receive cash distributions and realize potential appreciation on real estate
investments will be dependent upon fluctuating market conditions.
ENVIRONMENTAL MATTERS. Under various federal, state and local
environmental laws, ordinances and regulations, a current or previous owner or
operator of real property may be liable for the cost of removal or
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remediation of hazardous or toxic substances on, under or in such property. Such
laws often impose liability whether or not the owner or operator knew of, or was
responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property
may be used or businesses may be operated, and these restrictions may require
expenditures. Environmental laws provide for sanctions in the event of
noncompliance and may be enforced by governmental agencies or, in certain
circumstances, by private parties. In connection with the acquisition and
ownership of the Partnership Properties, the Partnership may be potentially
liable for such costs. The cost of defending against claims of liability, of
compliance with environmental regulatory requirements or of remediating any
contaminated property could materially adversely affect the business, assets or
results of operations of the Partnership and, consequently, amounts available
for distribution to the Limited Partners.
FEDERAL INCOME TAX RISKS
An investment in Units involves certain material income tax risks, the
character and extent of which are, to some extent, a function of whether an
investor elects Class A Status or Class B Status. Each prospective purchaser of
Units is urged to consult with his own tax advisor with respect to the federal
(as well as state and foreign) tax consequences of an investment in either class
of Units. The Partnership will not seek any rulings from the Internal Revenue
Service (the "IRS") regarding any of the tax issues discussed herein. Although,
as described in the "FEDERAL INCOME TAX CONSEQUENCES" section of this
Prospectus, the Partnership has obtained an opinion from Holland & Knight LLP
("Counsel") regarding the material federal income tax issues relating to an
investment in the Partnership (the "Tax Opinion"), investors should be aware
that an opinion of Counsel represents only Counsel's best legal judgment. The
Tax Opinion has no binding effect on the IRS or any court, is based upon
representations and assumptions referred to therein and is conditioned upon the
existence of certain facts. No assurance can be given that the conclusions
reached in the Tax Opinion, if contested, would be sustained by any court. In
addition, as set forth below, Counsel in the Tax Opinion is unable to form an
opinion as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided. Moreover, Counsel in the Tax Opinion gives no opinion
or conclusion as to the tax consequences to Limited Partners with regard to tax
issues which impact at the individual or partner level. Accordingly, potential
investors are urged to consult with and rely upon their own tax advisors with
respect to tax issues which impact at the partner or individual level. (For a
more complete discussion of the tax risks and tax consequences associated with
an investment in the Partnership, see "FEDERAL INCOME TAX CONSEQUENCES.")
RISK OF FAILURE OF COUNSEL TO FORM AN OPINION ON CERTAIN MATERIAL TAX
ISSUES. As set forth above, Counsel in the Tax Opinion is unable to form an
opinion as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided, including (i) the deductibility of and timing of
deductions for certain payments made by the Partnership, (ii) the issue of
whether the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of business, and (iii)
whether the Partnership will be classified as a "tax shelter" for purposes of
determining certain potential exemptions from the applicability of the accuracy-
related penalty provisions of the Code. An adverse outcome of an IRS challenge
to one or more of the foregoing material tax issues attributable to the
transactions contemplated by the Partnership could have the effect of reducing
returns to Limited Partners from an investment in the Partnership.
POTENTIAL ADVERSE INCOME TAX EFFECTS RELATING TO LIMITED PARTNERS HOLDING
CLASS A STATUS UNITS. Since items of depreciation, amortization and cost
recovery will be specially allocated to Limited Partners holding Class B Status
Units, and Partnership Net Income (defined in the Partnership Agreement to mean
generally the net income of the Partnership for federal income tax purposes,
including any income exempt from tax, but excluding all deductions for
depreciation, amortization and cost recovery and Gain on Sale) in excess of the
amount of Net Cash From Operations distributed will be allocated to the Limited
Partners on a per Unit basis, Limited Partners holding Class A Status Units may
be allocated Net Income, and thus be subject to income tax liability, without
receiving any distributions of Net Cash From Operations from the Partnership.
Furthermore, it is likely that Limited Partners
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holding Class A Status Units will be allocated taxable Net Income in excess of
any distributions of Net Cash From Operations to such Limited Partners. Such
adverse income tax effects to Limited Partners holding Class A Status Units may
vary significantly depending on the ratio of Class A Status Units to Class B
Status Units outstanding. As set forth above, there are no restrictions as to
the mix of Class A Status Units to Class B Status Units, and the General
Partners will not attempt to establish or maintain any particular ratio.
POTENTIAL LOSS OF PARTNERSHIP TAX STATUS. Even though Counsel in the Tax
Opinion has given its opinion that it is more likely than not that the
Partnership will be classified as a partnership for federal income tax
purposes and not as an association taxable as a corporation, this opinion is
based upon certain representations made by the General Partners and other
matters, and it is possible that the IRS could challenge the conclusion that the
Partnership should be treated as a partnership for tax purposes. Any contest by
the Partnership of such an IRS determination may impose representation expenses
payable from Partnership funds otherwise available for investment or
distribution to Limited Partners. The ability to obtain the income tax
attributes anticipated from an investment in Units of the Partnership depends
upon the classification of the Partnership as a partnership for federal income
tax purposes and not as an association taxable as a corporation. If the
Partnership were reclassified as an association taxable as a corporation, its
net income would be taxable (at rates up to 35% under current tax law), all
items of income, gain, loss, deduction and credit would be reflected only on its
tax returns and would not be passed through to the Limited Partners, and
distributions to the Limited Partners would be treated as ordinary dividend
income to the extent of earnings and profits of the Partnership. In such event,
cash distributions to Limited Partners would be reduced and the potential tax
liability of Limited Partners with respect to distributions received from the
Partnership would be increased.
POTENTIAL PUBLICLY TRADED PARTNERSHIP CLASSIFICATION. Even though Counsel
in the Tax Opinion has given its opinion that it is more likely than not that
the Partnership will not be classified as a "publicly traded partnership"
(generally a partnership whose interests are publicly traded or frequently
transferred) based in part upon certain representations of the General Partners
and the provisions in the Partnership Agreement attempting to comply with
certain safe harbor provisions adopted by the IRS, due to the complex nature of
such safe harbor provisions and the lack of interpretive guidance with respect
to such provisions and because any determination in this regard will necessarily
be based upon future facts not yet in existence at this time, no assurances can
be given that the IRS will not challenge this conclusion in the future or that
the Partnership will not, at some time in the future, be treated as a publicly
traded partnership. Classification of the Partnership as a "publicly traded
partnership" could result in the Partnership being taxable as a corporation and
the treatment of net income of the Partnership as portfolio income rather than
passive income.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES. Provisions of the Code enacted as
part of the Tax Reform Act of 1986 limit the allowance of deductions for losses
attributable to "passive activities" (generally activities in which the taxpayer
does not materially participate). Since tax losses from the Partnership, if
any, allocated to Limited Partners holding Class B Status Units will be
characterized as passive losses, the deductibility of such losses will be
subject to these and other limitations.
POSSIBILITY OF IRS CHALLENGE TO ALLOCATIONS OF PROFIT AND LOSS. Even
though Counsel in the Tax Opinion has given its opinion that it is more likely
than not that Partnership items of income, gain, loss, deduction and credit will
be allocated among the General Partners and the Limited Partners substantially
in accordance with the allocation provisions of the Partnership Agreement, no
assurance can be given that the IRS will not successfully challenge the
allocations in the Partnership Agreement and reallocate items of income, gain,
loss, deduction and credit in a manner which reduces the anticipated tax
benefits to Limited Partners electing Class B Status or increases the income
allocated to Limited Partners electing Class A Status.
RISK OF POTENTIAL DEALER STATUS. In the event the Partnership were deemed
for tax purposes to be a "dealer" (one who holds property primarily for sale to
customers in the ordinary course of business) with respect to one or more
Partnership Properties, any gain recognized upon a sale of such real property
would be taxable as ordinary income and would constitute UBTI to Limited
Partners who are tax-exempt entities. Because the issue is dependent
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upon facts which will not be known until the time a property is sold or held for
sale, Counsel in the Tax Opinion is unable to render an opinion as to whether
the Partnership will be considered to hold any or all of its properties
primarily for sale to customers in the ordinary course of business.
POSSIBILITY OF DISALLOWANCE OF DEDUCTIBILITY OF FEES AND EXPENSES PAID BY
THE PARTNERSHIP. Disallowance by the IRS of any material portion of the fees
and expenses payable by the Partnership would result in an increase in the
taxable income of the Partnership allocable to its Partners with no associated
increase in Net Cash From Operations. Since the appropriate classification of
fees and expenses paid by the Partnership into proper categories and the
determination of whether certain fees and expenses are ordinary and necessary
and reasonable in amount depends upon facts relating to and existing at the
times the services are to be rendered to the Partnership, Counsel in the Tax
Opinion is unable to render an opinion as to the probable outcome if the IRS
were to challenge the deductibility or timing of deduction or amortization of
those fees and expenses.
RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS. A partner in a
partnership is required to report his allocable share of the partnership's
taxable income on his personal income tax return regardless of whether or not he
has received any cash distributions from the partnership. For example, a
Limited Partner electing Class A Status who participates in the Distribution
Reinvestment Plan will be allocated his share of the Partnership's Net Income
and Gain on Sale (including Net Income and Gain on Sale allocable to Units
acquired pursuant to the Distribution Reinvestment Plan) even though such
Partner would receive no cash distributions from the Partnership. In addition,
a Limited Partner electing Class A Status who purchases Units pursuant to the
Deferred Commission Option will be allocated his share of the Partnership's Net
Income with respect to such Units even though Net Cash From Operations otherwise
distributable to such Limited Partner will instead be paid to third parties to
satisfy the deferred commission obligations with respect to such Units for a
period of seven years after the termination of the Offering. (See "PLAN OF
DISTRIBUTION.")
RISKS REGARDING CHARACTERIZATION OF SALE-LEASEBACK TRANSACTIONS. In the
event that the Partnership enters into any sale-leaseback transaction which is
characterized as a financing, the Partnership would likely lose depreciation and
cost recovery deductions with respect to the property purchased and income
generated from such property would be deemed portfolio income which could not be
offset by passive losses. Although the General Partners will use their best
efforts to structure any such sale-leaseback transaction such that the lease
will be characterized as a "true lease" and the Partnership will be treated as
the owner of the property in question for federal income tax purposes, the
Partnership will not seek an advance ruling from the IRS or obtain an opinion of
counsel that it will be treated as the owner of any leased properties for
federal income tax purposes. Accordingly, no assurance can be given that any
such transaction would not be recharacterized as a financing transaction for
federal income tax purposes, which would have the result of depriving Limited
Partners holding Class B Status Units of potential deductions for depreciation
and cost recovery with respect to the property in question.
APPLICABILITY OF ANTI-ABUSE RULES. In December 1994, the IRS adopted
Regulations setting forth "anti-abuse" rules under Code provisions applicable to
partnerships which rules authorize the Commissioner of Internal Revenue to
recast transactions involving the use of partnerships to either reflect the
underlying economic arrangement or to prevent the use of a partnership to
circumvent the intended purpose of a provision of the Code. In this regard, the
General Partners are unaware of any facts or circumstances which would cause the
IRS to exercise its authority to recast any transaction entered into by the
Partnership; however, the applicability of such rules to the Partnership's
activities is very uncertain, and no assurance can be given that the
Commissioner would not, in the future, attempt to recast or restructure certain
of the Partnership's activities or transactions.
POTENTIAL APPLICATION OF ALTERNATIVE MINIMUM TAX. The application of the
alternative minimum tax to a Limited Partner could reduce certain tax benefits
associated with the purchase of Units in the Partnership. The effect of the
alternative minimum tax upon a Limited Partner depends upon his particular
overall tax situation, and each Limited Partner should consult with and must
rely upon his own tax advisor with respect to the possible application of the
alternative minimum tax provisions of the Code.
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AUDIT RISK, INTEREST AND PENALTIES. The federal income tax returns of the
Partnership may be audited by the IRS. In this regard, the Commissioner of
Internal Revenue has announced that increased emphasis is being placed on
partnership audit activities. Any audit of the Partnership could also result in
an audit of a Limited Partner's own tax return causing adjustments of items
unrelated to an investment in the Partnership, as well as an adjustment to
various Partnership items. In the event of any such adjustments, a Limited
Partner might incur attorneys' fees, court costs and other expenses contesting
protested deficiencies asserted by the IRS, in addition to interest on the
underpayment and certain penalties from the date the tax originally was due. In
addition, in the event of an audit, the tax treatment of all Partnership items
would be determined at the Partnership level in a single proceeding rather than
in separate proceedings with each Partner, and the General Partners are
primarily responsible for contesting federal income tax adjustments proposed by
the IRS. In this connection, the General Partners may extend the statute of
limitations as to all Partners and, in certain circumstances, may bind the
Limited Partners to a settlement with the IRS. In addition, in the event that
the General Partners cause the Partnership to elect to be treated as an
"Electing Large Partnership" under the newly enacted Taxpayer Relief Act of 1997
("TRA 97"), which would enable the Partnership to take advantage of simplified
flow-through reporting of partnership items, adjustments to partnership items
would continue to be determined at the Partnership level; however, such
adjustments would be accounted for in the year they take effect, rather than the
year to which such adjustments relate. To the extent that elections to change
the status of Units are made between the years in which a tax benefit is claimed
and an adjustment is made, holders of a particular class of Units may suffer a
disproportionate adverse impact with respect to any such adjustment. Further,
the General Partners will have the discretion in such circumstances either to
pass along adjustments to the Partners or to bear such adjustments at the
Partnership level, thereby potentially adversely impacting the holders of a
particular class of Units disproportionately to holders of the other class of
Units.
RISKS REGARDING STATE AND LOCAL TAXATION AND REQUIREMENTS TO WITHHOLD STATE
TAXES. The state in which a Limited Partner is a resident may impose an income
tax upon his share of taxable income of the Partnership. Further, states in
which the Partnership will own Partnership Properties may impose income taxes
upon a Limited Partner's share of the Partnership's taxable income allocable to
any Partnership Property located in that state. In addition, many states have
implemented or are implementing programs to require partnerships to withhold and
pay state income taxes owed by non-resident partners relating to income-
producing properties located in their states, and the Partnership may be
required to withhold state taxes from cash distributions otherwise payable to
Limited Partners. In the event the Partnership is required to withhold state
taxes from cash distributions otherwise payable to Limited Partners, the amount
of the Net Cash From Operations otherwise payable to such Limited Partners may
be reduced. In addition, such collection and filing requirements at the state
level may result in increases in the Partnership's administrative expenses which
would have the effect of reducing cash available for distribution to the Limited
Partners. Prospective Limited Partners are urged to consult with their own tax
advisors with respect to the impact of applicable state and local taxes and
state tax withholding requirements on an investment in the Partnership.
RISK OF LEGISLATIVE OR REGULATORY ACTION. In recent years, numerous
legislative, judicial and administrative changes have been made in the
provisions of the federal income tax laws applicable to investments similar to
an investment in Units in the Partnership. The Taxpayer Relief Act of 1997
("TRA 97"), which was enacted August 5, 1997, contained numerous provisions
affecting the real estate industry and the operations of partnerships such as
the Partnership. Such changes are likely to continue to occur in the future,
and no assurances can be given that any such changes will not adversely affect
the taxation of a Limited Partner. Any such changes could have an adverse
effect on an investment in Units in the Partnership or on the market value or
the resale potential of Partnership Properties. Each potential investor is
urged to consult with his own tax advisor with respect to the impact of TRA 97
on an investment in Units in the Partnership and the status of legislative,
regulatory or administrative developments and proposals and their potential
effect on an investment in the Units. It should also be noted that the Tax
Opinion assumes that no legislation will be enacted after the date of this
Prospectus which will be applicable to an investment in Units in the
Partnership.
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RISKS RELATING TO RETIREMENT PLAN INVESTORS
In considering an investment in Units of a portion of the assets of a
Retirement Plan, the plan fiduciary should consider applicable provisions of the
Code and the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), including in particular the following factors: (i) whether the
investment is made in accordance with the plan documents and instruments
governing such plan, including the plan's investment policy; (ii) whether the
investment satisfies the prudence and diversification requirements of Sections
404(a)(1)(B) and 404(a)(1)(C) of ERISA; (iii) whether the investment will result
in sufficient liquidity for the plan; (iv) the need to value the assets of the
plan annually; and (v) whether the investment would constitute a prohibited
transaction under Section 406 of ERISA or Section 4975 of the Code. For a more
complete discussion of the foregoing issues and other risks associated with an
investment in the Units by Retirement Plans, see "INVESTMENT BY TAX-EXEMPT
ENTITIES AND ERISA CONSIDERATIONS."
PLAN ASSETS RISK. While the General Partners do not intend that the assets
of the Partnership will be deemed to be assets of the Qualified Plans investing
as Limited Partners ("Plan Assets") and have used their best efforts to
structure the Partnership so that the assets of the Partnership will not be
deemed to be Plan Assets, in the event that the assets of the Partnership were
deemed to be Plan Assets, the General Partners would be considered to be plan
fiduciaries and certain contemplated transactions described herein may be deemed
to be "prohibited transactions" subject to excise taxation under the Code.
Additionally, if the assets of the Partnership were deemed to be Plan Assets,
the standards of prudence and other provisions of ERISA would extend (as to all
plan fiduciaries) to the General Partners with respect to investments made by
the Partnership. The Partnership has not requested an opinion of counsel
regarding whether or not the assets of the Partnership would constitute Plan
Assets under ERISA nor has it obtained or sought any rulings from the U.S.
Department of Labor regarding classification of the Partnership's assets as Plan
Assets. However, U.S. Department of Labor Regulations defining Plan Assets for
purposes of ERISA contain exemptions which, if satisfied, would preclude assets
of a limited partnership from being treated as Plan Assets. While there can be
no assurance that the Partnership Agreement and the Offering have been
structured so that the exemptions in such Regulations would apply to the
Partnership, the General Partners intend to use their best efforts to take such
actions as may be required to insure that the assets of the Partnership will not
be deemed to be Plan Assets. Accordingly, an investment by a Qualified Plan in
Units should not be deemed an investment in the assets of the Partnership, but
no representations or warranties of any kind can be made regarding the
consequences of an investment in Units by Qualified Plans in this regard. Plan
fiduciaries are urged to consult with and rely upon their own advisors with
respect to ERISA issues which, if decided adversely to the Partnership, could
result in prohibited transactions, the imposition of excise taxation and the
imposition of co-fiduciary liability under the provisions of ERISA in the event
of actions undertaken by the Partnership which are deemed to be non-prudent
investments or prohibited transactions. In the event the Partnership's assets
constitute Plan Assets or certain transactions of the Partnership constitute
"prohibited transactions" under ERISA or the Code and no exemption for such
transactions is obtainable by the Partnership, the General Partners have the
right, but not the obligation (upon notice to all Limited Partners, but without
the consent of any Limited Partner), to (i) terminate the Offering of Units,
(ii) compel a termination and dissolution of the Partnership or (iii)
restructure the Partnership's activities to the extent necessary to comply with
any exception in the Department of Labor Regulations or any prohibited
transaction exemption granted by the Department of Labor or any condition which
the Department of Labor might impose as a condition to granting a prohibited
transaction exemption. (See "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA
CONSIDERATIONS.")
RISKS RELATING TO MINIMUM DISTRIBUTION REQUIREMENTS. Any potential
investor who intends to purchase Units in his Individual Retirement Account
("IRA") and any trustee of an IRA or other fiduciary of a Retirement Plan
considering an investment in Units should consider particularly the limited
liquidity of an investment in the Units as it relates to applicable minimum
distribution requirements under the Code. If the Units are still held and the
Partnership Properties have not yet been sold at such time as mandatory
distributions are required to commence to an IRA beneficiary or Qualified Plan
participant, applicable provisions of the Code and Regulations will likely
require that a distribution in kind of the Units be made to the IRA beneficiary
or Qualified Plan participant. Any such distribution in kind of Units must be
included in the taxable income of the IRA beneficiary or Qualified Plan
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participant for the year in which the Units are received at the fair market
value of the Units without any corresponding cash distributions with which to
pay the income tax liability arising out of any such distribution.
UNRELATED BUSINESS TAXABLE INCOME ("UBTI"). The Partnership will under
no circumstances incur indebtedness to acquire Partnership Properties.
Accordingly, it is not intended or anticipated that the Partnership will
generate income derived from an unrelated trade or business, which is generally
referred to as "UBTI." Notwithstanding the foregoing, the General Partners have
limited authority to borrow funds deemed necessary to finance improvements to
protect capital previously invested in a property, to protect the value of the
Partnership's investment in a property, or to make a property more attractive
for sale or lease; however, the General Partners have represented that they will
not cause the Partnership to incur indebtedness unless the Partnership obtains
an opinion of counsel or an opinion from its tax accountants that the proposed
indebtedness more likely than not will not cause the income of the Partnership
to be characterized as UBTI. It should be noted, however, that any such opinion
will have no binding effect on the IRS or any court and, accordingly, although
the General Partners will use their best efforts to avoid characterization of
the Partnership's income as UBTI, some risk remains that the Partnership may
generate UBTI in connection with any such financing (or in the event that the
Partnership were deemed to be a "dealer" in real property (one who holds real
estate primarily for sale to customers in the ordinary course of business)).
(See "FEDERAL INCOME TAX CONSEQUENCES--Investment by Qualified Plans and Other
Tax-Exempt Entities.")
SUITABILITY STANDARDS
Investment in the Partnership involves some degree of risk. It may be
difficult to resell Units due to the restrictions on transferability contained
in the Partnership Agreement and because no public market for the Units
currently exists or is likely to develop. Investors who are able to sell their
Units at all will likely be able to sell such Units only at a discount. (See
"SUMMARY OF THE PARTNERSHIP AGREEMENT--Limited Transferability of Units.") In
addition, it is contemplated that properties to be purchased by the Partnership
will be held for at least ten years. Accordingly, the Units are suitable only
for persons who have adequate financial means and desire a relatively long-term
investment with respect to which they do not anticipate any need for immediate
liquidity. Further, because the Class A Status Units and the Class B Status
Units have different rights and priorities with respect to tax allocations and
cash distributions from operations and on sale of the Partnership Properties,
prospective investors should consider carefully the information set forth under
"DESCRIPTION OF THE UNITS" in determining whether to elect Class A Status or
Class B Status, or some combination of each, with respect to the Units to be
purchased.
If the investor is an individual (including an individual beneficiary of a
purchasing IRA), or if the investor is a fiduciary (such as a trustee of a trust
or corporate pension or profit sharing plan, or other tax-exempt organization,
or a custodian under a Uniform Gifts to Minors Act), such individual or
fiduciary, as the case may be, must represent that he meets certain
requirements, as set forth in the Subscription Agreement attached as Exhibit "C"
to this Prospectus, including the following:
(i) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the funds to
purchase the Units) has a minimum annual gross income of $45,000 and a net worth
(excluding home, furnishings and automobiles) of not less than $45,000; or
(ii) that such individual (or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the funds to
purchase the Units) has a net worth (excluding home, furnishings and
automobiles) of not less than $150,000.
Transferees will also be required to comply with applicable standards,
except for intra-family transfers and transfers made by gift, inheritance or
family dissolution. In the case of purchases of Units by fiduciary accounts
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in California, the suitability standards must be met by the beneficiary of the
account or, in those instances where the fiduciary directly or indirectly
supplies the funds for the purchase of Units, by such fiduciary.
The minimum purchase is 100 Units ($1,000) (except in certain states
as described below). No transfers will be permitted of less than the minimum
required purchase, nor (except in very limited circumstances) may an investor
transfer, fractionalize or subdivide such Units so as to retain less than such
minimum number thereof. For purposes of satisfying the minimum investment
requirement for Retirement Plans, unless otherwise prohibited by state law, a
husband and wife may jointly contribute funds from their separate Individual
Retirement Accounts ("IRAs"), provided that each such contribution is made in
increments of at least $25. It should be noted, however, that an investment in
the Partnership will not, in itself, create a Retirement Plan for any investor
and that, in order to create a Retirement Plan, an investor must comply with all
applicable provisions of the Code. Except in Maine, Minnesota, Nebraska and
Washington, investors who have satisfied the minimum purchase requirements and
have purchased units in Prior Wells Public Programs may purchase less than the
minimum number of Units set forth above, but in no event less than 2.5 Units
($25). After an investor has purchased the minimum investment, any additional
investments must be made in increments of at least 2.5 Units ($25), except for
(i) those made by investors in Maine, who must still meet the minimum investment
requirement for Maine residents of $1,000 for IRAs and $2,500 for non-IRAs, and
(ii) purchases of Units pursuant to the Distribution Reinvestment Plan, which
may be in lesser amounts.
Various states have established suitability standards for individual
investors and subsequent transferees different from those set by the
Partnership. Those requirements are set forth below.
ARIZONA - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
CALIFORNIA - California requires the following legend to be placed on each
certificate evidencing the Units:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA,
EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
IOWA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement. IRAs
investing in the Partnership must purchase a minimum of 250 Units ($2,500).
MAINE - Investors shall have either (i) current annual gross income of at
least $50,000 and a net worth (excluding home, furnishings and automobiles) of
at least $50,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $200,000.
A husband and wife may not jointly contribute funds from separate IRAs in
satisfaction of the minimum investment requirement. Investors must satisfy the
minimum purchase requirements whether or not they were also investors in Prior
Wells Public Programs.
Investors other than IRAs must purchase a minimum of 250 Units ($2,500).
MASSACHUSETTS - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
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MICHIGAN - An investor may not invest in excess of 10% of his, her or its
net worth (excluding home, furnishings and automobiles).
MINNESOTA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement. Investors
must satisfy the minimum purchase requirements whether or not they were also
investors in Prior Wells Public Programs.
Investors other than IRAs and Qualified Plans must purchase a minimum of 250
Units ($2,500). IRAs and Qualified Plans must purchase a minimum of 200 Units
($2,000).
Investors must satisfy the minimum purchase requirements whether or not they
were also investors in Prior Wells Public Programs.
MISSISSIPPI - Investors shall have either (i) current annual gross income of
at least $60,000 and a net worth (excluding home, furnishings and automobiles)
of at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000.
MISSOURI - Investors shall have either (i) current annual gross income of at
least $60,000 and a net worth (excluding home, furnishings and automobiles) of
at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000. A husband and wife may not jointly
contribute funds from their separate IRAs in satisfaction of the minimum
investment requirement.
NEBRASKA - Investors other than IRAs, Keogh and Qualified Plans must
purchase a minimum of 500 Units ($5,000). Investments in additional Units
pursuant to the Distribution Reinvestment Plan must be made in minimum amounts
of $50 in any one year and must be made through a Nebraska registered broker-
dealer.
Investors who require assistance in completing the Subscription Agreement
should not contact Wells Investment Securities, Inc., as directed on page C-6 of
the Subscription Agreement, but should contact a Nebraska registered broker-
dealer.
NEW HAMPSHIRE - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $250,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $125,000 and current
annual gross income of at least $50,000.
NEW YORK - No subscription proceeds from New York investors will be released
from the escrow account until $2,500,000 has been raised in the Offering.
Investors shall have either (i) a net worth (excluding home, furnishings and
automobiles) of at least $50,000 and an annual gross income of at least $50,000,
or (ii) irrespective of annual gross income, a net worth (excluding home,
furnishings and automobiles) of at least $150,000.
The proceeds of this Offering will be received and held in trust for the
benefit of purchasers of Units and will be retained in trust after closing to be
used only for the purposes set forth in the "ESTIMATED USE OF PROCEEDS" section.
Investors other than IRAs must purchase a minimum of 250 Units ($2,500).
NORTH CAROLINA - Investors other than IRAs, Keogh and Qualified Plans must
purchase a minimum of 250 Units ($2,500).
OHIO - Investors other than IRAs must purchase a minimum of 250 Units
($2,500). An investor may not invest in excess of 10% of his, her or its net
worth (excluding home, furnishings and automobiles).
OKLAHOMA - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement.
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OREGON - Investors shall have either (i) a net worth (excluding home,
furnishings and automobiles) of at least $225,000, or (ii) a net worth
(excluding home, furnishings and automobiles) of at least $60,000 and current
annual gross income of at least $60,000.
PENNSYLVANIA - Each Pennsylvania investor must meet the added suitability
requirement that such investor has a net worth (excluding home, furnishings and
automobiles) of at least ten times the amount of his, her or its investment in
the Partnership. In addition, subscriptions for Units from Pennsylvania
investors will be held in escrow until the Partnership has raised $2,500,000
from all sources including Pennsylvania investors, and subscriptions held in
such escrow more than 120 days will be returned to investors unless an investor
at the end of each 120 day period chooses to reinvest.
SOUTH CAROLINA - Investors shall have either (i) a net worth (excluding
home, furnishings and automobiles) of at least $150,000, or (ii) state and
federal income subject to the maximum rate of income tax.
Investors other than IRAs, Keogh and Qualified Plans must purchase a minimum
of 250 Units ($2,500).
SOUTH DAKOTA - Investors shall have either (i) current annual gross income
of at least $60,000 and a net worth (excluding home, furnishings and
automobiles) of at least $60,000, or (ii) a net worth (excluding home,
furnishings and automobiles) of at least $225,000.
TENNESSEE - Investors shall have either (i) current annual gross income of
at least $60,000 and a net worth (excluding home, furnishings and automobiles)
of at least $60,000, or (ii) a net worth (excluding home, furnishings and
automobiles) of at least $225,000.
TEXAS - Investments in additional Units pursuant to the Distribution
Reinvestment Plan must be made through a Texas registered broker-dealer.
WASHINGTON - Investors must satisfy the minimum purchase requirements
whether or not they were also investors in Prior Wells Public Programs.
WISCONSIN - A husband and wife may not jointly contribute funds from their
separate IRAs in satisfaction of the minimum investment requirement.
NET WORTH IN ALL CASES EXCLUDES HOME, FURNISHINGS AND AUTOMOBILES.
By executing the Subscription Agreement and Subscription Agreement Signature
Page (collectively, the "Subscription Agreement"), which is attached as Exhibit
"C" to this Prospectus, an investor represents to the General Partners that he
meets the foregoing applicable suitability standards for the state in which he
resides. The General Partners will not accept subscriptions from any person or
entity which does not represent that it meets such standards. The General
Partners have the unconditional right to accept or reject any subscription in
whole or in part.
The General Partners and each person selling Units on behalf of the
Partnership are required to (i) make reasonable efforts to assure that each
person purchasing Units in the Partnership is suitable in light of such person's
age, educational level, knowledge of investments, financial means and other
pertinent factors and (ii) maintain records for at least six years of the
information used to determine that an investment in Units is suitable and
appropriate for each investor. The agreements with the selling broker-dealers
require such broker-dealers to (i) make inquiries diligently as required by law
of all prospective investors in order to ascertain whether a purchase of the
Units is suitable for the investor, and (ii) transmit promptly to the
Partnership all fully completed and duly executed Subscription Agreements.
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DESCRIPTION OF THE UNITS
ELECTION OF CLASS A STATUS OR CLASS B STATUS
Initial Election. Upon subscription for Units being offered hereby,
investors must elect whether such Units will be initially treated as Class A
Status Units or Class B Status Units. Regardless of which class status is
selected for the Unit, each Unit shall have a purchase price of $10.00 per Unit,
less any discounts which are specifically authorized by the "PLAN OF
DISTRIBUTION" section of this Prospectus. Class A Status Units and Class B
Status Units entitle the holders thereof to different rights and priorities as
to cash distributions and liquidating distributions and as to the allocation of
deductions for depreciation, amortization, cost recovery and Net Losses. In all
other respects, the Units have the same rights and privileges. Each Unit, when
issued, will be fully paid and nonassessable.
Right to Change Election. Limited Partners' elections of Class A Status or
Class B Status made in the initial Subscription Agreements shall be effective
immediately upon acceptance. Thereafter, unless prohibited by applicable state
law or otherwise limited as set forth below, Limited Partners have the right to
change their prior election to have some or all of their Units treated as Class
A Status Units or Class B Status Units one time during each quarterly accounting
period by mailing or delivering written notice to the Partnership (executed by
the trustee or authorized agent in the case of Retirement Plans). Any such
changed election shall be effective commencing as of the first day of the next
succeeding quarterly accounting period following the receipt by the Partnership
of written notice of such election. Any election to have Units treated as Class
A Status Units or Class B Status Units shall be binding upon the Limited
Partner's successors and assigns. In order to assist Limited Partners in
determining whether to change their election of Class A Status or Class B
Status, Limited Partners may obtain information as to the current levels of
Class A Status Units and Class B Status Units outstanding at any time from the
General Partners at the address or toll free telephone number set forth on the
first page of this Prospectus. Units acquired and held by the General Partners
or their Affiliates shall at all times be treated as Class A Status Units, and
neither the General Partners nor their Affiliates shall have the right to make
an election to have Units beneficially owned by them treated as Class B Status
Units.
Limitations Imposed in Connection with Deferred Commission Option.
Subscribers for Units may agree with their participating broker-dealers and the
Dealer Manager to have sales commissions due with respect to the purchase of
their Units paid over a seven year period pursuant to a deferred commission
arrangement (the "Deferred Commission Option"). Any Limited Partner purchasing
Units pursuant to the Deferred Commission Option must elect upon subscription to
have a sufficient number of Units treated as Class A Status Units, in the
discretion of the General Partners, to generate at least the amount of Net Cash
From Operations distributable with respect to such Units needed to satisfy the
deferred commission obligations each year with respect to the total number of
Units purchased by such Limited Partner. In addition, Limited Partners
purchasing Units pursuant to the Deferred Commission Option will have limited
rights to elect to have their Class A Status Units treated as Class B Status
Units for a period of six years after the termination of the Offering since
Limited Partners owning Units purchased pursuant to the Deferred Commission
Option must at all times own a sufficient number of Class A Status Units, in the
discretion of the General Partners, to generate enough Net Cash From Operations
to allow the Partnership to satisfy the deferred commission obligations with
respect to the total number of Units purchased pursuant to the Deferred
Commission Option. (See "PLAN OF DISTRIBUTION.")
General Characteristics of Class A Status Units. Holders of Class A Status
Units will be entitled to receive annual distributions of Net Cash From
Operations generated by the Partnership following the payment of certain fees
and expenses to the General Partners and their Affiliates. Because deductions
for depreciation, amortization, cost recovery and Net Losses will initially be
allocated to holders of Class B Status Units, Class A Status Units will be
generally more suitable for investors which are Retirement Plans, including
IRAs, or are otherwise not income tax sensitive and which are primarily
interested in current distributions of Net Cash From Operations and the
potential appreciation in value of the Partnership's real estate investments.
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General Characteristics of Class B Status Units. Although holders of Class
B Status Units will not be allocated any Net Cash From Operations, they will be
allocated a disproportionately larger share of the Partnership's deductions for
depreciation, amortization, cost recovery and Net Losses, and will be allocated
a higher percentage return on the potential appreciation of the Partnership's
real estate investments. Accordingly, Class B Status Units will be generally
more suitable for investors who are not seeking current cash flow distributions
but have a desire to participate to a greater extent in "passive" losses
expected to be generated by the Partnership's operations or have a desire to
participate to a greater extent in the potential appreciation of the
Partnership's real estate investments. (See "FEDERAL INCOME TAX CONSEQUENCES--
Passive Loss Limitations.") Each prospective investor should carefully consider
the following information in the context of his own particular financial
situation in determining whether to elect Class A Status or Class B Status, or
some combination of each.
SUMMARY OF DISTRIBUTIONS
Following is a summary of the Partnership's allocation of current cash flow
distributions and the net proceeds from the sale or exchange of Partnership
Properties:
CASH DISTRIBUTIONS. Distributions of Net Cash From Operations (defined
generally as the Partnership's cash flow from operations less any reserves and
after payment of the 6% property management and leasing fees to Affiliates of
the General Partners) will be distributed as follows:
1. First, to Limited Partners holding Class A Status Units until they have
received distributions in each year equal to 10% of their Net Capital
Contributions (defined in the Partnership Agreement to mean generally Capital
Contributions less prior distributions of Sale Proceeds);
2. Next, to the extent any Net Cash From Operations remains available for
distribution, to the General Partners until they receive an amount equal to one-
tenth of the total amount of Net Cash From Operations distributed in such year;
and
3. Although there can be no assurance that Net Cash From Operations will be
sufficient to make additional distributions, any remaining Net Cash From
Operations will be distributed 90% to Limited Partners holding Class A Status
Units and 10% to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Class A Status Units
who have purchased Units pursuant to the Deferred Commission Option shall for a
period of seven years after termination of the Offering have deducted and
withheld from distributions of Net Cash From Operations otherwise payable to
such Limited Partners an annual amount equal to $0.10 per Unit purchased
pursuant to the Deferred Commission Option, which amounts shall instead be used
by the Partnership to pay deferred commissions due with respect to such Units.
(See "PLAN OF DISTRIBUTION.")
No Net Cash From Operations will be distributed with respect to Class B
Status Units. (See "SUMMARY OF PARTNERSHIP AGREEMENT," "DISTRIBUTIONS AND
ALLOCATIONS" and "RISK FACTORS.")
SALE PROCEEDS. Sale Proceeds (generally the net proceeds from any sale or
exchange of Partnership Properties) will be distributed as follows:
1. First, to Limited Partners holding Units which at any time have been
treated as Class B Status Units on a per Unit basis until each such Limited
Partner has received an amount which, when added to any Net Cash From Operations
previously distributed to such Limited Partner, will equal the amount of Net
Cash From Operations previously paid to Limited Partners holding Units which at
all times have been treated as Class A Status Units;
25
<PAGE>
2. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received an amount equal to his Net Capital Contribution (defined in
the Partnership Agreement to mean generally Capital Contributions less prior
distributions of Sale Proceeds);
3. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to a cumulative
(noncompounded) 10% per annum return on his Net Capital Contribution;
4. Then, to the Limited Partners on a per Unit basis until each Limited
Partner has received aggregate distributions equal to his Preferential Limited
Partner Return (defined as the sum of (a) a 10% per annum cumulative
(noncompounded) return on his Net Capital Contribution for all periods during
which such Unit was treated as a Class A Status Unit and (b) a 15% per annum
cumulative (noncompounded) return on his Net Capital Contribution for all
periods during which such Unit was treated as a Class B Status Unit);
5. Then, to the General Partners until they have received an amount equal
to their Capital Contributions;
6. Then, if and only in the event that Limited Partners have received any
Excess Limited Partner Distributions (defined as distributions to Limited
Partners over the life of their investment in excess of their Net Capital
Contribution plus their Preferential Limited Partner Return), to the General
Partners until they have received an amount equal to 20% of the sum of any such
Excess Limited Partner Distributions plus the amount distributed to the General
Partners pursuant to this provision; and
7. Then, to the extent any Sale Proceeds remain, 80% to the Limited
Partners on a per Unit basis and 20% to the General Partners. However, in no
event shall the General Partners receive in the aggregate in excess of the NASAA
Guidelines Resale Proceeds Maximum Amount (defined as an amount equal to 15% of
Sale Proceeds remaining after payments to Limited Partners from such proceeds of
amounts equal to the sum of their Net Capital Contributions plus a 6% per annum
return on their Net Capital Contributions calculated on a cumulative,
noncompounded basis). It is the intent of the foregoing limitation that the
General Partners receive no more of the net proceeds from the sale or financing
of Partnership Properties than is allowed pursuant to applicable provisions of
the NASAA Guidelines. Any such excess amounts otherwise distributable to the
General Partners would instead be reallocated and distributed to the Limited
Partners on a per Unit basis.
Notwithstanding the foregoing, the amount of Sale Proceeds distributable to
the Limited Partners holding Class B Status Units may be adjusted in favor of
Limited Partners holding Class A Status Units in the event that the Partnership
sells any Partnership Property at a sale price which is less than the purchase
price originally paid for such property. (See "SUMMARY OF PARTNERSHIP
AGREEMENT," "DISTRIBUTIONS AND ALLOCATIONS," "RISK FACTORS" and "FEDERAL INCOME
TAX CONSEQUENCES--Allocations of Profit and Loss.")
NO ASSURANCE CAN BE GIVEN AS TO THE TIMING OR AMOUNT OF ANY CASH
DISTRIBUTIONS TO THE LIMITED PARTNERS. (SEE "RISK FACTORS" and "DISTRIBUTIONS
AND ALLOCATIONS.")
SUMMARY OF ALLOCATIONS
Following is a summary of the allocation of the Partnership's taxable
income, loss and gain on sale of Partnership Properties:
NET INCOME. The Partnership's Net Income (defined generally as the net
income of the Partnership for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation,
26
<PAGE>
amortization and cost recovery and any net gain on the sale of assets) will be
allocated each year in the same proportions that Net Cash From Operations is
distributed or deemed distributed to the Partners. To the extent the
Partnership's Net Income in any year exceeds Net Cash From Operations, such
excess Net Income will be allocated 99% to Limited Partners holding Class A
Status Units during such year and 1% to the General Partners. (See
"DISTRIBUTIONS AND ALLOCATIONS" and "FEDERAL INCOME TAX CONSEQUENCES--
Allocations of Profit and Loss.")
NET LOSS, DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS.
Deductions for depreciation, amortization and cost recovery and the
Partnership's Net Loss (defined generally as the net loss of the Partnership for
federal income tax purposes, but excluding all deductions for depreciation,
amortization and cost recovery) for each fiscal year will be allocated as
follows:
1. 99% to Limited Partners holding Class B Status Units during such
year and 1% to the General Partners until their Capital Accounts (defined
generally as the sum of Capital Contributions and income allocated to a Partner
less the sum of distributions paid and losses allocated to a Partner) are
reduced to zero;
2. Then, to any Partner having a positive balance in his Capital Account in
an amount not to exceed such positive balance; and
3. Thereafter, all such deductions will be allocated to the General
Partners, who, at that time, would be the only Partners having any economic risk
of loss. (See "DISTRIBUTIONS AND ALLOCATIONS" and "FEDERAL INCOME TAX
CONSEQUENCES--Allocations of Profit and Loss.")
GAIN ON SALE. Gain on Sale (defined generally as the taxable income
or gain from a sale or exchange of Partnership Properties) will be allocated,
first, pursuant to the qualified income offset provision contained in the
Partnership Agreement, if applicable, then, to Partners having negative capital
accounts, if any, until negative capital accounts have been restored to zero,
and, thereafter, generally in accordance with the priorities for the
distribution of Sale Proceeds, as described above. (See "DISTRIBUTIONS AND
ALLOCATIONS.")
CLASS A STATUS UNITS
As set forth above, Class A Status Limited Partners are entitled to an
annual 10% noncumulative distribution preference as to distributions of Net Cash
From Operations. However, holders of Class A Status Units will, except in
limited circumstances, be allocated none of the Partnership's Net Loss,
depreciation, amortization and cost recovery deductions for tax purposes. Thus,
tax benefits resulting from deductions for Net Loss, depreciation, amortization
and cost recovery will not be available to holders of Class A Status Units
during the initial period of Partnership operations.
Upon a distribution of Sale Proceeds, each Class B Status Limited Partner is
first entitled to a distribution of an amount which, when added to any Net Cash
From Operations previously distributed to such Limited Partner, will equal the
amount of Net Cash From Operations previously paid to the holders of Class A
Status Units. Thereafter, both Class A Status Limited Partners and Class B
Status Limited Partners are entitled to an amount equal to their Net Capital
Contributions. Thereafter, Class A Status Limited Partners are entitled to a
10% cumulative (noncompounded) return on their Net Capital Contributions (as
opposed to the 15% cumulative return on Net Capital Contributions payable to
Class B Status Limited Partners). (See "DISTRIBUTIONS AND ALLOCATIONS.")
27
<PAGE>
CLASS B STATUS UNITS
Class B Status Limited Partners will receive a disproportionately larger
share of Partnership income tax deductions because all of the Limited Partners'
share of Partnership Net Loss, depreciation, amortization and cost recovery
deductions will be allocated to holders of Class B Status Units until their
Capital Account balances have been reduced to zero. Since the allocations of
Net Loss, depreciation, amortization and cost recovery deductions to holders of
Class B Status Units will reduce their Capital Account balances, and since
liquidation proceeds of the Partnership will be distributed among the Partners
in accordance with their Capital Account balances, holders of Class B Status
Units bear substantially greater risk of loss of their Capital Contributions
than do holders of Class A Status Units.
Class B Status Limited Partners will not receive any Net Cash From
Operations. On distributions of Sale Proceeds, since the preferential
allocation of Net Cash From Operations to holders of Class A Status Units is
intended to be a timing preference only, each holder of Class B Status Units is
entitled to a distribution of Sale Proceeds in an amount which, when added to
any Net Cash From Operations previously distributed to such Limited Partner,
will equal the amount of Net Cash From Operations previously paid to the holders
of Class A Status Units. Following such distributions to holders of Class B
Status Units, both Class A Status Limited Partners and Class B Status Limited
Partners are entitled to a return of their Net Capital Contributions. Then,
Class B Status Limited Partners are entitled to a 15% cumulative (noncompounded)
return on their Net Capital Contributions (as opposed to the 10% cumulative
return on Net Capital Contributions payable to Class A Status Limited Partners).
(See "DISTRIBUTIONS AND ALLOCATIONS.")
EFFECT OF CHANGE OF STATUS OF UNITS
As described above, Limited Partners shall have the right to change their
prior election to have some or all of their Units treated as Class A Status
Units or Class B Status Units one time during each accounting period, unless
prohibited by applicable state law or limited, as set forth above, by election
of the Deferred Commission Option. Any such changed election shall be effective
commencing as of the first day of the next succeeding accounting period
following receipt by the Partnership of written notice of such election. A
Limited Partner who changes his Units from Class A Status to Class B Status
will, upon the effective date of such change and until the Limited Partner
changes back to Class A Status, be entitled to a disproportionately larger share
of the Partnership's deductions for depreciation, amortization, cost recovery
and Net Losses, and no longer be entitled to receive annual distributions of Net
Cash From Operations during such period. A Limited Partner who changes his
Units from Class B Status to Class A Status will, from the effective date of
such change until the Limited Partner changes back to Class B Status, be
entitled to receive annual distributions of Net Cash From Operations and no
longer be allocated deductions for depreciation, amortization and cost recovery
and Net Loss. Distributions of Sale Proceeds will be prorated to each Limited
Partner based on the number of days during which his Units were treated as Class
A Status Units (and entitled to a return of 10% per annum on his Net Capital
Contribution) and the number days during which such Units were treated as Class
B Status Units (and entitled to a return of 15% per annum on his Net Capital
Contribution).
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use of
the gross proceeds of the Offering of Units made hereby. Many of the figures
set forth below represent the best estimate of the General Partners since they
cannot be precisely calculated at this time. The percentage of the gross
proceeds of the Offering of Units to be invested in Partnership Properties is
estimated to be approximately 84%.
28
<PAGE>
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
-------------------- --------------------
Amount Percent Amount Percent
---------- ------- ----------- -------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $1,250,000 100% $35,000,000 100%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (2) 118,750 9.5% 3,325,000 9.5%
Organization and Offering Expenses (3) 37,500 3% 1,050,000 3%
---------- ---- ----------- ----
Amount Available for Investment (4) $1,093,750 87.5% $30,625,000 87.5%
========== ==== =========== ====
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 37,500 3% $ 1,050,000 3%
Acquisition Expenses (6) 6,250 .5% 175,000 .5%
Initial Working Capital Reserve (7) (7) - (7) -
Amount Invested in Properties (4)(8) $1,050,000 84% $29,400,000 84%
========== ==== =========== ====
</TABLE>
- --------------------
(Footnotes to "ESTIMATED USE OF PROCEEDS")
(1) The amounts shown for Gross Offering Proceeds do not reflect the
possible discounts in commissions and other fees as described in "PLAN OF
DISTRIBUTION."
(2) Includes Selling Commissions equal to 7% of aggregate Gross Offering
Proceeds (which commissions may be reduced under certain circumstances) and
a dealer manager fee equal to 2.5% of aggregate Gross Offering Proceeds,
both of which are payable to the Dealer Manager, an Affiliate of the General
Partners. The Dealer Manager, in its sole discretion, may reallow Selling
Commissions of up to 7% of Gross Offering Proceeds to other broker-dealers
participating in this Offering attributable to the Units sold by them and
may reallow out of its dealer manager fee up to 1.5% of Gross Offering
Proceeds in marketing fees to broker-dealers participating in this Offering
based on such factors as the volume of Units sold by such participating
broker-dealers, marketing support provided by such participating broker-
dealers and bona fide conference fees incurred. In no event shall the total
underwriting compensation, including Selling Commissions, the dealer manager
fee and underwriting expense reimbursements, exceed 10% of Gross Offering
Proceeds, except for an additional .5% of Gross Offering Proceeds which may
be paid as a reimbursement of expenses incurred for due diligence purposes
and which is included in the Organization and Offering Expenses described in
Footnote 3 below. (See "PLAN OF DISTRIBUTION.")
(3) Organization and Offering Expenses consist of estimated legal, accounting,
printing and other accountable offering expenses (other than Selling
Commissions and the dealer manager fee) and reimbursements to the General
Partners and their Affiliates for payments to nonaffiliated broker-dealers
of certain bona fide due diligence expenses in an amount not to exceed .5%
of Gross Offering Proceeds. The General Partners and their Affiliates will
be responsible for the payment of Organization and Offering Expenses (other
than Selling Commissions and the dealer manager fee) to the extent they
exceed 3% of Gross Offering Proceeds without recourse against or
reimbursement by the Partnership.
(4) Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the Offering and,
thereafter, the working capital reserves of the Partnership, may be invested
in short-term, highly-liquid investments including government obligations,
bank certificates of deposit, short-term debt obligations and interest-
bearing accounts.
(5) The Partnership will pay Acquisition and Advisory Fees to the General
Partners or their Affiliates in connection with the acquisition of the
Partnership's Properties up to a maximum amount of 3% of Gross Offering
Proceeds. Acquisition and Advisory Fees do not include Acquisition Expenses.
(6) Includes legal fees and expenses, travel and communication expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance premiums and other closing
costs and miscellaneous expenses relating to the selection, acquisition and
development of Partnership Properties. It is anticipated that substantially
all of such items will be directly related to the acquisition of specific
Partnership Properties and will be capitalized rather than currently
deducted by the Partnership.
29
<PAGE>
(7) Because the Partnership will purchase properties on an all cash basis and
the vast majority of leases for the properties acquired by the Partnership
will provide for tenant reimbursement of operating expenses, it is not
anticipated that a permanent reserve for maintenance and repairs of
Partnership Properties will be established. However, to the extent that the
Partnership has insufficient funds for such purposes, the General Partners
will advance to the Partnership on an interest-free basis an aggregate
amount of up to 1% of Gross Offering Proceeds for maintenance and repairs of
Partnership Properties. The General Partners also may, but are not required
to, establish reserves from Gross Offering Proceeds, out of Cash Flow
generated by operating properties or out of Nonliquidating Net Sale
Proceeds.
(8) Includes amounts anticipated to be invested in Partnership Properties net of
fees and expenses. It is estimated that approximately 84% of the proceeds
from the sale of Units will be used to acquire properties, and under no
circumstances shall the Partnership commit less than 80% of Capital
Contributions to Investment in Properties, as required under the NASAA
Guidelines.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
The following table summarizes and discloses all of the compensation and
fees (including reimbursement of expenses) to be paid by the Partnership to the
General Partners and their Affiliates during the various phases of the
organization and operation of the Partnership.
Form of Compensation Determination Estimated Maximum
and Entity Receiving of Amount Dollar Amount (1)
- -------------------- ------------- -----------------
Organizational and Offering Stage
Selling Commissions - Up to 7% of Gross Offering $2,450,000
The Dealer Manager Proceeds before reallowance of ($87,500 in the
commissions earned by event the Partner-
participating broker-dealers. ship sells only the
The Dealer Manager intends to minimum of
reallow 100% of commissions 125,000 Units)
earned by participating
broker-dealers.
Dealer Manager Fee - Up to 2.5% of Gross Offering $875,000
The Dealer Manager Proceeds before reallowance to ($31,250 in the
participating broker-dealers. event the Partner-
The Dealer Manager, in its sole ship sells only the
discretion, may reallow a portion minimum of
of its dealer manager fee of up 125,000 Units)
to 1.5% of the Gross Offering
Proceeds to be paid to such
participating broker-dealers as a
marketing fee, based on such
factors as the volume of Units sold
by such participating broker-
dealers, marketing support and
bona fide conference fees incurred.
Reimbursement of Up to 3% of Gross Offering $1,050,000
Organization and Proceeds. All Organization and ($37,500 in the
Offering Expenses - Offering Expenses (excluding event the Partner-
The General Selling Commissions and the ship sells only the
Partners and their dealer manager fee) will be minimum of
Affiliates advanced by the General 125,000 Units)
Partner and their Affiliates and
reimbursed by the Partnership.(2)
Acquisition and Development Stage
Acquisition and For the review and evaluation of $1,050,000
Advisory Fees - potential real property ($37,500 in the
The General Partners acquisitions, a fee of up to 3% event the
or their Affiliates of Gross Offering Proceeds, plus Partnership sells
reimbursement of costs and only the minimum
expenses for the acquisition of of 125,000 Units)
properties.
Operational Stage
Property Management For supervising the management Actual amounts are
and Leasing Fees - of the Partnership Properties, dependent upon
a fee equal to the lesser of:
(A)(i) for commercial properties
which are not leased on a long-
term net
30
<PAGE>
Wells Management lease basis, 4.5% of results of
Company, Inc. gross revenues, and (ii) in the operations
case of commercial properties and therefore
which are leased on a long-term cannot be
(ten or more years) net lease determined at
basis, 1% of gross revenues plus, the present time.
in the case of leases to new tenants,
initial leasing fees equal to 3% of
gross revenues over the first five
years of the lease term, or (B) the
amounts charged by unaffiliated
persons rendering comparable services
in the same geographic area; plus,
a separate fee for the one-time
initial rent-up or leasing-up of
newly constructed properties in an
amount not to exceed the fee
customarily charged in arm's-length
transactions by others rendering
similar services in the same
geographic area for similar
properties.
Share of Net Cash A noncumulative amount equal to Actual amounts are
From Operations - The one-tenth of Net Cash From dependent upon
General Partners Operations subordinated in each results of
fiscal year to distributions of operations
Net Cash From Operations to and therefore
Limited Partners holding Class A cannot be
Status Units equal to 10% of determined at
their Net Capital Contributions. the present time.
Liquidation Stage
Subordinated After (i) each Limited Partner Actual amounts are
Participation holding Units which at any time dependent upon
in Nonliquidating have been treated as Class B results of
Net Sale Proceeds Status Units has received an operations and
and Liquidating amount which, when added to any therefore cannot be
Distributions - The Net Cash From Operations determined at the
General Partners previously distributed to such present time.
Limited Partner, will equal the
amount of Net Cash From
Operations previously paid to
Limited Partners holding Units which
at all times have been treated as
Class A Status Units, (ii) Limited
Partners have received a return of
their Net Capital Contributions,
and (iii) Limited Partners have
received their Preferential Limited
Partner Return, then the General
Partners are entitled to receive
the following amounts: (a) an
amount equal to their Capital
Contributions, (b) then, if and
only in the event that Limited
Partners have received any Excess
Limited Partner Distributions, 20%
of the sum of any such Excess
Limited Partner Distributions plus
the amount distributed to the
General Partners pursuant to this
provision, plus (c) 20% of remaining
Residual Proceeds available for
distribution; provided, however,
that in no event will the General
Partners receive in the aggregate
more than the NASAA Guidelines Resale
Proceeds Maximum Amount (defined
as 15% of Sale Proceeds remaining
after Limited Partners have received
a return of their Net Capital
Contributions plus a 6% per annum
cumulative (noncompounded) return
on their Net Capital Contributions).
(See Sections 9.2, 9.3 and 9.4 of
the Partnership Agreement.)
Real Estate In connection with the sale of Actual amounts are
Commissions - Partnership Properties, an amount dependent upon
The General not exceeding the lesser of: results of
Partners or (A) 50% of the reasonable, operations and
Their Affiliates customary and competitive real therefore cannot be
estate brokerage commissions determined at the
customarily paid for the sale of present time.
a comparable property in light of
the size, type and location of the
property, or (B) 3% of the gross
sales price of each property,
subordinated to distributions to
Limited Partners from Sale Proceeds
of an amount which, together with
prior distributions to the Limited
Partners, will equal (i) 100% of
their Capital Contributions plus
(ii) a 6% per annum cumulative
(noncompounded) return on their
Net Capital Contributions. (See
Section 12.6 of the Partnership
Agreement.)
- ------------
(Footnotes to "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES")
(1) The estimated maximum dollar amounts are based on the sale of a maximum of
3,500,000 Units.
(2) Wells Real Estate Fund X, L.P. ("Wells Fund X") and the Partnership
registered with the Securities and Exchange Commission and certain states
under the same Registration Statement, and in connection therewith, Wells
Fund X has previously paid certain organization, registration and offering
expenses relating to both offerings. Accordingly, it is anticipated that
the Partnership will reimburse Wells Fund X for its pro rata share of such
expenses, subject to the 3% of Gross Offering Proceeds limitation on the
reimbursement of Organization and Offering Expenses.
31
<PAGE>
In addition, the General Partners and their Affiliates will be reimbursed
only for the actual cost of goods, services and materials used for or by the
Partnership as set forth in Section 11.4 of the Partnership Agreement. The
General Partners may be reimbursed for the administrative services necessary to
the prudent operation of the Partnership provided that the reimbursement shall
be at the lower of the General Partners' actual cost or the amount the
Partnership would be required to pay to independent parties for comparable
administrative services in the same geographic location. No payment or
reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursement shall be: (i) rent or depreciation, utilities, capital equipment,
other administrative items; and (ii) salaries, fringe benefits, travel expenses
and other administrative items incurred by or allocated to any controlling
persons of the General Partners or their Affiliates.
Since the General Partners and their Affiliates are entitled to differing
levels of compensation for undertaking different transactions on behalf of the
Partnership, such as the property management fees for operating the Partnership
Properties and the subordinated participation in proceeds from the sale of
Partnership Properties, the General Partners have the ability to affect the
nature of the compensation they receive by undertaking different transactions.
However, the General Partners are obligated to exercise good faith and integrity
in all their dealings with respect to Partnership Affairs pursuant to their
fiduciary duties to the Limited Partners. (See "FIDUCIARY DUTY OF THE GENERAL
PARTNERS.") As noted above, there are ceilings on certain categories of fees or
expenses payable to the General Partners and their Affiliates. Because these
fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by the General Partners or their Affiliates
by reclassifying them under a different category.
CONFLICTS OF INTEREST
The Partnership is subject to various conflicts of interest arising out of
its relationship with the General Partners and their Affiliates, including
conflicts related to the arrangements pursuant to which the General Partners and
their Affiliates will be compensated by the Partnership. (See "COMPENSATION OF
THE GENERAL PARTNERS AND AFFILIATES.")
The General Partners of the Partnership are Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership having Wells Capital, Inc., a
Georgia corporation, as its sole general partner. Leo F. Wells, III owns all of
the outstanding capital stock of Wells Real Estate Funds, Inc., a Georgia
corporation which owns all of the outstanding capital stock of Wells Capital,
Inc., Wells Investment Securities, Inc. (the Dealer Manager), and Wells
Management Company, Inc. (the Property Manager). (See "MANAGEMENT.")
(THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK)
32
<PAGE>
The following chart indicates the relationship between the General Partners
and their Affiliates which will be providing services to the Partnership.
================================================================================
| LEO F. WELLS, III |
| (GENERAL PARTNER) |
================================================================================
|
| 100%
|
======================================================================
| |
| WELLS REAL ESTATE FUNDS, INC. |
| |
======================================================================
| | |
| 100% | 100% | 100%
| | |
===================== =================================== ====================
|WELLS CAPITAL, INC.| |WELLS INVESTMENT SECURITIES, INC.| | WELLS MANAGEMENT |
| | | (DEALER MANAGER) | | COMPANY, INC. |
| | | | |(PROPERTY MANAGER)|
===================== =================================== ====================
| |
| GENERAL PARTNER | 100%
| |
====================== ====================
|WELLS PARTNERS, L.P.| | WELLS DEVELOPMENT|
| (GENERAL PARTNER) | | CORPORATION |
====================== ====================
Because the Partnership was organized and will be operated by the General
Partners, these conflicts will not be resolved through arm's-length negotiations
but through the exercise of the General Partners' judgment consistent with their
fiduciary responsibility to the Limited Partners and the Partnership's
investment objectives and policies. (See "FIDUCIARY DUTY OF THE GENERAL
PARTNERS" and "INVESTMENT OBJECTIVES AND CRITERIA.") These conflicts include,
but are not limited to, the following:
1. INTERESTS IN OTHER PARTNERSHIPS. The General Partners and their
Affiliates are also general partners of other real estate limited partnerships,
including partnerships which have investment objectives similar to those of the
Partnership, and it is expected that they will organize other such partnerships
in the future. The General Partners and such Affiliates have legal and financial
obligations with respect to these other partnerships which are similar to their
obligations to the Partnership. As general partners, they may have contingent
liability for the obligations of such partnerships as well as those of the
Partnership which, if such obligations were enforced against the General
Partners, could result in substantial reduction of the net worth of the General
Partners.
As described in the "PRIOR PERFORMANCE SUMMARY," the General Partners
have sponsored the following eleven other public real estate partnerships with
substantially identical investment objectives as those of the Partnership: (i)
Wells Real Estate Fund I ("Wells Fund I"), (ii) Wells Real Estate Fund II
("Wells Fund II"), (iii) Wells Real Estate Fund II-OW ("Wells Fund II-OW"), (iv)
Wells Real Estate Fund III, L.P. ("Wells Fund III"), (v) Wells Real Estate Fund
IV, L.P. ("Wells Fund IV"), (vi) Wells Real Estate Fund V, L.P. ("Wells Fund
V"), (vii) Wells Real Estate Fund VI, L.P. ("Wells Fund VI"), (viii) Wells Real
Estate Fund VII, L.P. ("Wells Fund VII"), (ix) Wells Real Estate Fund VIII, L.P.
("Wells Fund VIII"), (x) Wells Real Estate Fund IX, L.P. ("Wells Fund IX") and
(xi) Wells Real Estate Fund X, L.P. ("Wells Fund X"). All of the proceeds of
the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW, Wells Fund III,
Wells Fund IV, Wells Fund V, Wells Fund VI and Wells Fund VII available for
investment in real properties have been invested. In addition, all of the
proceeds of the offering of Wells Fund VIII available for investment in real
properties have either been invested
33
<PAGE>
in properties or are currently committed for investment in properties. As of
August 31, 1997, approximately 74% and 50% of the proceeds of the offerings of
Wells Fund IX and Wells Fund X, respectively, available for investment in real
properties had either been invested in properties or were committed for
investment in properties.
In the event that the Partnership, the General Partners or any Affiliate or
any other real estate program or other entity formed or managed by the General
Partners or their Affiliates is in the market for similar properties, the
General Partners will review the investment portfolio of the Partnership and
each such Affiliated entity and will decide which entity will acquire a
particular property on the basis of such factors as, among others, the
anticipated cash flow of the property to be acquired and the cash requirements
of each program, the effect of the purchase on diversification of the portfolio
of each such entity in terms of number of investments, types of commercial
properties, geographic area and industry group of the tenant, the estimated
income tax effects of the purchase on each such entity, the size of the
investment, the amount of funds available to each entity and the length of time
such funds have been available for investment. The General Partners may acquire,
for their own account or for private placement, properties which they deem not
suitable for purchase by the Partnership, whether because of the greater degree
of risk, the complexity of structuring inherent in such transactions, financing
considerations or for other reasons, including properties with potential for
attractive investment returns.
2. OTHER ACTIVITIES OF THE GENERAL PARTNERS AND THEIR AFFILIATES. The
Partnership will rely on the General Partners and their Affiliates for the day-
to-day operation of the Partnership and the management of its assets. As a
result of their interests in other partnerships and the fact that they have also
engaged and will continue to engage in other business activities, the General
Partners and their Affiliates will have conflicts of interest in allocating
their time between the Partnership and other partnerships and activities in
which they are involved. However, the General Partners believe that they and
their Affiliates have sufficient personnel to discharge fully their
responsibilities to all partnerships and ventures in which they are involved.
The Partnership will not purchase or lease any property in which the
General Partners or any of their Affiliates have an interest; provided, however,
that the General Partners or any of their Affiliates may temporarily enter into
contracts relating to investment in properties to be assigned to the Partnership
prior to closing or may purchase property in their own name and temporarily hold
title for the Partnership, provided that such property is purchased by the
Partnership at a price no greater than the cost of such property (including
acquisition and carrying costs) to the General Partners or the Affiliate, and
further provided that the General Partners or such Affiliate may not have held
title to any such property on behalf of the Partnership for more than 12 months
prior to the commencement of this Offering, that the General Partners or their
Affiliates shall not sell property to the Partnership if the cost of the
property exceeds the funds reasonably anticipated to be available for the
Partnership to purchase any such property, and that all profits and losses
during the period any such property is held by the General Partners or the
Affiliate will accrue to the Partnership. In no event may the Partnership (i)
sell or lease real property to the General Partners or any of their Affiliates;
(ii) loan Partnership funds to the General Partners or any of their Affiliates;
(iii) obtain appraisals of real properties from the General Partners or any of
their Affiliates; or (iv) enter into agreements with the General Partners or
their Affiliates for the provision of insurance covering the Partnership or any
Partnership Property.
3. COMPETITION. Conflicts of interest will exist to the extent that the
Partnership may acquire properties in the same geographic areas where other
properties owned by the General Partners and their Affiliates are located. In
such a case, a conflict could arise in the leasing of Partnership Properties in
the event that the Partnership and another program managed by the General
Partners or their Affiliates were to compete for the same tenants in negotiating
leases, or a conflict could arise in connection with the resale of Partnership
Properties in the event that the Partnership and another program managed by the
General Partners or their Affiliates were to attempt to sell similar properties
at the same time. Conflicts of interest may also exist at such time as the
Partnership or Affiliates of the General Partners managing property on behalf of
the Partnership seek to employ developers, contractors or building managers as
well as under other circumstances. The General Partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective
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<PAGE>
employees aware of all such properties seeking to employ such persons. In
addition, the General Partners will seek to reduce conflicts which may arise
with respect to properties available for sale or rent by making prospective
purchasers or lessees aware of all such properties. However, these conflicts
cannot be fully avoided in that the General Partners may establish differing
compensation arrangements for employees at different properties or differing
terms for resales or leasing of the various properties.
4. AFFILIATED DEALER MANAGER. Since Wells Investment Securities, Inc., the
Dealer Manager, is an Affiliate of the General Partners, the Partnership will
not have the benefit of an independent due diligence review and investigation of
the type normally performed by an unaffiliated, independent underwriter in
connection with the offering of securities. (See "PLAN OF DISTRIBUTION.")
5. AFFILIATED PROPERTY MANAGER. Since it is anticipated that Partnership
Properties will be managed and leased by Wells Management Company, Inc., an
Affiliate of the General Partners, the Partnership will not have the benefit of
independent property management. (See "MANAGEMENT" and "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES.")
6. LACK OF SEPARATE REPRESENTATION. Holland & Knight LLP ("Holland &
Knight") is counsel to the Partnership, the General Partners, the Dealer Manager
and their Affiliates in connection with this Offering and may in the future act
as counsel to the Partnership, the General Partners, the Dealer Manager and
their Affiliates. There is a possibility that in the future the interests of the
various parties may become adverse. In the event that a dispute were to arise
between the Partnership, the General Partners, the Dealer Manager or their
Affiliates, the General Partners will cause the Partnership to retain separate
counsel for such matters as and when appropriate.
7. JOINT VENTURES WITH AFFILIATES OF THE GENERAL PARTNERS. The Partnership
is likely to enter into one or more joint venture agreements with Prior Wells
Public Programs or other Affiliates of the General Partners for the acquisition,
development or improvement of properties. (See "INVESTMENT OBJECTIVES AND
CRITERIA--Joint Venture Investments.") The General Partners and their Affiliates
may have conflicts of interest in determining which real estate program should
enter into any particular joint venture agreement. The co-venturer may have
economic or business interests or goals which are or which may become
inconsistent with the business interests or goals of the Partnership. In
addition, should any such joint venture be consummated, the General Partners may
face a conflict in structuring the terms of the relationship between the
interest of the Partnership and the interest of the affiliated co-venturer and
in managing the joint venture. Since the General Partners and their Affiliates
will control both the Partnership and the affiliated co-venturer, agreements and
transactions between the co-venturers with respect to any such joint venture
will not have the benefit of arm's-length negotiation of the type normally
conducted between unrelated co-venturers. (See "RISK FACTORS--Risks Relating to
Joint Ventures.")
8. RECEIPT OF FEES AND OTHER COMPENSATION BY GENERAL PARTNERS AND
AFFILIATES. Partnership transactions involving the purchase and sale of
Partnership Properties may result in the receipt of commissions, fees and other
compensation by the General Partners and their Affiliates, including Acquisition
and Advisory Fees, the dealer manager fee, property management and leasing fees,
real estate brokerage commissions, and participation in distributions of Net
Cash From Operations, Nonliquidating Net Sale Proceeds and Liquidating
Distributions. However, the fees and compensation payable to the General
Partners and their Affiliates relating to sale of Partnership Properties are
subordinated to the return to the Limited Partners of their Capital
Contributions plus cumulative returns thereon. Subject to their fiduciary
duties and specific restrictions set forth in the Partnership Agreement, the
General Partners have considerable discretion with respect to all decisions
relating to the terms and timing of all Partnership transactions. Therefore,
the General Partners may have conflicts of interest concerning certain actions
taken on behalf of the Partnership, particularly due to the fact that such fees
will generally be payable to the General Partners and their Affiliates
regardless of the quality of the Partnership Properties acquired or the services
provided to the Partnership. (See "COMPENSATION OF THE GENERAL PARTNERS AND
AFFILIATES.")
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<PAGE>
9. TAX AUDIT PROCEEDING. In the event of an audit of the federal income tax
returns of the Partnership by the IRS, it is possible that the interests of the
General Partners in such tax audit could become inconsistent with or adverse to
the interests of Limited Partners. Further, it is possible that federal income
tax adjustments proposed by the IRS could be adverse to Limited Partners holding
Class B Status Units while being neutral or potentially advantageous to Limited
Partners holding Class A Status Units. Expenses of contesting any such audit
incurred by the Partnership may reduce the amount of Net Cash From Operations
available for distribution to Limited Partners holding Class A Status Units,
which could also result in a conflict of interest. In this regard, the General
Partners who are primarily responsible for contesting federal income tax
adjustments proposed by the IRS may be subject to various conflicts of interest
in connection with the negotiation and settlement of issues raised by the IRS in
a federal income tax audit. (See "FEDERAL INCOME TAX CONSEQUENCES.")
The agreements and arrangements among the Partnership, the General Partners
and their Affiliates have been established by the General Partners, and the
General Partners believe the amounts to be paid thereunder to be reasonable and
customary under the circumstances. In an effort to establish standards for
minimizing and resolving these potential conflicts, the General Partners have
agreed to the guidelines and limitations set forth in Section 11.3 of the
Partnership Agreement entitled "Limitations on Powers of the General Partners"
and in Article XIII of the Partnership Agreement entitled "Transactions Between
General Partners and the Partnership." Among other things, these provisions (i)
set forth the specific conditions under which the Partnership may own or lease
property jointly or in a partnership with an Affiliate of the General Partners,
(ii) prohibit the Partnership from purchasing or leasing an investment property
from the General Partners or their Affiliates, (iii) prohibit loans by the
Partnership to the General Partners or their Affiliates, (iv) prohibit the
commingling of Partnership funds, and (v) prohibit the General Partners from
merging or consolidating the Partnership with another partnership or a
corporation or converting the Partnership to a real estate investment trust
unless the transaction complies with certain terms and conditions (including
first obtaining a Majority Vote of the Limited Partners). In addition, as
described below, the General Partners have a fiduciary obligation to act in the
best interests of both the Limited Partners and the investors in other programs
in which they act as general partners and will use their best efforts to assure
that the Partnership will be treated at least as favorably as any other such
program.
FIDUCIARY DUTY OF THE GENERAL PARTNERS
The General Partners will be accountable to the Partnership as fiduciaries
and, consequently, will be required to exercise good faith and integrity in all
their dealings with respect to Partnership affairs. Where the question has
arisen, courts have held that a limited partner may institute legal action on
behalf of himself or all other similarly situated limited partners (a class
action) to recover damages for a breach by a general partner of his fiduciary
duty or on behalf of the partnership (a partnership derivative action) to
recover damages from third parties. The Georgia Revised Uniform Limited
Partnership Act ("GRULPA") specifically permits a limited partner of a Georgia
limited partnership to bring a derivative action on behalf of the partnership if
(i) the general partner or partners of the partnership have refused to bring the
action on behalf of the partnership or it is apparent that an effort to cause
such general partner or partners to bring the action would not be likely to
succeed, and (ii) the limited partner was a partner at the time the transaction
complained of occurred or such partner became a partner by operation of law or
pursuant to the terms of the partnership agreement by assignment from a person
who was a partner at the time of such transaction.
Under GRULPA, a general partner of a Georgia limited partnership has the
same liabilities to the partnership and the other partners as a partner in a
partnership without limited partners. Accordingly, in any action alleging a
breach of fiduciary duty by the General Partners to either the Limited Partners
or the Partnership, it is not anticipated that the General Partners would be
able to successfully assert as a defense the general presumption which is often
referred to as the "business judgment rule" that actions taken by the directors
of a corporation on behalf of the corporation are reasonable. However, since
any such action would involve a rapidly developing and
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<PAGE>
changing area of the law, investors who believe that a breach of fiduciary duty
by the General Partners may have occurred should consult with their own counsel.
Under GRULPA, except to the extent of acceptable limitations in the
partnership agreement, a general partner of a limited partnership generally owes
a duty of loyalty and a duty of care to his partners. The Partnership Agreement
provides that the General Partners shall not be liable to the Partnership or any
Partner arising out of any act or failure to act which the General Partners in
good faith determined was in the best interest of the Partnership, provided that
the General Partners shall be liable for any liabilities resulting from a
General Partner's (i) own fraud, negligence, misconduct or knowing violation of
law, (ii) breach of fiduciary duty to the Partnership or any Partner, or (iii)
breach of the Partnership Agreement, regardless of whether or not any such act
was first determined by such General Partner, in good faith, to be in the best
interest of the Partnership. Since absent limitations in the Partnership
Agreement such as the foregoing, a General Partner of a limited partnership
would generally be liable under state law for damages caused by breach of
fiduciary duty or a breach of the Partnership Agreement, regardless of whether
or not such person received any personal benefit therefrom, Limited Partners may
have a more limited right of action than they would otherwise have absent the
foregoing provisions in the Partnership Agreement.
In addition, the Partnership Agreement provides that the Partnership shall
indemnify the General Partners and their Affiliates from and against liabilities
and related expenses (including attorneys' fees) incurred in dealing with third
parties while acting on behalf of or performing services for the Partnership
arising out of any act or failure to act which the General Partners in good
faith determined was in the best interest of the Partnership, provided that the
General Partners shall not be indemnified by the Partnership for any liabilities
resulting from a General Partner's (i) own fraud, negligence, misconduct or
knowing violation of law, (ii) breach of fiduciary duty to the Partnership or
any Partner, or (iii) breach of the Partnership Agreement, regardless of whether
or not any such act was first determined by such General Partner, in good faith,
to be in the best interest of the Partnership. Any indemnification of the
General Partners is recoverable only out of the assets of the Partnership and
not from the Limited Partners. The indemnification provisions contained in the
Partnership Agreement are generally consistent with the provisions of GRULPA,
and the General Partners will not be indemnified for a violation of the duty of
care to their Partners to the extent any such violation constitutes negligence
or misconduct.
Notwithstanding the foregoing, the Partnership will not indemnify the
General Partners or any person acting as a broker-dealer with respect to the
Units from any liabilities incurred by them arising under federal and state
securities laws unless (i) there has been a successful adjudication on the
merits of each count involving alleged securities law violations as to the
particular person seeking indemnification, or (ii) such claims have been
dismissed with prejudice on the merits by a court of competent jurisdiction as
to the particular person seeking indemnification, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular person
seeking indemnification and finds that indemnification of the settlement and
related costs should be made. In addition, prior to seeking a court approval
for indemnification, the General Partners are required to apprise the court of
the position of the Securities and Exchange Commission and various securities
regulatory authorities with respect to indemnification for securities
violations.
IN THE OPINION OF THE SECURITIES AND EXCHANGE COMMISSION, INDEMNIFICATION
FOR LIABILITIES ARISING OUT OF THE SECURITIES ACT OF 1933 IS AGAINST PUBLIC
POLICY AND IS THEREFORE UNENFORCEABLE.
PRIOR PERFORMANCE SUMMARY
THE INFORMATION PRESENTED IN THIS SECTION REPRESENTS THE HISTORICAL
EXPERIENCE OF REAL ESTATE PROGRAMS MANAGED BY THE GENERAL PARTNERS AND THEIR
AFFILIATES. INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL
37
<PAGE>
EXPERIENCE RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH
PRIOR REAL ESTATE PROGRAMS.
The individual General Partner, Leo F. Wells, III, has served as a general
partner of a total of eleven publicly offered real estate limited partnerships.
These eleven limited partnerships and the year in which their offerings were
completed are:
1. Wells Real Estate Fund I (1986)
2. Wells Real Estate Fund II (1988)
3. Wells Real Estate Fund II-OW (1988)
4. Wells Real Estate Fund III, L.P. (1990)
5. Wells Real Estate Fund IV, L.P. (1992)
6. Wells Real Estate Fund V, L.P. (1993)
7. Wells Real Estate Fund VI, L.P. (1994)
8. Wells Real Estate Fund VII, L.P. (1995)
9. Wells Real Estate Fund VIII, L.P. (1996)
10. Wells Real Estate Fund IX, L.P. (1996)
11. Wells Real Estate Fund X, L.P. (1997)
The tables included in Exhibit "A" attached hereto set forth information as
of the dates indicated regarding certain of these prior programs as to (i)
experience in raising and investing funds (Table I); (ii) compensation to
sponsor (Table II); and (iii) annual operating results of prior programs (Table
III). No information is given as to results of completed programs or sales or
disposals of property because, to date, none of the prior programs have sold any
of their properties.
In addition to its real estate limited partnerships, the General Partners
and their Affiliates are currently also sponsoring a public offering on behalf
of Wells Real Estate Investment Trust, Inc., an unspecified real estate program
which intends to qualify as a real estate investment trust (the "Wells REIT").
PUBLICLY OFFERED UNSPECIFIED REAL ESTATE PROGRAMS
The General Partners and their Affiliates have previously sponsored eleven
publicly offered real estate limited partnerships which were offered on an
unspecified property or "blind pool" basis: Wells Fund I, Wells Fund II, Wells
Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells
Fund VII, Wells Fund VIII, Wells Fund IX and Wells Fund X. The total amount of
funds raised from investors in the offerings of these eleven publicly offered
partnerships, as of October 31, 1997, was approximately $262,525,733, and the
total number of investors in such partnerships was approximately 24,156.
The investment objectives of Wells Fund I, Wells Fund II, Wells Fund II-OW,
Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII,
Wells Fund VIII, Wells Fund IX, Wells Fund X and the Wells REIT are
substantially identical to the investment objectives of the Partnership. All of
the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW,
Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI and Wells Fund VII
available for investment in real properties have been invested in properties.
In addition, all of the proceeds of the offering of Wells Fund VIII available
for investment in real properties have either been invested or are committed for
investment in properties. As of August 31, 1997, approximately 74% and 50% of
the proceeds of the offerings of Wells Fund IX and Wells Fund X, respectively,
available for investment in real properties had either been invested in
properties or were committed for investment in properties. For the fiscal year
ended December 31, 1996, approximately two-thirds of the aggregate gross rental
income of ten of these eleven publicly offered partnerships (Wells Fund X had
not yet commenced its offering) was derived from tenants which are U.S.
corporations, each of which has net worth of at least $100,000,000 or whose
lease obligations are guaranteed by another corporation with a net worth of at
least $100,000,000.
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<PAGE>
Certain real estate programs previously sponsored by the General Partners
and their Affiliates have experienced fluctuating financial performance, as
indicated in the prior performance tables included in Exhibit "A" hereto. The
real properties in which partnerships previously sponsored by the General
Partners and their Affiliates have invested have experienced the same economic
problems as other real estate investments in recent years, including without
limitation, general over-building and an excess supply in many markets, along
with increased operating costs and a general downturn in the real estate
industry. As a result, certain of these public partnerships have experienced
fluctuations in expenses and net income. These fluctuations were primarily due
to tenant turnover, resulting in increased vacancies and the requirement to
expend funds for tenant refurbishments, and increases in administrative and
other operating expenses. (See the "PRIOR PERFORMANCE TABLES" included as
Exhibit "A" hereto.) Additionally, while overall occupancy rates have not
decreased significantly at the properties owned by partnerships sponsored by the
General Partners and their Affiliates, some of these properties have experienced
high tenant turnover, and the partnerships owning these properties have
generally been unable to raise rental rates and have been required to make
expenditures for tenant improvements and to grant free rent and other
concessions in order to attract new tenants. Specifically, certain of the prior
public partnerships suffered decreases in net income during the real estate
recession of the late 1980s and early 1990s, which decreases were generally
attributable to the overall downturn in the economy and in the real estate
market in particular. Because of the cyclical nature of the real estate market,
such decreases in net income of the public partnerships could occur at any time
in the future when economic conditions decline. None of these prior programs
has liquidated or sold any of its real properties to date and, accordingly, no
assurance can be made that prior programs will ultimately be successful in
meeting their investment objectives. (See "RISK FACTORS.")
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by these eleven publicly offered partnerships, as of
October 31, 1997, was approximately $196,419,519 of which $4,254,000 (or
approximately 2.2%) had not yet been expended on the development of certain of
the projects which are still under construction. Of the aggregate amount,
approximately 65% was or will be spent on acquiring or developing office
buildings, and approximately 35% was or will be spent on acquiring or developing
shopping centers. Of the aggregate amount, approximately 4% was or will be
spent on new properties, 38% on existing or used properties and 58% on
construction properties. Following is a table showing a breakdown of the
aggregate amount of the acquisition and development costs of the properties
purchased by these eleven publicly offered partnerships as of October 31, 1997:
<TABLE>
<CAPTION>
Type of Property New Used Construction
- ----------------------- ---- ----- -------------
<S> <C> <C> <C>
Office Buildings 4% 26% 35%
Shopping Centers 0% 11% 24%
</TABLE>
Wells Fund I terminated its offering on September 5, 1986, and received
gross proceeds of $35,321,000 representing subscriptions from 4,895 limited
partners. $24,679,000 of the gross proceeds were attributable to sales of Class
A Units, and $10,642,000 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund I have no right to change the
status of their Units from Class A to Class B or vice versa. Wells Fund I owns
interests in the following properties: (i) a medical office building in Atlanta,
Georgia; (ii) two commercial office buildings in Atlanta, Georgia; (iii) a
shopping center in DeKalb County, Georgia; (iv) a shopping center in Knoxville,
Tennessee; (v) a shopping center in Cherokee County, Georgia; and (vi) a project
consisting of seven office buildings and a shopping center in Tucker, Georgia.
The Prospectus of Wells Fund I provided that the properties purchased by Wells
Fund I would typically be held for a period of eight to twelve years, but that
the General Partners may exercise their discretion as to whether and when to
sell the properties owned by Wells Fund I and the partnership will have no
obligation to sell the properties at any particular time. Wells Fund I acquired
its properties between 1985 and 1987, and has not yet liquidated or sold any of
its properties. Further, the properties of Wells Fund I may not be sold for
some time in the future.
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<PAGE>
Wells Fund II and Wells Fund II-OW terminated their offerings on September
7, 1988, and received aggregate gross proceeds of $36,870,250 representing
subscriptions from 4,659 limited partners. $28,829,000 of the gross proceeds
were attributable to sales of Class A Units, and $8,041,250 of the gross
proceeds were attributable to sales of Class B Units. Limited partners in Wells
Fund II and Wells Fund II-OW have no right to change the status of their Units
from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own
all of their properties through a joint venture, which owns interests in the
following properties: (i) a shopping center in Cherokee County, Georgia; (ii) a
project consisting of seven office buildings and a shopping center in Tucker,
Georgia; (iii) a two story office building in Charlotte, North Carolina; (iv) a
four story office building in Houston, Texas; (v) a restaurant in Roswell,
Georgia; and (vi) a combined retail and office development in Roswell, Georgia.
Wells Fund III terminated its offering on October 23, 1990, and received
gross proceeds of $22,206,310 representing subscriptions from 2,700 limited
partners. $19,661,770 of the gross proceeds were attributable to sales of Class
A Units, and $2,544,540 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund III have no right to change the
status of their Units from Class A to Class B or vice versa. Wells Fund III
owns interests in the following properties: (i) a four story office building in
Houston, Texas; (ii) a restaurant in Roswell, Georgia; (iii) a combined retail
and office development in Roswell, Georgia; (iv) a two story office building in
Greenville, North Carolina; (v) a shopping center in Stockbridge, Georgia; and
(vi) a two story office building in Richmond, Virginia.
Wells Fund IV terminated its offering on February 29, 1992, and received
gross proceeds of $13,614,655 representing subscriptions from 1,286 limited
partners. $13,229,150 of the gross proceeds were attributable to sales of Class
A Units, and $385,505 of the gross proceeds were attributable to sales of Class
B Units. Limited partners in Wells Fund IV have no right to change the status
of their Units from Class A to Class B or vice versa. Wells Fund IV owns
interests in the following properties: (i) a shopping center in Stockbridge,
Georgia; (ii) a four story office building in Jacksonville, Florida; (iii) a two
story office building in Richmond, Virginia; and (iv) two two story office
buildings in Stockbridge, Georgia.
Wells Fund V terminated its offering on March 3, 1993, and received gross
proceeds of $17,006,020 representing subscriptions from 1,667 limited partners.
$15,209,666 of the gross proceeds were attributable to sales of Class A Units,
and $1,796,354 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund V who purchased Class B Units are
entitled to change the status of their Units to Class A, but limited partners
who purchased Class A Units are not entitled to change the status of their Units
to Class B. After taking into effect conversion elections made by limited
partners subsequent to their subscription for Units, as of October 31, 1997,
$15,514,160 of Units of Wells Fund V were treated as Class A Units, and
$1,491,860 of Units were treated as Class B Units. Wells Fund V owns interests
in the following properties: (i) a four story office building in Jacksonville,
Florida; (ii) two two story office buildings in Stockbridge, Georgia; (iii) a
four story office building in Hartford, Connecticut; (iv) two restaurants in
Stockbridge, Georgia; and (v) a three story office building in Appleton,
Wisconsin. Wells Fund V experienced an operating loss of $18,089 in 1992 (at
which time it only owned interests in the Jacksonville, Florida property which
was under construction and the first office building in Stockbridge, Georgia
which was under construction), recognized net income of $354,999 in 1993 (at
which time it had also acquired an interest in the Hartford, Connecticut
property and the second office building in Stockbridge, Georgia was under
construction), recognized net income of $561,721 in 1994 (at which time it owned
interests in all of the properties listed above for which it currently holds an
ownership interest, with the exception that only one of the two restaurants had
been developed on the tract of land in Stockbridge, Georgia), recognized net
income of $689,639 in 1995 and recognized net income of $505,650 in 1996.
Wells Fund VI terminated its offering on April 4, 1994, and received gross
proceeds of $25,000,000 representing subscriptions from 1,793 limited partners.
$19,332,176 of the gross proceeds were attributable to sales of Class A Units,
and $5,667,824 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund VI are entitled to change the status of
their Units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscription
for Units, as of October 31, 1997, $21,538,950 of Units of Wells Fund VI were
treated as Class A Units, and $3,461,050 of
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<PAGE>
Units were treated as Class B Units. Wells Fund VI owns interests in the
following properties: (i) a four story office building in Hartford, Connecticut;
(ii) two restaurants in Stockbridge, Georgia; (iii) another restaurant and a
retail building in Stockbridge, Georgia; (iv) a shopping center in Stockbridge,
Georgia; (v) a three story office building in Appleton, Wisconsin; (vi) a
shopping center in Cherokee County, Georgia; (vii) a combined retail and office
development in Roswell, Georgia; (viii) a four story office building in
Jacksonville, Florida; and (ix) a shopping center in Clemmons, North Carolina.
Wells Fund VI recognized net income of $31,428 in 1993 (at which time it only
owned an interest in the Hartford, Connecticut property), recognized net income
of $700,896 in 1994 (at which time it owned only interests in (i) the four story
office building in Hartford, Connecticut; (ii) the retail building and an
undeveloped tract of land in Stockbridge, Georgia; and (iii) the three story
office building in Appleton, Wisconsin), recognized net income of $901,828 in
1995 (at which time each of the following properties was under construction: (i)
one of the retail buildings in Stockbridge, Georgia, (ii) the combined retail
and office development in Roswell, Georgia, (iii) the office building in
Jacksonville, Florida, and (iv) the shopping center in Clemmons, North Carolina)
and recognized net income of $589,053 in 1996.
Wells Fund VII terminated its offering on January 5, 1995, and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners. $16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VII are entitled to change the
status of their Units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for Units, as of October 31, 1997, $18,656,280 of Units in Wells
Fund VII were treated as Class A Units, and $5,523,890 of Units were treated as
Class B Units. Wells Fund VII owns interests in the following properties: (i) a
three story office building in Appleton, Wisconsin; (ii) a restaurant and a
retail building in Stockbridge, Georgia; (iii) a shopping center in Stockbridge,
Georgia; (iv) a shopping center in Cherokee County, Georgia; (v) a combined
retail and office development in Roswell, Georgia; (vi) a two story office
building in Alachua County, Florida near Gainesville; (vii) a four story office
building in Jacksonville, Florida; (viii) a shopping center in Clemmons, North
Carolina; and (ix) a retail development in Clayton County, Georgia. Wells Fund
VII recognized net income of $203,263 in 1994 (at which time it only owned an
interest in the three story office building in Appleton, Wisconsin and an
undeveloped tract of land in Stockbridge, Georgia), recognized net income of
$804,043 in 1995 (at which time it only owned interests in the office building
in Appleton, Wisconsin, the developments in Stockbridge, Georgia, the office
building in Alachua County, Florida, the office building in Jacksonville,
Florida, the tract of land in Clemmons, North Carolina, which was under
construction, and the retail building in Stockbridge, Georgia, which was under
construction) and recognized net income of $452,776 in 1996.
Wells Fund VIII terminated its offering on January 4, 1996, and received
gross proceeds of $32,042,689 (3,204,269 Units) representing subscriptions from
2,241 limited partners. $26,135,339 of the gross proceeds were attributable to
sales of Class A Status Units, and $5,907,350 were attributable to sales of
Class B Status Units. Limited partners in Wells Fund VIII are entitled to
change the status of their Units from Class A to Class B and vice versa. After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for Units and certain repurchases made by Wells Fund VIII,
as of October 31, 1997, $26,353,280 of Units in Wells Fund VIII were treated as
Class A Status Units, and $5,679,410 of Units were treated as Class B Status
Units. Wells Fund VIII owns interests in the following properties: (i) a two
story office building in Alachua County, Florida near Gainesville; (ii) a four
story office building in Jacksonville, Florida; (iii) a shopping center in
Clemmons, North Carolina; (iv) a retail development in Clayton County, Georgia;
(v) a four story office building in Madison, Wisconsin; (vi) a one story office
building in Farmers Branch, Texas; (vii) a two story office building in Orange
County, California; and (viii) a two story office building in Boulder County,
Colorado. Wells Fund VIII recognized net income of $273,914 in 1995 (at which
time it only owned interests in the office building in Alachua County, Florida,
the office building in Jacksonville, Florida, which was under construction, and
the tract of land in Clemmons, North Carolina, which was under construction) and
recognized net income of $936,590 in 1996.
Wells Fund IX terminated its offering on December 30, 1996, and received
gross proceeds of $35,000,000 (3,5000,000 Units) representing subscriptions from
2,098 limited partners. $29,359,310 of the gross proceeds were attributable to
sales of Class A Status Units, and $5,640,690 were attributable to sales of
Class B Status Units.
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After taking into effect conversion elections made by limited partners
subsequent to their subscriptions for Units, as of October 31, 1997, $29,447,760
of Units in Wells Fund IX were treated as Class A Status Units, and $5,552,240
of Units were treated as Class B Status Units. Wells Fund IX owns interests in
the following properties: (i) a one story office building in Farmers Branch,
Texas; (ii) a four story office building in Madison, Wisconsin; (iii) a two
story office building in Orange County, California; (iv) a two story office
building in Boulder County, Colorado; and (v) a three story office building
under construction in Knox County, Tennessee in the Knoxville metropolitan area.
Wells Fund IX recognized net income of $298,756 in 1996.
Wells Fund X commenced its offering on December 31, 1996, and terminated
its offering on December 30, 1997. As of November 30, 1997, Wells Fund X had
received gross proceeds of $23,058,019 (2,305,802 Units) representing
subscriptions from 1,632 limited partners. $18,589,699 of the gross proceeds
were attributable to sales of Class A Status Units, and $4,468,320 were
attributable to sales of Class B Status Units. Wells Fund X owns an interest in
a three story office building under construction in Knox County, Tennessee in
the Knoxville metropolitan area.
THE INFORMATION SET FORTH ABOVE SHOULD NOT BE CONSIDERED INDICATIVE OF
RESULTS TO BE EXPECTED FROM THE PARTNERSHIP.
The foregoing properties in which the above eleven limited partnerships
have invested have all been acquired and developed on an all cash basis.
The General Partners of the Partnership, Leo F. Wells, III and Wells
Partners, L.P. ("Wells Partners"), are also the general partners of Wells Fund
IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX
and Wells Fund X. Wells Capital, Inc., the general partner of Wells Partners,
and Leo F. Wells, III are the general partners of Wells Fund I, Wells Fund II,
Wells Fund II-OW and Wells Fund III.
On July 25, 1997, Wells Real Estate Investment Trust, Inc. (the "Wells
REIT"), a newly organized Maryland corporation sponsored by the General Partners
and their Affiliates which intends to qualify as a real estate investment trust,
filed a Registration Statement with the Securities and Exchange Commission for
the offering and sale to the public of up to 16,500,000 shares of common stock
at a price of $10.00 per share. As of the date of this Prospectus, the
registration of the Wells REIT had not yet been declared effective by the
Securities and Exchange Commission.
Potential investors are encouraged to examine the Prior Performance Tables
attached as Exhibit "A" hereto for more detailed information regarding the prior
experience of the General Partners. In addition, upon request, prospective
investors may obtain from the General Partners without charge copies of offering
materials and any reports prepared in connection with any of the ten publicly
offered partnerships previously sponsored by the General Partners and their
Affiliates, including a copy of the most recent Annual Report on Form 10-K filed
with the Securities and Exchange Commission. For a reasonable fee, the
Partnership will also furnish upon request copies of the exhibits to any such
Form 10-K. Any such request should be directed to the General Partners.
Additionally, Table VI contained in Part II of the Registration Statement (which
is not part of this Prospectus) gives certain additional information relating to
properties acquired by prior partnerships affiliated with the General Partners.
The Partnership will furnish, without charge, copies of such table upon request.
MANAGEMENT
THE GENERAL PARTNERS
The General Partners of the Partnership are: Wells Partners, L.P., a
Georgia limited partnership, and Mr. Leo F. Wells, III, individually.
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WELLS PARTNERS, L.P. Wells Partners, L.P. ("Wells Partners") has Wells
Capital, Inc. ("Wells Capital"), a Georgia corporation formed in April 1984, as
its sole general partner. The executive offices of both Wells Partners and Wells
Capital are located at 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
Financial statements of Wells Partners and Wells Capital are included in this
Prospectus at Appendix I. Leo F. Wells, III is the sole shareholder, sole
Director and the President of Wells Real Estate Funds, Inc., which is the sole
shareholder of each of Wells Capital, Wells Management Company, Inc. ("Wells
Management") and Wells Investment Securities, Inc. ("Wells Investment"). (See
"CONFLICTS OF INTEREST.")
As of August 31, 1997, the net worth of Wells Partners was in excess of
$1,168,000 on an estimated fair market value basis, and in excess of $128,000 on
a generally accepted accounting principles (GAAP) basis; however, the net worth
of Wells Partners consists almost entirely of partnership interests in real
estate limited partnerships and, therefore, does not represent liquid assets.
The principal officers and directors of Wells Capital are as follows:
Name Positions
- ---- ---------
Leo F. Wells, III President and Sole Director
Brian M. Conlon Executive Vice President
Louis A. Trahant Vice President of Sales and Operations
Kim R. Comer National Vice President of Marketing
Edna B. King Vice President of Investor Services
Linda L. Carson Vice President of Accounting
LEO F. WELLS, III (age 52) is the President and sole Director of both Wells
Capital and Wells Real Estate Funds, Inc. In addition, he is President of Wells
& Associates, Inc., a real estate brokerage and investment company formed in
1976 and incorporated in 1978, for which he serves as principal broker. He is
also the sole Director and President of Wells Management, a property management
company he founded in 1983; Wells Investment, a registered securities broker-
dealer he formed in 1984; Wells Advisors, Inc. ("Wells Advisors"), a company he
organized in 1991 to act as a non-bank custodian for IRAs; and the President and
a Director of the Wells REIT. Mr. Wells was a real estate salesman and property
manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta real estate
company, and he was associated from 1973 to 1976 with Sax Gaskin Real Estate
Company, during which time he became a Life Member of the Atlanta Board of
Realtors Million Dollar Club. From 1980 to February 1985, he served as Vice
President of Hill-Johnson, Inc., a Georgia corporation engaged in the
construction business. Mr. Wells holds a Bachelor of Business Administration
degree in Economics from the University of Georgia. Mr. Wells is a member of the
International Association for Financial Planning and a registered NASD
principal.
Mr. Wells has over 26 years of experience in real estate sales, management
and brokerage services. He is currently a co-general partner in a total of 24
real estate limited partnerships formed for the purpose of acquiring, developing
and operating office buildings and other commercial properties, a majority of
which are located in suburban areas of metropolitan Atlanta, Georgia. As of
November 30, 1997, these 24 real estate limited partnerships represented
investments totaling $272,340,704 from 24,719 investors. (See "PRIOR PERFORMANCE
SUMMARY.")
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As of August 31, 1997, Mr. Wells' net worth (exclusive of home, automobiles
and home furnishings) was approximately $2,140,000 on an estimated fair market
value basis. Mr. Wells' net worth consists principally of investments in real
estate, interests in retirement plans, notes receivable and his stock in Wells
Real Estate Funds, Inc. and other closely held corporations and, therefore, does
not represent liquid assets or assets which are readily marketable. (See "RISK
FACTORS.")
The combined net worth of the General Partners as of August 31, 1997, on an
estimated fair market value basis, was in excess of $3,308,000. When the net
worth of Wells Partners is calculated on a generally accepted accounting
principles (GAAP) basis (i.e. Wells Partners' investments are valued at cost
instead of estimated fair market value), the combined net worth of the General
Partners, as of August 31, 1997, was approximately $2,268,000. However, the
General Partners' net worth consists primarily of interests in real estate and
closely-held businesses, and thus such net worth is substantially illiquid and
not readily marketable. (See "RISK FACTORS.")
BRIAN M. CONLON (age 39) is the Executive Vice President of both Wells
Capital and Wells Real Estate Funds, Inc.; is a Vice President of Wells
Investment; and is Executive Vice President and a Director of the Wells REIT.
Mr. Conlon joined Wells Capital in 1985 as a Regional Vice President, and served
as Vice President and National Marketing Director from 1991 until April 1996
when he assumed his current position. Previously, Mr. Conlon was Director of
Business Development for Tishman Midwest Management & Leasing Services Corp.
where he was responsible for marketing the firm's property management and
leasing services to institutions. Mr. Conlon also spent two years as an
Investment Property Specialist with Carter & Associates where he specialized in
acquisitions and dispositions of office and retail properties for institutional
clients. Mr. Conlon received a Bachelor of Business Administration degree from
Georgia State University and a Master of Business Administration degree from the
University of Dallas. Mr. Conlon is a member of the International Association
for Financial Planning (IAFP), a general securities principal and a Georgia real
estate broker. Mr. Conlon also holds the certified commercial investment member
(CCIM) designation of the Commercial Investment Real Estate Institute and the
certified financial planner (CFP) designation of the Certified Financial Planner
Board of Standards, Inc.
LOUIS A. TRAHANT (age 51) is Vice President of Sales and Operations for
Wells Capital. He is responsible for the internal sales support provided to
regional vice presidents and to registered representatives of broker-dealers
participating in offerings of the public partnerships and other publicly offered
programs. Mr. Trahant is also responsible for statistical analysis of sales-
related activities, development of office and communication systems, and hiring
of administrative personnel. Mr. Trahant joined Wells Capital in 1993 as Vice
President for Marketing of the Southern Region and assumed his current position
in 1995. Prior to joining Wells Capital, Mr. Trahant had extensive sales and
marketing experience in the commercial lighting industry. He is a graduate of
Southeastern Louisiana University, a member of the International Association for
Financial Planning (IAFP) and holds a Series 22 license.
KIM R. COMER (age 44) rejoined Wells Capital as National Vice President of
Marketing in April 1997, after previously working for Wells Capital in similar
capacities from January 1992 through September 1995. Mr. Comer is responsible
for all investor, financial advisor and broker-dealer communications and
relations. In prior positions with Wells Capital, Mr. Comer served as Vice
President of Marketing for the southeast and northeast regions. He has ten years
of experience in the securities industry and is a licensed registered
representative and financial principal with the NASD. Additionally, he has
previous experience as controller and Chief Financial Officer of two regional
broker-dealers. In 1976, Mr. Comer graduated with honors from Georgia State
University with a BBA degree in accounting.
EDNA B. KING (age 61) is the Vice President of Investor Services for Wells
Capital. She is responsible for processing new investments, sales reporting and
investor communications. Prior to joining Wells Capital in 1985, Ms. King served
as the Southeast Service Coordinator for Beckman Instruments and an office
manager for a regional office of Commerce Clearing House. Ms. King holds an
Associate Degree in Business Administration
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from DeKalb Community College in Atlanta, Georgia and has completed various
courses at the University of North Carolina at Wilmington.
LINDA L. CARSON (age 54) is Vice President of Accounting for Wells Capital.
As such, she is responsible for partnership, property and corporate accounting,
SEC reporting and coordination of audits with the independent auditors. Ms.
Carson joined Wells Capital in 1989 as Staff Accountant, became Controller in
1991, and assumed her current position in 1996. Prior to jointing Wells Capital,
Ms. Carson was an accountant with an electrical distributor. She is a graduate
of City College of New York and has completed additional accounting courses at
Kennesaw State. She is a member of the National Society of Accountants.
MANAGEMENT
The General Partners of the Partnership, Mr. Wells and Wells Partners, will
be responsible for the direction and management of the Partnership, including
acquisition, construction and property management. Any action required to be
taken by the General Partners shall be taken only if it is approved, in writing
or otherwise, by both General Partners, unless the General Partners agree
between themselves to a different arrangement for the approval of action of the
General Partners. The powers and duties of the General Partners are described in
Article XI of the Partnership Agreement. The compensation payable to the General
Partners for performance of their duties is set forth in "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES."
A change in management of the Partnership may be accomplished by removal of
the General Partners or the designation of a successor or additional General
Partner, in each case in accordance with the provisions of the Partnership
Agreement. The Partnership Agreement provides that a General Partner may be
removed and a new General Partner elected upon the written consent or
affirmative vote of Limited Partners owning more than 50% of the Units. The
Partnership Agreement further provides that a General Partner may designate a
successor or additional General Partner with the consent of all other General
Partners and Limited Partners holding more than 50% of the Units, after
providing 90 days written notice to the General Partners and Limited Partners
and provided that the interests of the Limited Partners are not affected
adversely thereby. Generally, except in connection with such a designation, no
General Partner shall have the right to retire or withdraw voluntarily from the
Partnership or to sell, transfer or assign his or its interest without the
consent of the Limited Partners holding more than 50% of the Units. (See
"SUMMARY OF PARTNERSHIP AGREEMENT.")
PROPERTY MANAGER. Partnership Properties will be managed and leased
initially by Wells Management, which is a wholly owned subsidiary of Wells Real
Estate Funds, Inc. Wells Management is engaged in the business of real estate
management. It was organized and commenced active operations in 1983 to lease
and manage real estate projects which the General Partners or their Affiliates
operate or in which the General Partners or their Affiliates own an interest.
Wells Management currently manages in excess of 1,670,000 square feet of office
buildings and shopping centers. Its compensation for management of commercial
properties will be 4.5% of gross revenues. A special one-time initial rent-up or
leasing fee may be paid on the first leases for newly constructed properties.
This fee must be competitive, and the amount of this fee received by Wells
Management will be reduced by any amount paid to an outside broker. The General
Partners believe these terms will be no less favorable to the Partnership than
those customary for similar services in the relevant geographic area. Depending
upon the location of certain Partnership Properties and other circumstances,
unaffiliated property management companies may be retained to render property
management services for some Partnership Properties. (See "COMPENSATION OF THE
GENERAL PARTNERS AND AFFILIATES.")
In the event that Wells Management assists a tenant with tenant
improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5% of the cost of the tenant improvements.
Wells Real Estate Funds, Inc. is the sole shareholder of Wells Management,
and Mr. Wells is the sole Director and President of Wells Management (See
"CONFLICTS OF INTEREST.") The other principal officers
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of Wells Management are Michael C. Berndt, Vice President and Chief Financial
Officer, M. Scott Meadows, Vice President of Property Management, Robert H.
Stroud, Vice President of Leasing, and Michael L. Watson, Vice President of
Development.
The property manager will hire, direct and establish policies for the
Partnership's employees who will have direct responsibility for each property's
operations, including resident managers and assistant managers, as well as
building and maintenance personnel. Some or all of the other Partnership
employees may be employed on a part-time basis and may also be employed by one
or more of the following: (i) the General Partners; (ii) the property manager;
(iii) other partnerships organized by the General Partners and their Affiliates;
and (iv) other persons or entities owning properties managed by the property
manager. The property manager will also direct the purchase of equipment and
supplies and will supervise all maintenance activity.
The management fees to be paid to Wells Management will cover, without
additional expense to the Partnership, the property manager's general overhead
costs such as its expenses for rent and utilities. However, certain salaries and
other employee-related expenses, travel and other out-of-pocket expenses of
personnel of Wells Management (other than controlling persons of the General
Partners or their Affiliates) may be reimbursed by the Partnership to the extent
such expenses are directly related to the management of a specific Partnership
Property.
The principal office of Wells Management is located at 3885 Holcomb Bridge
Road, Norcross, Georgia 30092.
DEALER MANAGER. Wells Investment (the "Dealer Manager"), a member firm of
the National Association of Securities Dealers, Inc. ("NASD"), was organized in
May 1984 for the purpose of participating in and facilitating the distribution
of securities of real estate limited partnerships which may from time to time be
sponsored by the General Partners and their Affiliates.
The Dealer Manager will provide certain wholesaling, sales promotional and
marketing assistance services to the Partnership in connection with the
distribution of the Units offered hereby. It may also sell a limited number of
Units at the retail level. (See "PLAN OF DISTRIBUTION.")
Wells Real Estate Funds, Inc. is the sole shareholder of Wells Investment,
and Mr. Wells is the sole Director and President. (See "CONFLICTS OF INTEREST.")
Brian M. Conlon serves as Vice President of Wells Investment.
IRA CUSTODIAN. Wells Advisors was organized in 1991 for the purpose of
acting as a non-bank custodian for IRAs investing in the securities of real
estate limited partnerships sponsored by the General Partners and their
Affiliates. Wells Advisors charges no fees for such services. Wells Advisors was
approved by the Internal Revenue Service to act as a qualified non-bank
custodian for IRAs on March 20, 1992. In circumstances where Wells Advisors acts
as an IRA custodian, the authority of Wells Advisors is limited to holding the
Units on behalf of the beneficiary of the IRA and making distributions or
reinvestments in Units solely at the discretion of the beneficiary of the IRA.
Wells Advisors is not authorized to vote any of the Units held in any IRA except
in accordance with the written instructions of the beneficiary of the IRA. Mr.
Wells is the sole Director and President and owns 50% of the common stock and
all of the preferred stock of Wells Advisors.
INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
The Partnership is a limited partnership which was organized to invest in
commercial real properties, including properties which are under development or
construction, are newly constructed or have been constructed
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and have operating histories. The Partnership's objectives are: (i) to maximize
Net Cash From Operations; (ii) to preserve, protect and return the Capital
Contributions of the Partners; and (iii) to realize capital appreciation upon
the ultimate sale of Partnership Properties. No assurance can be given that
these objectives will be attained or that the Partnership's capital will not
decrease. The investment objectives of the Partnership may not be changed except
upon approval of a majority-in-interest of the Limited Partners.
Decisions relating to the purchase or sale of Partnership Properties will
be made by the General Partners. See "MANAGEMENT" for a description of the
background and experience of the General Partners.
ACQUISITION AND INVESTMENT POLICIES
The Partnership will seek to invest substantially all of the net Offering
proceeds available for investment on an all cash basis in the acquisition of
commercial real properties, which are under development or construction, are
newly constructed or which have been previously constructed and have operating
histories. While not limited to such investments, the General Partners will
generally seek to invest in commercial properties such as office buildings,
shopping centers and industrial properties which are less than five years old,
the space in which has been leased or preleased to one or more large corporate
tenants who satisfy the General Partners' standards of creditworthiness. It is
anticipated that a majority of the tenants of the Partnership Properties will be
top U.S. corporations or other entities each of which has a net worth in excess
of $100,000,000 or whose lease obligations are guaranteed by another corporation
or entity with a net worth in excess of $100,000,000. The Partnership may,
however, invest in office buildings, shopping centers or industrial properties
which are not preleased to such tenants or in other types of commercial or
industrial properties such as hotels, motels or business or industrial parks.
Notwithstanding the foregoing, the Partnership will not be actively engaged in
the business of operating hotels, motels or similar properties.
While the Partnership will seek to invest in properties that will satisfy
the primary objective of providing distributions of current cash flow to
investors, due to the fact that a significant factor in the valuation of income-
producing real properties is their potential for future income, the General
Partners anticipate that the majority of properties acquired by the Partnership
will satisfy both attributes of providing potential for capital appreciation and
providing distributions of current cash flow to investors. To the extent
feasible, the General Partners will strive to invest in a diversified portfolio
of properties that will satisfy the Partnership's investment objectives of
maximizing Net Cash From Operations, preserving investors' capital and realizing
capital appreciation upon the ultimate sale of Partnership Properties.
It is anticipated that approximately 84% of the proceeds from the sale of
Units will be used to acquire Partnership Properties and the balance will be
used to pay various fees and expenses. (See "ESTIMATED USE OF PROCEEDS.")
Unimproved or non-income producing property shall not be acquired except in
amounts and on terms which can be financed by the Offering proceeds or Cash
Flow. Investment in unimproved or non-income producing property may not exceed
15% of the net offering proceeds available for Investment in Properties. A
property which is expected to produce income within two years of its acquisition
will not be considered a non-income producing property. The Partnership will
not acquire property in exchange for Units.
Investment in property generally will take the form of fee title or of a
leasehold estate having a term, including renewal periods, of at least 40 years,
and may be made either directly or indirectly through investments in joint
ventures, general partnerships, co-tenancies or other co-ownership arrangements
with the developers of the properties, Affiliates of the General Partners or
other persons. (See "Joint Venture Investments" below.) In addition, the
Partnership may purchase properties and lease them back to the sellers of such
properties. While the General Partners will use their best efforts to structure
any such sale-leaseback transaction such that the lease will be characterized as
a "true lease" and so that the Partnership will be treated as the owner of the
property for federal income tax purposes, no assurance can be given that the IRS
will not challenge such characterization. In the event
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that any such sale-leaseback transaction is recharacterized as a financing
transaction for federal income tax purposes, deductions for depreciation and
cost recovery relating to such property would be disallowed or significantly
reduced. (See "FEDERAL INCOME TAX CONSEQUENCES--Characterization of Leases.")
The Partnership is not limited as to the geographic area where it may
conduct its operations, but the General Partners intend to invest in properties
located in the United States.
There are no specific limitations on the number or size of properties to be
acquired by the Partnership or on the percentage of net proceeds of this
Offering which may be invested in a single property. The number and mix of
properties acquired will depend upon real estate and market conditions and other
circumstances existing at the time the Partnership is acquiring its properties
and the amount of the net proceeds of this Offering.
In making investment decisions for the Partnership, the General Partners
will consider relevant real property and financial factors, including the
location of the property, its suitability for any development contemplated or in
progress, its income-producing capacity, the prospects for long-range
appreciation, its liquidity and income tax considerations. In this regard, the
General Partners will have substantial discretion with respect to the selection
of specific Partnership investments.
The Partnership will obtain independent appraisals for each property in
which it invests, and the purchase price of each such property will not exceed
its appraised value. However, the General Partners will rely on their own
independent analysis and not on such appraisals in determining whether to invest
in a particular property. It should be noted that appraisals are estimates of
value and should not be relied upon as measures of true worth or realizable
value. Copies of these appraisals will be available for review and duplication
by Limited Partners at the office of the Partnership and will be retained for at
least five years.
The Partnership's obligation to close the purchase of any investment will
generally be conditioned upon the delivery and verification of certain documents
from the seller or developer, including, where appropriate, plans and
specifications, environmental reports, surveys, evidence of marketable title
(subject only to such liens and encumbrances as are acceptable to the General
Partners), audited financial statements covering recent operations of any
properties having operating histories (unless such statements are not required
to be filed with the Securities and Exchange Commission and delivered to
investors), title and liability insurance policies and opinions of counsel in
certain circumstances. The Partnership will not close the purchase of any
property unless and until it obtains an environmental assessment (a minimum of a
Phase I review) for each property purchased and the General Partners are
generally satisfied with the environmental status of the property.
The Partnership may also enter into arrangements with the seller or
developer of a property whereby the seller or developer agrees that if during a
stated period the property does not generate a specified cash flow, the seller
or developer will pay in cash to the Partnership a sum necessary to reach the
specified cash flow level, subject in some cases to negotiated dollar
limitations.
In determining whether to purchase a particular property, the Partnership
may, in accordance with customary practices, obtain an option on such property.
The amount paid for an option, if any, is normally surrendered if the property
is not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real properties, the Partnership will
be subject to risks generally incident to the ownership of real estate,
including changes in general economic or local conditions, changes in supply of
or demand for similar or competing properties in an area, changes in interest
rates and availability of permanent mortgage funds which may render the sale of
a property difficult or unattractive, and changes in tax, real estate,
environmental and zoning laws. Periods of high interest rates and tight money
supply may make the sale of properties more difficult. The Partnership may
experience difficulty in keeping the properties fully leased due to tenant
turnover, general overbuilding or excess supply in the market area. Development
of real properties is
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subject to risks relating to the builders' ability to control construction costs
or to build in conformity with plans, specifications and timetables. (See "RISK
FACTORS--Real Estate Risks.")
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES
The Partnership may invest substantially all of the net proceeds available
for investment in properties on which improvements are to be constructed or
completed although the Partnership may not invest in excess of 15% of the net
offering proceeds available for Investment in Properties in properties which are
not expected to produce income within two years of their acquisition. To help
ensure performance by the builders of properties which are under construction,
completion of properties under construction shall be guaranteed at the price
contracted either by an adequate completion bond or performance bond, or, in
appropriate circumstances, the General Partners may rely upon the substantial
net worth of the contractor or developer or a personal guarantee accompanied by
financial statements showing a substantial net worth provided by an Affiliate of
the person entering into the construction or development contract as an
alternative to a completion bond or performance bond.
The Partnership may make periodic progress payments or other cash advances
to developers and builders of its properties prior to completion of construction
only upon receipt of an architect's certification as to the percentage of the
project then completed and as to the dollar amount of the construction then
completed. The Partnership intends to use such additional controls on its
disbursements to builders and developers as it deems necessary or prudent.
The Partnership may directly employ one or more project managers to plan,
supervise and implement the development of any unimproved properties which it
may acquire. Such persons would be compensated directly by the Partnership and,
other than through such employment, will not be affiliated with the General
Partners.
ACQUISITION OF PROPERTIES FROM WELLS DEVELOPMENT CORPORATION
The Partnership may acquire properties, directly or through joint ventures
with Affiliated entities, from Wells Development Corporation ("Wells
Development"), a Georgia corporation which the General Partners have recently
formed for the purposes of (i) acquiring existing income-producing commercial
real properties, and (ii) acquiring land, developing commercial real properties,
securing tenants for such properties, and selling such properties upon
completion to the Partnership, Prior Wells Public Programs and other Affiliates
of the General Partners. In the case of properties to be developed by Wells
Development and sold to the Partnership, it is anticipated that Wells
Development would acquire a parcel of land, enter into contracts for the
construction and development of a commercial building thereon, and enter into an
agreement with one or more tenants to lease all or a majority of the property
upon its completion, as well as secure a financing commitment from a commercial
bank or other institutional lender to finance the acquisition and development of
the property, all of which occur prior to entering into a contract with the
Partnership to acquire the developed property upon its completion and upon the
tenant taking possession under its lease. All construction required to develop
a parcel of land acquired by Wells Development will be performed by one or more
companies which are independent of Wells Development, the General Partners and
their Affiliates. The Partnership would be required to pay a substantial sum to
Wells Development at the time of entering into the contract as a refundable
earnest money deposit to be credited against the purchase price at closing,
which Wells Development would apply to the cost of acquiring the land and
initial development costs. It is anticipated that the earnest money deposit
would represent approximately twenty to thirty percent (20-30%) of the purchase
price of the developed property set forth in the purchase contract. The
purchase price for the developed property to be paid by the Partnership to Wells
Development would not exceed the cost to Wells Development of the acquisition,
construction and development of the project, including interest and other
carrying costs of Wells Development. All profits and losses during the period
any such property is held by Wells Development will accrue to the Partnership,
and no other benefit will accrue to Wells Development or its affiliates from the
sale of such property except for Acquisition and Advisory Fees payable to the
General Partners or their Affiliates which are described in detail elsewhere
herein. (See "COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES.") In the
case of properties acquired by the Partnership from Wells Development
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that have already been developed, Wells Development would be required to obtain
an appraisal for the property prior to contracting with the Partnership, and the
purchase price payable by the Partnership under the purchase contract would not
exceed the fair market value of the property as determined by the appraisal. In
the case of properties to be acquired by the Partnership from Wells Development
which have not yet been constructed at the time of contracting, Wells
Development would be required to obtain an independent "as built" appraisal for
the property prior to contracting with the Partnership, and the purchase price
payable by the Partnership under the purchase contract would not exceed the
anticipated fair market value of the developed property as determined by the
appraisal. All Funds paid by the Partnership to Wells Development would be
disbursed through The Bank of New York under the Custodial Agency Agreement.
It is anticipated that Wells Development would use the earnest money
deposit received from the Partnership upon execution of a purchase contract as
partial payment for the cost of the acquisition of the land and construction
expenditures, and would borrow the remaining funds necessary to complete the
development of the property from an independent commercial bank or other
institutional lender by pledging the real property, development contracts,
leases and all other contract rights relating to the project as security for
such borrowing. The contract between the Partnership and Wells Development
would require Wells Development to deliver at closing to the Partnership title
to the property, as well as an assignment of the lease agreement, free and clear
of all encumbrances relating to any such borrowing, and in no event will the
Partnership take title to the property subject to a mortgage or otherwise incur
indebtedness in connection with the acquisition of such property. Wells
Development would hold the title to the property on a temporary basis only for
the purpose of facilitating the acquisition and development of the property
prior to its resale to the Partnership and other Affiliates of the General
Partners, and Wells Development would not hold title to any such property for
more than 12 months prior to reselling to the Partnership.
The Partnership may enter into a contract to acquire property from Wells
Development notwithstanding the fact that at the time of contracting, the
Partnership has not yet raised sufficient proceeds to enable it to pay the full
amount of the purchase price at closing, under the expectation that the
Partnership will raise sufficient additional proceeds from its Offering during
the period between execution of the contract and the date provided in the
contract for closing. In the case of properties to be developed by Wells
Development, the contract will likely provide that the closing will occur
immediately following the completion of the development by Wells Development.
However, it is likely that the contract will also provide that the Partnership
may elect to close the purchase of the property before the development has been
completed, in which case the Partnership would obtain an assignment of the
construction and development contracts from Wells Development and would complete
the construction either directly or through a joint venture with an Affiliate.
Any contract between the Partnership (directly or indirectly through a joint
venture with an Affiliate) and Wells Development for the purchase of property to
be developed by Wells Development will provide that the Partnership would be
obligated to purchase the property only if (i)Wells Development completes the
development of the improvements in accordance with the specifications of the
contract, and an approved tenant takes possession of the building under a lease
satisfactory to the Partnership; and (ii) the Partnership has sufficient net
proceeds available for investment in properties at closing to pay the balance of
the purchase price remaining after payment of the earnest money deposit. The
General Partners will not cause the Partnership to enter into a contract to
acquire property from Wells Development if they do not reasonably anticipate
that funds will be available to purchase the property at the time of closing.
However, if the Partnership enters into a contract to acquire property from
Wells Development and, at the time for closing, is unable to purchase the
property because it does not have sufficient net proceeds available for
investment, the Partnership would not be required to close the purchase of the
property and would be entitled to a refund of its earnest money deposit from
Wells Development. Because Wells Development is a newly formed entity without
substantial assets or operations, Wells Development's obligations to refund the
Partnership's earnest money deposit will be guaranteed by Wells Management
Company, Inc. ("Wells Management"), an Affiliate which is engaged in the
business of real estate management.
Wells Management currently manages in excess of 1,670,000 square feet of
office buildings and shopping centers and derives substantial income from such
operations which the Partnership could obtain under the guaranty in the event
that Wells Development is unable to meet its obligation to repay the earnest
money deposit to the
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Partnership. For the fiscal year ended February 28, 1997, Wells Management
reported $1,154,366 in gross operating revenues and $121,486 in net income, and
for the six month period ended August 31, 1997, Wells Management reported
$738,550 in gross operating revenues and $388,256 in net income. Under such
circumstances, the Partnership may not be able to obtain the earnest money
deposit from Wells Management in a lump sum since Wells Management's only
significant assets are its contracts for property management and leasing
services, but would more likely be required to accept installment payments over
some period of time out of Wells Management's operating revenues. (See "RISK
FACTORS.")
The acquisition of real properties from Wells Development, as outlined
above, will involve significant risks, as further set forth in "RISK FACTORS--
Risks Relating to Acquisition of Properties from Wells Development Corporation."
TERMS OF LEASES AND LESSEE CREDITWORTHINESS
The terms and conditions of any lease entered into by the Partnership with
regard to a tenant may vary substantially from those described herein. However,
a majority of leases are expected to be what is generally referred to as "triple
net" leases, which means that the lessee will be required to pay or reimburse
the Partnership for all real estate taxes, sales and use taxes, special
assessments, utilities, insurance and building repairs as well as lease
payments.
The General Partners have developed specific standards for determining
the creditworthiness of potential lessees of Partnership Properties. While
authorized to enter into leases with any type of lessee, the General Partners
anticipate that a majority of the tenants of the Partnership Properties will be
top U.S. corporations or other entities each of which has a net worth in excess
of $100,000,000 or whose lease obligations are guaranteed by another corporation
or entity with a net worth in excess of $100,000,000.
BORROWING POLICIES
The Partnership will acquire properties on an all cash basis, and the
General Partners do not intend to cause the Partnership to borrow any funds.
However, in order to give the General Partners flexibility in the management of
the Partnership, the Partnership Agreement authorizes the Partnership to borrow
funds (a) for Partnership operating purposes in the event of unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership become insufficient for the maintenance
and repair of Partnership Properties or for the protection or replacement of the
Partnership's assets, and (b) in order to finance improvement of and
improvements to properties, when the General Partners deem such improvements to
be necessary or appropriate to protect the capital previously invested in the
properties, to protect the value of the Partnership's investment in a particular
property, or to make a particular property more attractive for sale or lease.
The Partnership cannot borrow funds for any other purposes. The aggregate
amount of Partnership borrowings at any given time may not exceed 25% of the
total purchase price of Partnership Properties. The General Partners have
represented that they will not cause the Partnership to incur indebtedness
unless the Partnership first obtains an opinion of counsel or an opinion from
its tax accountants that the indebtedness to be obtained more likely than not
will not cause the income of the Partnership to be characterized as UBTI.
Investors should be aware, however, that any such opinion would be based upon
various representations and assumptions, and would have no binding effect on the
IRS or any court. Accordingly, no assurance can be given that the conclusions
reached in any such opinion, if contested, would be sustained by a court, or
that any such indebtedness to be obtained by the Partnership in the future would
not cause the income allocated to Limited Partners that are tax-exempt entities
to be taxed as UBTI. (See "FEDERAL INCOME TAX CONSEQUENCES--Investment by
Qualified Plans and Other Tax-Exempt Entitles.")
If the Partnership does incur indebtedness the repayment of which is
secured by Partnership Properties, it intends to incur only non-recourse
indebtedness in connection with such borrowings, meaning that neither the
Partnership nor any Partner will be personally liable therefor. The lender's
rights on default generally would be
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limited to foreclosure on the property which secured the obligation. There is no
limitation on the maximum amount of mortgage indebtedness which may be incurred
with respect to any single property; however, the Partnership anticipates that
mortgage indebtedness with respect to any single property would not exceed 10%
of the property's fair market value and that aggregate borrowings relating to
all properties would not exceed 10% of their combined fair market value. The
Partnership will not incur debt to fund distributions to Limited Partners. If
the Partnership incurs mortgage indebtedness, it would endeavor to obtain level
payment financing, meaning that the amount of debt service payable would be
substantially the same each year, although some mortgages might provide for a
so-called "balloon" payment.
The Partnership may borrow funds from the General Partners or their
Affiliates in such situations only if the following qualifications are met: (a)
any such borrowing cannot constitute a "financing" as that term is defined under
the NASAA Guidelines, i.e., all indebtedness encumbering Partnership Properties
or incurred by the Partnership, the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than 50% of the
principal amount of which is scheduled to be paid during the first 24 months;
(b) interest and other financing charges or fees must not exceed the amounts
which would be charged by unrelated lending institutions on comparable financing
for the same purpose in the same locality as the Partnership's principal place
of business; and (c) no prepayment charge or penalty shall be required.
Except in connection with a potential borrowing as described above, the
Partnership will not issue senior securities.
JOINT VENTURE INVESTMENTS
The Partnership is likely to enter into one or more joint ventures with
Affiliated entities for the acquisition, development or improvement of
properties, under the conditions described below. The Partnership may invest
some or all of the proceeds of the Offering in such joint ventures. In this
connection, the Partnership may enter into joint ventures with Prior Wells
Public Programs or future real estate programs or other publicly registered
entities sponsored by the General Partners or their Affiliates. The General
Partners also have the authority to enter into joint ventures, general
partnerships, co-tenancies and other participations with real estate developers,
owners and others for the purpose of developing, owning and operating properties
in accordance with the Partnership's investment policies. (See "RISK FACTORS"
and "CONFLICTS OF INTEREST.") In determining whether to invest in a particular
joint venture, the General Partners will evaluate the real property which such
joint venture owns or is being formed to own under the same criteria described
herein for the selection of real property investments of the Partnership. (See
"Acquisition and Investment Policies," Development and Construction of
Properties," Terms of Leases and Lessee Creditworthiness," and "Borrowing
Practices.")
At such time as the General Partners believe that a reasonable probability
exists that the Partnership will enter into a joint venture with a Prior Wells
Public Program for the acquisition or development of a specific property, this
Prospectus will be supplemented to disclose the terms of such proposed
investment transaction. Based upon the General Partners' experience, in
connection with the development of a property which is currently owned by a
Prior Wells Public Program, this would normally occur upon the signing of
legally binding leases with one or more major tenants for commercial space to be
developed on such property, but may occur before or after any such signing,
depending upon the particular circumstances surrounding each potential
investment. It should be understood that the initial disclosure of any such
proposed transaction cannot be relied upon as an assurance that the Partnership
will ultimately consummate such proposed transaction nor that the information
provided in any such Supplement to this Prospectus concerning any such proposed
transaction will not change after the date of the Supplement. The only
undeveloped property which is currently owned by any Prior Wells Public Program
in which the General Partners believe that there is a realistic possibility that
the Partnership may invest are the undeveloped portions of the tract of land
located in Clemmons, North Carolina, a portion of which has been developed as a
shopping center owned by a joint venture among Wells Fund VI, Wells Fund VII and
Wells Fund VIII. (See "PRIOR PERFORMANCE SUMMARY.")
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The Partnership may enter into a partnership, joint venture or co-tenancy
with unrelated parties if (i) the management of such partnership, joint venture
or co-tenancy is under the control of the Partnership in that the Partnership or
an Affiliate of the Partnership possesses the power to direct or to cause the
direction of the management and policies of any such partnership, joint venture
or co-tenancy; (ii) the Partnership, as a result of such joint ownership or
partnership ownership of a property, is not charged, directly or indirectly,
more than once for the same services; (iii) the joint ownership, partnership or
co-tenancy agreement does not authorize or require the Partnership to do
anything as a partner, joint venturer or co-tenant with respect to the property
which the Partnership or the General Partners could not do directly because of
the Partnership Agreement; and (iv) the General Partners and their Affiliates
are prohibited from receiving any compensation, fees or expenses which are not
permitted to be paid under the Partnership Agreement. In the event that any
such co-ownership arrangement contains a provision giving each party a right of
first refusal to purchase the other party's interest, the Partnership may not
have sufficient capital to finance any such buy-out. (See "RISK FACTORS.")
The Partnership intends to enter into joint ventures with other publicly
registered Affiliated real estate programs for the acquisition of properties,
but may only do so provided that (i) each such co-venturer has substantially
identical investment objectives as those of the Partnership; (ii) the
Partnership, as a result of such joint ownership or partnership ownership of a
property, is not charged, directly or indirectly, more than once for the same
services; (iii) the compensation payable to the General Partners and their
Affiliates is substantially identical in each program; (iv) the Partnership will
have a right of first refusal to buy if such co-venturer elects to sell its
interest in the property held by the joint venture; and (v) the investment by
the Partnership and such Affiliate are on substantially the same terms and
conditions. In the event that the co-venturer were to elect to sell property
held in any such joint venture, however, the Partnership may not have sufficient
funds to exercise its right of first refusal to buy the other co-venturer's
interest in the property held by the joint venture. In the event that any joint
venture with an Affiliated entity holds interests in more than one property, the
interest in each such property may be specially allocated based upon the
respective proportion of funds invested by each co-venturer in each such
property. Entering into such joint ventures with Affiliated entities will
result in certain conflicts of interest. (See "RISK FACTORS" and "CONFLICTS OF
INTEREST--Joint Ventures with Affiliates of the General Partners.")
DISPOSITION POLICIES
The Partnership anticipates that prior to its termination and dissolution,
all of the Partnership's properties will be sold. The Partnership intends to
hold the various real properties in which it invests until such time as sale or
other disposition appears to be advantageous to achieve the Partnership's
investment objectives or until it appears that such objectives will not be met.
In deciding whether to sell properties, the Partnership will consider factors
such as potential capital appreciation, Cash Flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the Limited Partners. The General Partners anticipate that the Partnership will
sell existing income-producing properties within ten to 12 years after
acquisition and will sell property acquired for development within ten to 12
years from the date of completion of such development. However, the General
Partners may exercise their discretion as to whether and when to sell a
property, and the Partnership will have no obligation to sell properties at any
particular time, except in the event that Limited Partners holding a majority of
the Units vote to liquidate the Partnership in response to a formal proxy to
liquidate. (See "SUMMARY OF PARTNERSHIP AGREEMENT--Proxy to Liquidate.")
Cash Flow will not be reinvested in newly acquired Partnership Properties,
however, in the discretion of the General Partners, may be held as working
capital reserves, or used to make capital improvements to existing Partnership
Properties. In addition, Sale Proceeds generally will not be reinvested but
will be distributed to the Partners. Thus, the Partnership is intended to be
self-liquidating in nature. However, Sale Proceeds need not be so distributed
if such proceeds are, in the discretion of the General Partners, (i) used to
purchase land underlying any of the Partnership's Properties, (ii) used to buy
out the interest of any co-venturer or joint venture partner in a property which
is jointly owned, (iii) held as working capital reserves, or (iv) used to make
capital improvements to existing Partnership Properties. Notwithstanding the
above, reinvestment of Sale Proceeds will not occur unless
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sufficient cash will be distributed to pay any federal or state income tax
(assuming Limited Partners will be subject to a 35% combined federal and state
tax bracket) created by the sale of the property.
Although not required to do so, the Partnership will generally seek to sell
its properties for all cash. The Partnership may, however, accept terms of
payment from a buyer which include purchase money obligations secured by
mortgages as partial payment, depending upon then prevailing economic conditions
customary in the area in which the property being sold is located, credit of the
buyer and available financing alternatives. Some properties sold by the
Partnership may be sold on the installment basis under which only a portion of
the sales price will be received in the year of sale, with subsequent payments
spread over a number of years. In such event, the full distribution by the
Partnership of the net proceeds of any sale may be delayed until the notes are
paid, sold or financed.
OTHER POLICIES
The Partnership will not invest as a limited partner in other limited
partnerships.
Except in connection with sales of properties by the Partnership where
purchase money obligations may be taken by the Partnership as partial payment,
the Partnership will not make loans to any person, nor will the Partnership
underwrite securities of other issuers, offer securities (except potentially for
purchase money obligations to sellers) in exchange for property, or invest in
securities of other issuers for the purpose of exercising control.
Notwithstanding the foregoing, the Partnership may invest in joint ventures or
partnerships as described above and in a corporation where real estate is the
principal asset and its acquisition can best be effected by the acquisition of
the stock of such corporation, subject to the limitations set forth below.
In an attempt to comply with the "real estate operating company" exemption
under the Plan Asset Regulations (see "INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS"), the General Partners intend to invest more than 50% of
the Partnership's assets in real estate which is managed or developed and with
respect to which the Partnership will have the right to participate
substantially in the management or development activities. Specifically, the
General Partners intend to structure the management and development activities
of the Partnership such that at all times more than 50% of the Partnership's
assets are invested in multi-tenant properties with individually negotiated
leases whereby maintenance of the common areas and general maintenance
activities with respect to such properties will be the Partnership's
responsibility and not passed through to the lessees of such properties.
In addition, in an attempt to qualify for the 90% qualified income
exception to the treatment of the Partnership as a publicly traded partnership
taxable as a corporation under Section 7704 of the Code, the General Partners
intend to operate the Partnership such that at all times more than 90% of the
gross income of the Partnership will be derived from interest, real property
rents (excluding rents which are contingent on the profits of the lessees and
rents from rental of personal property) and gains from the sale of real
property. (See "FEDERAL INCOME TAX CONSEQUENCES--Publicly Traded
Partnerships.")
The Partnership will not: (i) issue any Units after the termination of the
Offering or issue Units in exchange for property; (ii) make investments in real
estate mortgages (except in connection with the sale or other disposition of a
property); (iii) make loans to the General Partners or their Affiliates; (iv)
invest in or underwrite the securities of other issuers, including any publicly
offered or traded limited partnership interests, except for permitted temporary
investments pending utilization of Partnership funds as described below in
"CUSTODIAL AGENCY AGREEMENT," provided that following one year after the
commencement of operations of the Partnership no more than 45% of the value of
the Partnership's total assets (exclusive of Government securities and cash
items) will consist of, and no more than 45% of the Partnership's net income
after taxes (for the last four fiscal quarters combined) will be derived from,
securities other than (i) Government securities, or (ii) securities in a
corporation where real estate is the principal asset and the acquisition of such
real estate can best be effected by the acquisition of the stock of such
corporation, provided that any such corporation is either (A) a corporation
which
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is a majority owned subsidiary of the Partnership and which is not an investment
company, or (B) a corporation which is controlled primarily by the Partnership,
through which corporation the Partnership engages in the business of acquisition
and operation of real estate and which is not an investment company.
CUSTODIAL AGENCY AGREEMENT
The Partnership has entered into a Custodial Agency Agreement (the
"Custodial Agency Agreement") with The Bank of New York (the "Agent"), whereby
all proceeds of this Offering obtained from Limited Partners, all Partnership
Properties to be acquired by the Partnership, and the net proceeds from any sale
of a Partnership Property will be placed in the custody of the Agent, which will
hold such funds and properties as agent for the Partnership. The purpose for
entering into the Custodial Agency Agreement is to ensure that Partnership funds
and Partnership Properties are protected against fraud and theft. The Agent is
not in any way affiliated with the General Partners or their Affiliates.
The Agent will initially act as the Escrow Agent until the closing of the
Minimum Offering. Thereafter, under the terms of the Custodial Agency
Agreement, cash obtained from investors representing proceeds of this Offering
will continue to be delivered to the Agent and will be deposited into a
custodial account. Twenty percent of such Offering proceeds (representing such
partnership expenditures as selling commissions, organizational and offering
expenses and acquisition advisory fees) will immediately be redeposited into a
separate account in the name of the Partnership. A minimum of 80% of such
proceeds shall be retained in the custodial account and will be invested in
certificates of deposit, short-term debt obligations and interest-bearing
accounts. All interest and other income earned on the proceeds held by the
Agent in the custodial account, less the applicable fees described below, will
accrue to the benefit of the Partnership and be deposited into the Partnership's
account on a monthly basis.
When a property to be acquired by the Partnership is identified, upon
written instructions from the Partnership and receipt of an appraisal from an
independent appraiser, the Agent is authorized and directed under the Custodial
Agency Agreement to disburse funds held in the custodial account for the
acquisition of such property. The purchase price for any property shall not
exceed its appraised value. Title to properties acquired on behalf of the
Partnership or, in certain instances, title to joint venture or partnership
interests in which the Partnership may invest, will be held in the name of the
Agent, as agent for the Partnership. Title to properties may be held in any
legally recognized form, including in fee simple, undivided interest, as a co-
tenant or as a lessee. There is no requirement that any joint venture partner,
co-tenant or other co-owner of properties purchased jointly with the Partnership
also be subject to a custodial agency agreement.
All properties acquired will be managed by Wells Management Company, Inc.
or by such other management companies that may be designated by the Partnership.
All rents, revenues and other income relating to Partnership Properties shall be
payable to the Partnership, and the Partnership will be responsible for paying
all operating expenses, maintenance, repairs, taxes, insurance and liabilities
relating to such properties and for making distributions of Net Cash From
Operations, if any.
When the Partnership decides to sell any of its properties, upon written
instruction from the Partnership and the receipt of an appraisal from an
independent appraiser evidencing that the sales price of the property to be sold
is not less than 90% of the appraised value of such property, the Agent will be
authorized to execute such real estate transfer documents as may be necessary to
effect any such sale of a Partnership property. After the closing, the
Partnership's allocable share of Sale Proceeds shall be paid to the Agent and
deposited into the custodial account. All such Sale Proceeds will be disbursed
to the Limited Partners and the General Partners of the Partnership directly by
the Agent upon receipt of and pursuant to a list obtained from the General
Partners setting forth the names, amounts to be disbursed and addresses of the
Limited Partners of the Partnership.
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The Custodial Agency Agreement provides that the Agent shall in all
instances hold itself out as agent of the Partnership and not as principal in
all dealings with third parties. The Custodial Agency Agreement prohibits the
Agent from applying funds or properties held on behalf of the Partnership in any
manner except for the exclusive benefit of the Partnership. While the Agent
will have certain fiduciary duties to the Partnership pursuant to the Custodial
Agency Agreement, the General Partners will not be contracting away their
fiduciary duties under common law, and the existence of the Custodial Agency
Agreement between the Agent and the Partnership will not in any way reduce or
eliminate the fiduciary duties the General Partners have to the Partnership and
the Limited Partners. Under the Custodial Agency Agreement, the Partnership
agrees to indemnify and hold the agent harmless from any liabilities, losses,
claims, damages and expenses which the Agent might sustain as a result of acting
as agent for the Partnership, provided that any such liability is not the result
of gross negligence or willful misconduct by the Agent.
The Custodial Agency Agreement provides that the Agent shall be paid during
the term of the Custodial Agency Agreement an annual administrative fee equal to
five basis points ($500 per $1,000,000 held) and an automated cash management
fee of .35% per annum, each of which fees are calculated based on the market
value of assets held as agent for the Partnership.
REAL PROPERTY INVESTMENTS
As of the date of this Prospectus, the Partnership has not acquired nor
contracted to acquire any specific real properties. The General Partners are
continually evaluating various potential property investments and engaging in
discussions and negotiations with sellers, developers and potential tenants
regarding the purchase and development of properties for the Partnership and
prior programs. At such time during the negotiations for a specific property as
the General Partners believe that a reasonable probability exists that the
Partnership will acquire such property, this Prospectus will be supplemented to
disclose the negotiations and pending acquisition. Based upon the General
Partners' experience and acquisition methods, this will normally occur on the
signing of a legally binding purchase agreement for the acquisition of a
specific property, but may occur before or after such signing or upon the
satisfaction or expiration of major contingencies in any such purchase
agreement, depending on the particular circumstances surrounding each potential
investment. A supplement to this Prospectus will describe any improvements
proposed to be constructed thereon and other information considered appropriate
for an understanding of the transaction. Further data will be made available
after any pending acquisition is consummated, also by means of a supplement to
this Prospectus, if appropriate. IT SHOULD BE UNDERSTOOD THAT THE INITIAL
DISCLOSURE OF ANY PROPOSED ACQUISITION CANNOT BE RELIED UPON AS AN ASSURANCE
THAT THE PARTNERSHIP WILL ULTIMATELY CONSUMMATE SUCH PROPOSED ACQUISITION NOR
THAT THE INFORMATION PROVIDED CONCERNING THE PROPOSED ACQUISITION WILL NOT
CHANGE BETWEEN THE DATE OF SUCH SUPPLEMENT AND ACTUAL PURCHASE.
It is intended that the proceeds of this Offering will be invested in
properties in accordance with the Partnership's investment policies. In the
event that all of the Units offered hereby are sold, it is anticipated that the
Partnership will invest in four to six properties. Funds available for
investment in Partnership Properties which are not expended or committed to the
acquisition or development of specific real properties on or before the later of
the second anniversary of the effective date of the Registration Statement or
one year after the termination of the Offering and not reserved for working
capital purposes will be returned to the Limited Partners. (See "DISTRIBUTIONS
AND ALLOCATIONS" as to when funds shall be deemed committed for this purpose.)
Adequate insurance coverage will be obtained for all properties in which
the Partnership will invest.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
As of the date of this Prospectus, the Partnership had not yet commenced
active operations. The Partnership will not commence active operations until it
has received and accepted subscriptions for a minimum of 125,000 Units
($1,250,000).
Following achievement of such funding level, subscription proceeds may be
released to the Partnership from escrow and applied to the payment or
reimbursement of selling commissions and other Organization and Offering
Expenses, leaving estimated net proceeds available for investment and operations
of approximately $1,093,750. (See "ESTIMATED USE OF PROCEEDS.") Thereafter,
the Partnership will experience a relative increase in liquidity as additional
subscriptions for Units are received, and a relative decrease in liquidity as
net Offering proceeds are expended in connection with the acquisition,
development and operation of Partnership Properties.
As of the initial date of this Prospectus, the Partnership has not entered
into any arrangements creating a reasonable probability that any specific
property will be acquired by the Partnership. The number of Partnership
Properties to be acquired by the Partnership will depend upon the number of
Units sold and the resulting amount of the net proceeds available for investment
in properties available to the Partnership. (See "RISK FACTORS.")
The General Partners are not aware of any material trends or uncertainties,
favorable or unfavorable, other than national economic conditions affecting real
estate generally, which may be reasonably anticipated to have a material impact
on either capital resources or the revenues or income to be derived from the
operation of Partnership Properties.
Until required for the acquisition, development or operation of properties,
net Offering proceeds will be kept in short-term, liquid investments. Because
the Partnership will purchase properties on an all cash basis and the vast
majority of leases for the properties acquired by the Partnership will provide
for tenant reimbursement of operating expenses, it is not anticipated that a
permanent reserve for maintenance and repairs of Partnership properties will be
established. However, to the extent that the Partnership has insufficient funds
for such purposes, the General Partners will advance to the Partnership an
aggregate amount of up to 1% of Gross Offering Proceeds for maintenance and
repairs of Partnership Properties. The General Partners also may, but are not
required to, establish reserves from Gross Offering Proceeds, out of Cash Flow
generated by operating properties or out of Nonliquidating Net Sale Proceeds.
INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS
While the General Partners have attempted to structure the Partnership in
such a manner that it will be an attractive investment vehicle for Qualified
Plans, IRAs and other tax-exempt entities, in considering an investment in the
Partnership of a portion of the assets of a Retirement Plan, the plan's
fiduciary should consider all applicable provisions of the Code and ERISA. In
this regard, IRAs which are not sponsored or endorsed by an employer or by an
employee organization and Keogh Plans under which only partners or a sole
proprietor are participants generally are not subject to the provisions of
ERISA; however, fiduciaries of such accounts should review carefully the
exceptions set forth below. In general, Qualified Plan fiduciaries should
consider: (i) whether the investment is in accordance with the documents and
instruments governing such Qualified Plan; (ii) whether the investment satisfies
the prudence and diversification requirements of Sections 404(a)(1)(B) and
404(a)(1)(C) of ERISA; (iii) whether the investment will result in UBTI to the
Qualified Plan (or to an investing IRA, Keogh Plan or other tax-exempt entity)
(see "FEDERAL INCOME TAX CONSEQUENCES--INVESTMENT BY QUALIFIED PLANS AND OTHER
TAX-EXEMPT ENTITIES"); (iv) whether there is sufficient liquidity for the
Qualified Plan
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after taking this investment into account; (v) the need to value the assets of
the Qualified Plan annually; and (vi) whether the investment would constitute or
give rise to a prohibited transaction under either Section 406 of ERISA or
Section 4975 of the Code.
ERISA also requires generally that the assets of employee benefit plans be
held in trust and that the trustee, or a duly authorized investment manager
(within the meaning of Section 3(38) of ERISA), have exclusive authority and
discretion to manage and control the assets of the plan. Persons who are
fiduciaries of employee benefit plans subject to ERISA have certain duties
imposed on them by ERISA and, as noted above, certain transactions between an
employee benefit plan and the parties in interest with respect to such plan
(including fiduciaries) are prohibited. Similar prohibitions apply to
Retirement Plans under the Code, and IRAs and Keogh Plans covering only self-
employed individuals which are not subject to ERISA are, nevertheless, subject
to the prohibited transaction rules under the Code. For purposes of both ERISA
and the Code, any person who exercises any authority or control with respect to
the management or disposition of the assets of a Retirement Plan is considered
to be a fiduciary of such Retirement Plan (subject to certain exceptions not
here relevant).
Potential investors who intend to purchase Units in their IRAs and any
trustee of an IRA or other fiduciary of a Retirement Plan considering an
investment in Units should take into consideration the limited liquidity of an
investment in the Units as it relates to applicable minimum distribution
requirements under the Code for the IRA or other Retirement Plan. If the Units
are still held in the IRA or Retirement Plan and the Partnership Properties have
not yet been sold at such time as mandatory distributions are required to
commence to the IRA beneficiary or Qualified Plan participant, applicable
provisions of the Code and Regulations will likely require that a distribution
in kind of the Units be made to the IRA beneficiary or Qualified Plan
participant. Any such distribution in kind of Units must be included in the
taxable income of the IRA beneficiary or Qualified Plan participant for the year
in which the Units are received at the then current fair market value of the
Units without any corresponding cash distributions with which to pay the income
tax liability arising out of any such distribution. (See "RISK FACTORS.")
PLAN ASSETS - GENERALLY
ERISA provides a comprehensive statutory scheme regarding the investment in
and management of a plan's assets. While the General Partners have used their
best efforts to structure the Partnership so that the assets of the Partnership
will not be deemed to be assets of the Retirement Plans investing as Limited
Partners ("Plan Assets"), in the event that the assets of the Partnership were
deemed to be Plan Assets, the General Partners would be considered to be plan
fiduciaries under ERISA (and the Code), and certain contemplated transactions
between the Partnership and the General Partners may be deemed to be "prohibited
transactions." Additionally, if the assets of the Partnership are deemed to be
Plan Assets, the standards of prudence and other provisions of Title I of ERISA
applicable to investments by Retirement Plans would extend (as to all plan
fiduciaries) to the General Partners with respect to investments made by the
Partnership.
PLAN ASSETS
The definition of Plan Assets was addressed initially by the Department of
Labor in 1975 by the adoption of Interpretive Bulletin 75-2, which provided that
the assets of a corporation or partnership in which an employee benefit plan
invested would not generally be treated as assets of such plan. The Department
stated that:
Generally, investment by a plan in securities (within the meaning of
section 3(20) of the Employee Retirement Income Security Act of 1974) of a
corporation or partnership will not, solely by reason of such investment,
be considered to be an investment in the underlying assets of such
corporation or partnership so as to make such assets of the entity "plan
assets" and thereby make a subsequent transaction between the party in
interest and the corporation or partnership a prohibited transaction under
Section 406 of the Act.
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In 1986, the Department of Labor issued regulations (the "Plan Asset
Regulations") relating to the definition of Plan Assets, which adopt the general
statement regarding Plan Assets set forth in Interpretive Bulletin 75-2;
however, the Plan Asset Regulations further provide that assets of investment
entities in which Retirement Plans make equity investments will be treated as
assets of such plans unless such investments are in publicly offered securities,
are in securities offered by an investment company registered under the
Investment Company Act of 1940, or come within one of the specific exemptions
set forth below. As the Partnership is not a registered investment company, the
exemptions contained in the Plan Asset Regulations which may apply to the
Partnership include: (i) investments in "publicly offered securities"
(generally interests which are freely transferable, widely-held and registered
with the Securities and Exchange Commission); (ii) investments in interests in
"real estate operating companies;" and (iii) investments in which equity
participation by "benefit plan investors" is not significant. The Plan Asset
Regulations provide that equity participation in an entity would be
"significant" if at any time 25% or more of the value of any class of equity
interest is held by benefit plan investors. The term "benefit plan investors"
is broadly defined to include any employee pension or welfare benefit plan,
whether or not subject to ERISA, any plan described in Section 4975(e)(1) of the
Code and any entity whose underlying assets include Plan Assets by reason of
plan investment in the entity. The General Partners do not anticipate that the
Partnership will qualify for the exemption described in (iii) above.
EXEMPTIONS UNDER PLAN ASSET REGULATIONS
As noted above, if a Retirement Plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
Plan Assets. Under the Plan Asset Regulations, the definition of publicly
offered securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although the Partnership should satisfy the registration
requirements under this definition, the determinations of whether a security is
"widely-held" and "freely transferable" are inherently factual matters. The
Plan Asset Regulations provide that a class of securities will be "widely-held"
if it is held by 100 or more persons. Accordingly, to preserve the ability of
the Partnership to qualify for this exemption, the General Partners may suspend
the offering of Units to Retirement Plans, if upon the closing of the Minimum
Offering less than 100 persons have acquired each class of Units and, in such
case, would continue the offering to Retirement Plans only after at least 100
persons have acquired each class of Units.
With respect to the "freely transferable" requirement, the Plan Asset
Regulations provide several examples of restrictions on transferability with
respect to offerings in which the minimum investment is $10,000 or less which,
absent unusual circumstances, will not, either alone or in any combination,
cause the rights of ownership to be considered not "freely transferable." The
allowed restrictions are based upon restrictions commonly found in public real
estate limited partnerships which are imposed to comply with state and federal
law, to assure continued eligibility for favorable tax treatment and to avoid
certain practical administrative problems. The Partnership Agreement is
intended to satisfy the freely transferable requirement with respect to the
Units. It should be noted in this regard, however, that because certain adverse
tax consequences can result if the Partnership were to be characterized as a
"publicly traded partnership" under Section 7704 of the Code (see "FEDERAL
INCOME TAX CONSEQUENCES--Publicly Traded Partnerships"), certain additional
restrictions on the transferability of Units have been incorporated into the
Partnership Agreement which are intended to prevent such reclassification of the
Partnership as a publicly traded partnership (the "Section 7704 Restrictions").
In this regard, the Plan Asset Regulations provide specifically that any
"restriction on, or prohibition against, any transfer or assignment which would
either result in a termination or reclassification of the entity for federal or
state tax purposes" will ordinarily not alone or in combination with other
restrictions affect a finding that securities are "freely transferable." The
Plan Asset Regulations were promulgated prior to the enactment of Section 7704
of the Code, however, and accordingly, the incorporation of the Section 7704
Restrictions into the Partnership Agreement may have the effect of making the
"publicly offered securities" exemption unavailable to the Partnership.
On the other hand, if the Department of Labor interprets the Section 7704
Restrictions in the Partnership Agreement consistently with the specific
exemption language in the Plan Asset Regulations set forth above, the
Partnership should qualify for the publicly offered securities exemption
contained in the Plan Asset Regulations.
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However, because of the factual nature of the determination and lack of guidance
as to the meaning of the term "freely transferable," particularly in light of
the Section 7704 Restrictions, there can be no assurance that the Partnership
will, in fact, qualify for this exemption.
Even if the Partnership were not to qualify for the "publicly offered
securities" exemption, the Plan Asset Regulations also provide an exemption from
the Plan Assets definition with respect to securities issued by a "real estate
operating company." An entity is a real estate operating company if, during the
relevant valuation periods defined in the Plan Asset Regulations, at least 50%
of its assets (other than short-term investments pending long-term commitment or
distribution to investors) valued at cost, are invested in real estate which is
managed or developed and with respect to which the Partnership has the right to
participate substantially in the management or development activities. The
Partnership intends to devote more than 50% of its assets to management and
development of real estate; however, an example contained in the Plan Asset
Regulations indicates that, although some management and development activities
may be performed by independent contractors rather than by the entity itself, if
over one-half of the entity's properties are acquired subject to long-term
leases under which substantially all management and maintenance activities with
respect to the properties are the responsibility of the lessees thereof, then
the entity is not eligible for the real estate operating company exemption.
In an attempt to comply with the real estate operating company exemption
under the Plan Asset Regulations, the General Partners intend to structure the
management and development activities of the Partnership such that at all times
more than 50% of the Partnership's assets are invested in multi-tenant
properties with individually negotiated leases whereby maintenance of the common
areas and general maintenance activities with respect to such properties will be
the Partnership's responsibility and not passed through to the lessees of such
properties. (See "INVESTMENT OBJECTIVES AND CRITERIA.") Due to the uncertainty
of the application of the standards set forth in the examples in the Plan Asset
Regulations, however, there can be no assurance as to the Partnership's ability
to qualify for the real estate operating company exemption.
PLAN ASSET CONSEQUENCES - PROHIBITED TRANSACTION EXCISE TAX
If the Partnership were deemed to hold Plan Assets, additional issues
relating to the "Plan Assets" and "prohibited transaction" concepts of ERISA and
the Code arise by virtue of the General Partners' ownership of interests in the
Partnership and the possible relationship between the General Partners or the
Partnership and any Retirement Plan which may purchase Units. Section 406 of
ERISA and Section 4975 of the Code prohibit Retirement Plans from engaging in
certain transactions with specified parties involving Plan Assets. These
parties are referred to as "parties in interest," as defined in Section 3(14) of
ERISA, and as "disqualified persons," as defined in Section 4975(e)(2) of the
Code. These definitions include "persons providing services to the plan" and
certain of their affiliates. Thus, if the General Partners' interest in the
Partnership were deemed to exceed certain threshold levels set forth in the Code
and ERISA, the Partnership, itself, could be deemed to be a disqualified person
and an investment in Units could be a prohibited transaction; however, the
General Partners do not believe such thresholds have been exceeded with respect
to their interest in the Partnership or that the Partnership should otherwise be
deemed to be a party in interest or a disqualified person. Further, any
transaction between the Partnership and a party in interest or disqualified
person with respect to an investing Retirement Plan could be a prohibited
transaction if the Partnership were deemed to hold Plan Assets.
In addition, if the Partnership is deemed to hold Plan Assets, each General
Partner could be characterized as a "fiduciary" with respect to such assets, and
would thus be a "party in interest" under ERISA and a "disqualified person"
under the Code with respect to investing Retirement Plans. If such relationship
were to exist, various transactions between the General Partners or their
Affiliates and the Partnership could constitute prohibited transactions because
a fiduciary may not deal with Plan Assets in its own interest or represent a
person whose interests are adverse to those of the plan in a transaction
involving Plan Assets. In addition, it could be argued that, because the
General Partners share in certain Partnership distributions and tax allocations
in a manner disproportionate to their Capital Contributions to the Partnership,
the General Partners are being compensated
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directly out of Plan Assets rather than the Partnership assets in exchange for
the provision of services, i.e., establishment of the Partnership and making it
available as an investment to Retirement Plans. If this were the case, absent a
specific exemption applicable to the transaction, a prohibited transaction could
be deemed to have occurred between investing Retirement Plans and the General
Partners.
If it is determined by the Department of Labor or the IRS that a prohibited
transaction has occurred, the General Partners and any party in interest that
has engaged in any such prohibited transaction would be required to eliminate
the prohibited transaction by reversing the transaction and make good to the
Retirement Plan any loss resulting from the prohibited transaction. In
addition, each party in interest would be liable to pay an excise tax equal to
15% of the amount involved in the transaction for each year in which the
transaction remains uncorrected. Moreover, if the fiduciary or party in
interest does not correct the transaction within a specified period, the party
in interest could also be liable for an additional excise tax in an amount equal
to 100% of the amount involved. Plan fiduciaries who make the decision to
invest in Units could, under certain circumstances, be liable as co-fiduciaries
for actions taken by the Partnership or the General Partners.
Special rules apply to an investing IRA. If the Partnership were deemed to
be a party in interest or disqualified person, as described above, the tax-
exempt status of the IRA could be lost by reason of such investment because a
transaction between the Partnership and the account would be deemed under
Section 4975 of the Code to constitute a prohibited transaction.
It should be noted that even if the assets of the Partnership are deemed,
as the General Partners anticipate, not to be Plan Assets under the Plan Asset
Regulations, Interpretive Bulletin 75-2 indicates that in certain circumstances
an investment in the Partnership by a Retirement Plan may still be a prohibited
transaction. For example, if a Retirement Plan may, by reason of its
investment, compel the Partnership to invest in a property or engage in
transactions which such Retirement Plan could not enter into directly under the
prohibited transaction rules, then the provisions of Interpretive Bulletin 75-2
and the Plan Asset Regulations would not preclude recharacterization of such
investment as a prohibited transaction. The General Partners have represented
in this regard that no such arrangements will be entered into with investing
Retirement Plans, and therefore it is unlikely that these provisions of
Interpretive Bulletin 75-2 would be invoked by the Department of Labor.
ANNUAL VALUATION
Fiduciaries of Retirement Plans are required to determine annually the fair
market value of the assets of such Retirement Plans, typically, as of the close
of a plan's fiscal year. To enable the fiduciaries of Retirement Plans subject
to the annual reporting requirements of ERISA to prepare reports relating to an
investment in the Partnership, Limited Partners will be furnished with an annual
statement of estimated Unit value. This annual statement will report the
estimated value of each Unit based upon the estimated amount a Unit holder would
receive if all Partnership assets were sold as of the close of the Partnership's
fiscal year for their estimated values and if such proceeds (without reduction
for selling expenses), together with the other funds of the Partnership, were
distributed in liquidation of the Partnership. Such estimated values will be
based upon annual appraisals of Partnership Properties performed by the General
Partners, and no independent appraisals will be obtained. However, the General
Partners are required to obtain the opinion of an independent third party
stating that their estimates of value are reasonable and were prepared in
accordance with appropriate methods for valuing real estate. For the first
three full fiscal years following the termination of the Offering, the value of
a Unit will be deemed to be $10.00, and no valuations will be performed. The
estimated value per Unit will be reported to Limited Partners in the
Partnership's next annual or quarterly report on Form 10-K or 10-Q sent to the
Limited Partners for the period immediately following completion of the
valuation process. There can be no assurance that: (i) the estimated value per
Unit will actually be realized by the Partnership or by the Limited Partners
upon liquidation (in part because estimates do not necessarily indicate the
price at which properties could be sold and because no attempt will be made to
estimate the expenses of selling any property); or (ii) Limited Partners could
realize estimated net asset value if they were to attempt to sell their Units,
because no public market may exist for such Units.
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FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended to summarize all of the federal income
tax considerations material to an investment in the Partnership. This summary
is based upon the Code, Treasury Regulations (including Temporary and Proposed
Regulations) promulgated thereunder ("Regulations"), current positions of the
Internal Revenue Service (the "IRS") contained in Revenue Rulings and Revenue
Procedures, other current administrative positions of the IRS and existing
judicial decisions in effect as of the date of this Prospectus. Investors
should note that it is not feasible to comment on all aspects of federal, state
and local tax laws that may affect each Limited Partner in the Partnership. The
federal income tax considerations discussed below are necessarily general in
nature, and their application may vary depending upon a Limited Partner's
particular circumstances. No representations are made as to state and local tax
consequences. Further, the Partnership does not intend to request a ruling from
the IRS with respect to any of the federal income tax matters discussed below,
and on certain matters no ruling could be obtained even if requested.
Investors should also note that a great deal of uncertainty exists with
respect to certain recently enacted and amended provisions of the Code. There
can be no assurance that the present federal income tax laws applicable to
Limited Partners and the operation of the Partnership will not be further
changed prospectively or retroactively by additional legislation, by new
Regulations, by judicial decisions or by administrative interpretations, any of
which could adversely affect a Limited Partner, nor is there any assurance that
there will not be a difference of opinion as to the interpretation or
application of current federal income tax laws as discussed herein.
FOR THE FOREGOING REASONS, EACH PROSPECTIVE INVESTOR IS URGED TO CONSULT
WITH HIS OWN TAX ADVISOR WITH RESPECT TO THE FEDERAL, STATE AND LOCAL INCOME TAX
CONSEQUENCES ARISING FROM THE PURCHASE OF UNITS. NOTHING IN THIS PROSPECTUS (OR
ANY PRIOR OR SUBSEQUENT COMMUNICATION FROM THE GENERAL PARTNERS, THEIR
AFFILIATES, EMPLOYEES OR ANY PROFESSIONAL ASSOCIATED WITH THIS OFFERING) IS OR
SHOULD BE CONSTRUED AS LEGAL OR TAX ADVICE TO A POTENTIAL INVESTOR IN THE
PARTNERSHIP. INVESTORS SHOULD BE AWARE THAT THE IRS MAY NOT AGREE WITH ALL TAX
POSITIONS TAKEN BY THE PARTNERSHIP AND THAT LEGISLATIVE, ADMINISTRATIVE OR
JUDICIAL DECISIONS MAY REDUCE OR ELIMINATE ANTICIPATED TAX BENEFITS OF AN
INVESTMENT IN THE PARTNERSHIP.
IT IS NOT ANTICIPATED THAT LIMITED PARTNERS HOLDING CLASS A STATUS UNITS
WILL RECEIVE ANY TAX BENEFITS WHATSOEVER. THEREFORE, ANY DISCUSSION HEREIN OF
THE AVAILABILITY AND EXTENT OF INCOME TAX BENEFITS TO LIMITED PARTNERS WILL
APPLY PRINCIPALLY TO LIMITED PARTNERS HOLDING CLASS B STATUS UNITS.
PROSPECTIVE INVESTORS WHO ARE FIDUCIARIES OF RETIREMENT PLANS SHOULD
CAREFULLY READ "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS" AND
"INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES" IN THIS SECTION.
The discussion below is directed primarily to individual taxpayers who are
citizens of the United States. Accordingly, persons who are trusts, corporate
investors in general, corporate investors that are subject to specialized rules
(such as Subchapter S corporations) and any potential investor who is not a
United States citizen are cautioned to consult their own personal tax advisors
before investing in the Partnership.
TAX OPINION
The Partnership retained Holland & Knight LLP ("Counsel") to render an
opinion concerning the material federal income tax issues relating to an
investment in the Partnership (the "Tax Opinion"). Potential investors
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should be aware that the opinions of Counsel in the Tax Opinion are based upon
the accuracy of the facts described in this Prospectus and facts represented to
Counsel by the General Partners, and assume that the Partnership will be
operated strictly in accordance with the Partnership Agreement. The accuracy of
such facts and representations is absolutely critical to the accuracy of the Tax
Opinion, and any alteration of the facts may adversely affect the opinions
rendered. Furthermore, the opinions of Counsel in the Tax Opinion are based upon
existing law, applicable Regulations and current published administrative
positions of the IRS contained in Revenue Rulings, Revenue Procedures and
judicial decisions, all of which are subject to change either prospectively or
retroactively. Changes in the Code and the Regulations subsequent to the date of
the Tax Opinion are not addressed therein, and any such changes could have a
material adverse effect upon the tax treatment of an investment in the
Partnership.
In reliance on certain representations and assumptions described herein and
in the Tax Opinion, and subject to the qualifications set forth herein and in
the Tax Opinion, Counsel in the Tax Opinion concludes that, in the aggregate,
substantially more than half of the material federal income tax benefits, in
terms of their financial impact on a typical investor, will more likely than not
be realized by an investor in the Partnership, and that the following material
tax issues are more likely than not to have a favorable outcome on the merits
for federal income tax purposes if challenged by the IRS, litigated and
judicially decided:
(1) The Partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation;
(2) The Partnership will not be classified as a "publicly traded
partnership" under Section 7704 of the Code since the Partnership Agreement
limits transfers of Units, except for transfers of Units which satisfy
applicable safe harbors from "publicly traded partnership" status adopted by the
IRS;
(3) A Limited Partner's interest in the Partnership will be treated as a
passive activity;
(4) Partnership items of income, gain, loss, deduction and credit will be
allocated among the General Partners and the Limited Partners substantially in
accordance with the allocation provisions of the Partnership Agreement;
(5) The Partnership will be treated for income tax purposes as the owner of
Partnership Properties, title to which is held in the name of the Agent under
the terms of the Custodial Agency Agreement;
(6) The activities contemplated by the Partnership will be considered
activities entered into for profit by the Partnership; and
(7) The Partnership is not currently required to register as a tax shelter
with the IRS under Section 6111 of the Code prior to the offer and sale of the
Units based upon the General Partners' representation that the "tax shelter
ratio" (which is generally determined by dividing an investor's share of
aggregate deductions from the investment, determined without regard to income,
by the amount of the investor's capital contributions) with respect to an
investment in the Partnership will not exceed 2 to 1 for any investor as of the
close of any year in the Partnership's first five calendar years.
Investors should note that any statement that it is "more likely than not"
that a tax position would be sustained means that in Counsel's judgment at least
a 51% chance of prevailing exists if the IRS were to challenge the allowability
of such tax position and such challenge were to be litigated and judicially
decided.
It should be further noted that Counsel in the Tax Opinion is unable to
form opinions as to the probable outcome of certain material tax aspects of the
transactions described in this Prospectus if challenged by the IRS, litigated
and judicially decided, including (i) the deductibility of and timing of
deductions for certain payments made by the Partnership, including but not
limited to fees paid to the General Partners and their Affiliates, (ii) the
issue of whether the Partnership will be considered to hold any or all of its
properties primarily for sale to customers in
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the ordinary course of business, and (iii) whether the Partnership will be
classified as a "tax shelter" under Section 6662(d) of the Code for purposes of
determining certain potential exemptions from the applicability of the accuracy-
related penalty provisions. (See "RISK FACTORS.")
In addition, potential investors should note that the IRS may also attempt
to disallow or limit some of the tax benefits derived from an investment in the
Partnership by applying certain provisions of the Code at the individual or
partner level rather than at the partnership level. In this connection, Counsel
in the Tax Opinion gives no opinion or conclusion as to the tax consequences to
Limited Partners with regard to any material tax issue which impacts at the
individual or partner level and is dependent upon an individual Limited
Partner's tax circumstances, including but not limited to, issues relating to
the alternative minimum tax, investment interest limitations or the application
of Section 183 of the Code at the partner level. Accordingly, potential
investors are urged to consult with and rely upon their own tax advisors with
respect to all tax issues which impact at the partner or individual level.
As of the date of the Tax Opinion, no properties have been acquired by the
Partnership, nor has the Partnership entered into any contracts to acquire any
properties. Therefore, it is impossible at this time for Counsel to opine on the
application of the federal income tax law to the specific facts which will exist
when properties are acquired by the Partnership.
Neither the Tax Opinion nor this description of the tax consequences of an
investment in the Partnership is a guarantee of the tax results of an investment
in the Partnership, nor does either have any binding effect or official status
of any kind. No assurance can be given that the conclusions reached in the Tax
Opinion would be sustained by a court if such were contested by the IRS. The Tax
Opinion should not be viewed as a guarantee that the income tax effects
described in this Prospectus will be achieved or that a court would hold that
there is "substantial authority" for the positions taken by the Partnership with
respect to any income tax issues.
PARTNERSHIP STATUS GENERALLY
The ability to obtain the income tax attributes anticipated from an
investment in Units of the Partnership depends upon the classification of the
Partnership as a partnership for federal income tax purposes and not as an
association taxable as a corporation. The General Partners do not intend to
request a ruling from the IRS as to the classification of the Partnership as a
partnership for income tax purposes.
In this regard, Regulations regarding entity classification have been
issued which supersede the previous Regulations which, in effect, operated to
classify an entity as a partnership unless such entity had more corporate
characteristics than noncorporate characteristics. The new "Check-the-Box"
Regulations provide that a business entity that is not otherwise required to be
classified as a corporation ("eligible entity") may elect its classification for
federal income tax purposes. Under the new Regulations, an "eligible entity"
that has at least two members will be treated as a partnership in the absence of
an election. Accordingly, unless the Partnership is deemed to be taxable as a
corporation pursuant to the application of the publicly traded partnership rules
discussed below, the Partnership will qualify as an "eligible entity" and need
not make any election to be treated as a partnership for federal income tax
purposes.
Based upon the new Regulations, IRS rulings and judicial decisions under
Section 7701(a) of the Code, all of which are subject to change, and based upon
certain representations of the General Partners and other assumptions, Counsel
in the Tax Opinion has concluded that the Partnership will more likely than not
be treated as a partnership for federal income tax purposes and not as an
association taxable as a corporation, if such issue were challenged by the IRS,
litigated and judicially decided. In rendering such opinion, Counsel has also
relied upon the fact that the Partnership is duly organized as a limited
partnership under the laws of the State of Georgia and upon the representation
by the General Partners that the Partnership will be organized and operated
strictly in accordance with the provisions of the Partnership Agreement.
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In the event that the Partnership, for any reason, were to be treated for
federal income tax purposes as an association taxable as a corporation, the
Partners of the Partnership would be treated as stockholders with the following
results, among others: (i) the Partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (ii) items of income, gain,
loss, deduction and credit would be accounted for by the Partnership on its
federal income tax return and would not flow through to the Partners; and (iii)
distributions of cash would generally be treated as dividends taxable to the
Partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the Partnership in
computing its income tax.
The remaining summary of federal income tax consequences in this Section
assumes that the Partnership will be classified as a partnership for federal
income tax purposes.
PUBLICLY TRADED PARTNERSHIPS
Classification of the Partnership as a "publicly traded partnership" could
result in (a) the Partnership being taxable as a corporation (see "Partnership
Status Generally" above), and (b) the treatment of net income of the Partnership
as portfolio income rather than passive income (see "Passive Loss Limitations"
below).
A publicly traded partnership is generally defined under Section 7704 of
the Code as any partnership whose interests are traded on an established
securities market or are readily tradeable on a secondary market or the
substantial equivalent thereof. In this regard, Regulations have been issued
(the "Section 7704 Regulations") which provide guidance on such classification
and certain safe harbor exclusions from classification as a publicly traded
partnership.
Specifically, the Section 7704 Regulations contain definitions of what
constitutes an established securities market and a secondary market or the
substantial equivalent thereof and what transfers may be disregarded in
determining whether such definitions are satisfied with respect to the
activities of a partnership. The Section 7704 Regulations further provide
certain safe harbors (the "secondary market safe harbors") which, after taking
into consideration all transfers other than those deemed disregarded, may be
satisfied in order to avoid classification of such transfers as being made on a
secondary market or the substantial equivalent thereof. One of the secondary
market safe harbors provides that interests in a partnership will not be
considered tradeable on a secondary market or the substantial equivalent thereof
if the sum of the partnership interests transferred during any taxable year,
other than certain disregarded transfers, does not exceed 2% of the total
interest in the partnership's capital or profits. Disregarded transfers
include, among other things, transfers by gift, transfers at death, transfers
between family members, distributions from a qualified retirement plan and block
transfers, which are defined as transfers by a partner during any 30 calendar
day period of partnership units representing more than 2% of the total interest
in a partnership's capital or profits. Another safe harbor from classification
as a publicly traded partnership dealing with redemption and repurchase
agreements is also provided in the Section 7704 Regulations. The Section 7704
Regulations also make it clear that the failure to satisfy a safe harbor
provision under the Regulations will not cause a partnership to be treated as a
publicly traded partnership if, after taking into account all facts and
circumstances, partners are not readily able to buy, sell or exchange their
partnership interests in a manner that is comparable, economically, to trading
on an established securities market.
The General Partners do not believe that Units in the Partnership are
traded on an established securities market or a secondary market or a
substantial equivalent thereof as defined in the Section 7704 Regulations. The
General Partners have further represented that they do not intend to cause the
Units to be traded on an established securities market or a secondary market in
the future. Further, the Partnership Agreement limits Unit transfers of all
types to transfers of Units which satisfy an applicable safe harbor contained in
the Section 7704 Regulations (or any other applicable safe harbor from "publicly
traded partnership" status which may be adopted by the IRS). The General
Partners have represented that the Partnership will be operated strictly in
accordance with the Partnership Agreement and that they will void any transfers
or assignments of Units if they believe that such transfers or assignments will
cause the Partnership to be treated as a publicly traded partnership under the
Section 7704 Regulations or any Regulations adopted by the IRS in the future.
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Based upon representations of the General Partners, and assuming the
Partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, Counsel in the Tax Opinion has concluded that it is more
likely than not the Partnership will not be classified as a publicly traded
partnership under Section 7704 of the Code, if such issue were challenged by the
IRS, litigated and judicially decided. However, due to the complex nature of
the safe harbor provisions contained in the Section 7704 Regulations with
respect to such provisions and because any determination in this regard will
necessarily be based upon future facts not yet in existence at this time, no
assurance can be given that the IRS will not challenge this conclusion or that
the Partnership will not, at some time in the future, be deemed to be a publicly
traded partnership.
Even if the Partnership were deemed to be a publicly traded partnership,
however, Section 7704(c) of the Code provides an exception to taxation of an
entity as a corporation if 90% or more of the gross income of such entity for
each taxable year consists of "qualifying income." Qualifying income includes
interest, real property rents and gain from the sale or other disposition of
real property. According to the legislative history of Section 7704, however,
qualifying income does not include real property rents which are contingent on
the profits of the lessees or income from the rental or lease of personal
property. The General Partners intend to operate the Partnership in such a
manner as to qualify for the 90% qualifying income exception. (See "INVESTMENT
OBJECTIVES AND CRITERIA.") Investors should note, however, that even if the
Partnership satisfies the qualifying income exception, being deemed to be a
publicly traded partnership would result in certain other material adverse tax
consequences to Limited Partners, including the treatment of net income of the
Partnership as portfolio income rather than passive income. (See "Passive Loss
Limitations" below.)
GENERAL PRINCIPLES OF PARTNERSHIP TAXATION
Under the Code, no federal income tax is paid by a partnership.
Accordingly, if as anticipated the Partnership is treated as a partnership for
federal income tax purposes, the Partnership will not be treated as a separate
taxable entity subject to federal income tax, but instead each Partner will be
required to report on his federal income tax return for each year his
distributive share of the Partnership's items of income, gain, loss, deduction
or credit for that year, without regard to whether any actual cash distributions
have been made to him. Investors should note that a Partner's share of the
taxable income of the Partnership, and a Partner's income tax liability
resulting therefrom, may exceed a Partner's cash distributions from the
Partnership.
The Partnership will furnish to each Partner and any assignee of Units on
an annual basis the information necessary for preparation of his federal income
tax return. Investors should note that information returns filed by the
Partnership will be subject to audit by the IRS and that the Commissioner of the
IRS has announced that the IRS will devote greater attention to the proper
application of the tax laws to partnerships. (See "Audits" below.)
ANTI-ABUSE RULES
As noted under "General Principles of Partnership Taxation" above,
partnerships as such are not liable for income taxes imposed by the Code. In
December 1994, however, Regulations were adopted setting forth "anti-abuse"
rules under the Code provisions applicable to partnerships, which rules
authorize the Commissioner of Internal Revenue to recast transactions involving
the use of partnerships either to reflect the underlying economic arrangement or
to prevent the use of a partnership to circumvent the intended purpose of any
provision of the Code. If any of the transactions entered into by the
Partnership were to be recharacterized under these rules, or the Partnership,
itself, were to be recast as a taxable entity under these rules, material
adverse tax consequences to all of the Partners would occur as otherwise
described herein. In this regard, the General Partners are not aware of any
fact or circumstance which could cause the IRS to exercise its authority under
these rules to recast any of the transactions to be entered into by the
Partnership or to restructure the Partnership itself.
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BASIS LIMITATIONS
A Limited Partner may not deduct his share of Partnership losses and
deductions in excess of the adjusted basis of his Partnership interest
determined as of the end of the taxable year. Losses which exceed a Limited
Partner's basis will not be allowed but may be carried over indefinitely and
claimed as a deduction in a subsequent year to the extent that such Limited
Partner's adjusted basis in his Units has increased above zero. A Limited
Partner's adjusted basis in his Units will include his cash investment in the
Partnership along with his pro rata share of any Partnership liabilities as to
which no Partner is personally liable. A Limited Partner's basis in his Units
will be increased by his distributive share of the Partnership's taxable income
and decreased (but not below zero) by his distributive share of the
Partnership's losses and by the amount of any cash distributions which are made
to him. A cash distribution to a Limited Partner will generally constitute a
return of capital to the extent of the basis of his Units but, in the event that
a Limited Partner has no remaining basis in his Units, will generally be taxable
to him as gain from the sale of his Units. (See "Sales of Limited Partnership
Units" below.)
PASSIVE LOSS LIMITATIONS
The Code substantially restricts the ability of many taxpayers (including
individuals, estates, trusts, certain closely-held corporations and certain
personal service corporations) to deduct losses derived from so-called "passive
activities." Passive activities generally include any activity involving the
conduct of a trade or business in which the taxpayer does not materially
participate (including the activity of a limited partnership in which the
taxpayer is a limited partner) and certain rental activities (including the
rental of real estate). In the opinion of Counsel, it is more likely than not
that a Limited Partner's interest in the Partnership will be treated as a
passive activity, if such issue were challenged by the IRS, litigated and
judicially decided. Accordingly, income and loss of the Partnership, other than
interest or other similar income earned on temporary investments and working
capital reserves (which would constitute portfolio income), will constitute
passive activity income and passive activity loss, as the case may be, to
Limited Partners.
Generally, losses from passive activities are deductible only to the extent
of a taxpayer's income or gains from passive activities and will not be allowed
as an offset against other income, including salary or other compensation for
personal services, active business income or "portfolio income," which includes
nonbusiness income derived from dividends, interest, royalties, annuities and
gains from the sale of property held for investment. Passive activity losses
that are not allowed in any taxable year are suspended and carried forward
indefinitely and allowed in subsequent years as an offset against passive
activity income in future years.
Upon a taxable disposition of a taxpayer's entire interest in a passive
activity to an unrelated party, suspended losses with respect to that activity
will then be allowed as a deduction against: (i) first, any remaining income or
gain from that activity including gain recognized on such disposition; (ii)
then, net income or gain for the taxable year from other passive activities; and
(iii) finally, any other non-passive income or gain. Regulations provide,
however, that similar undertakings which are under common control and owned by
pass-through entities such as partnerships are generally aggregated into a
single activity. Accordingly, it is unlikely that suspended passive activity
losses derived from a specific Partnership Property would be available to
Limited Partners to offset non-passive income from other sources until the sale
or other disposition of all Partnership Properties has been consummated.
The Code provides that the passive activity loss rules will be applied
separately with respect to items attributable to each publicly traded
partnership. Accordingly, if the Partnership were deemed to be a publicly
traded partnership, Partnership losses, if any, would be available only to
offset future non-portfolio income of the Partnership. In addition, if the
Partnership were deemed to be a publicly traded partnership which is not treated
as a corporation because of the qualifying income exception, Partnership income
would generally be treated as portfolio income rather than passive income. (See
"Publicly Traded Partnerships" above.)
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AT RISK LIMITATIONS
The deductibility of Partnership losses is limited further by the "at risk"
limitations in the Code. Limited Partners who are individuals, estates, trusts
and certain closely-held corporations are not allowed to deduct Partnership
losses in excess of the amounts which such Limited Partners are determined to
have "at risk" at the close of the Partnership's year. Generally, a Limited
Partner's amount "at risk" will include the amount of his cash Capital
Contribution to the Partnership. A Limited Partner's amount "at risk" will be
reduced by his allocable share of Partnership losses and by Partnership
distributions and increased by his allocable share of Partnership income. Any
deductions which are disallowed under this limitation may be carried forward
indefinitely and utilized in subsequent years to the extent that a Limited
Partner's amount "at risk" is increased in those years.
ALLOCATIONS OF PROFIT AND LOSS
Allocations of Net Income, Net Loss, depreciation, amortization and cost
recovery deductions and Gain on Sale are described in this Prospectus in the
Section entitled "DISTRIBUTIONS AND ALLOCATIONS." Investors should note in this
regard that the Partnership Agreement defines the terms "Net Income" and "Net
Loss" to mean the net income or loss realized or recognized by the Partnership
for a fiscal year, as determined for federal income tax purposes, including any
income exempt from tax, but excluding all deductions for depreciation,
amortization and cost recovery and Gain on Sale. (See "GLOSSARY.")
Generally, partnership items of income, gain, loss, deduction and credit
are allocated among partners as set forth in the relevant partnership agreement
pursuant to Section 704(a) of the Code. Section 704(b) provides, however, that
if an allocation to a partner under the partnership agreement of income, gain,
loss, deduction or credit (or items thereof) does not have substantial economic
effect, such allocation will instead be made in accordance with the partner's
interest in the partnership (determined by taking into account all facts and
circumstances).
The Partnership has not received an advance ruling with respect to whether
its allocations of profits and losses will be recognized for federal income tax
purposes, and the IRS may attempt to challenge the allocations of profits and
losses made by the Partnership, which challenge, if successful, could adversely
affect the Limited Partners by changing their respective shares of taxable
income or loss. No assurance can be given that the IRS will not challenge one
or more of the special allocation provisions contained in the Partnership
Agreement.
Regulations under Section 704(b) of the Code (the "Section 704(b)
Regulations") provide complex rules for determining whether allocations will be
deemed to have economic effect, whether the economic effect of allocations will
be deemed to be substantial and whether allocations not having substantial
economic effect will be deemed to be made in accordance with a partner's
interest in the partnership.
The relevant portions of the Section 704(b) Regulations provide generally
that an allocation will be considered to have economic effect if: (i) partners'
capital accounts are determined and maintained in accordance with the Section
704(b) Regulations; (ii) upon the liquidation of the partnership, liquidating
distributions are made in accordance with the positive capital account balances
of the partners after taking into account all capital account adjustments for
the year during which such liquidation occurs; and (iii) the partnership
agreement contains a "qualified income offset" provision and the allocation in
question does not cause or increase a deficit balance in a partner's capital
account at the end of the partnership's taxable year. A partnership agreement
contains a "qualified income offset" if it provides that a partner who
unexpectedly receives an adjustment, allocation or distribution of certain items
which causes a deficit or negative capital account balance (which means
generally that the sum of losses allocated and cash distributed to a partner
exceeds the sum of his capital contributions to the partnership and any income
allocated to such partner), will be allocated items of income and gain in an
amount and manner sufficient to eliminate the deficit balance as quickly as
possible.
The Partnership Agreement (i) provides for the determination and
maintenance of Capital Accounts pursuant to the Section 704(b) Regulations, (ii)
provides that liquidation proceeds are to be distributed in accordance
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with Capital Accounts, and (iii) contains a qualified income offset provision.
(See "DISTRIBUTIONS AND ALLOCATIONS.") The qualified income offset provision in
the Partnership Agreement has the effect of prohibiting a Limited Partner from
being allocated items of loss or deduction which would cause his Capital Account
to be reduced below zero.
It should be further noted, however, that the Partnership Agreement
contains a provision specially allocating deductions for depreciation,
amortization and cost recovery to Limited Partners holding Class B Status Units
up to the amount which would reduce their Capital Accounts to zero. In an
attempt to ensure that Limited Partners holding Class B Status Units will bear
the risk of actual economic loss in the event that a Partnership Property is
sold at a loss, the Partnership Agreement also provides for a special allocation
of Nonliquidating Net Sale Proceeds in favor of Limited Partners holding Class A
Status Units which applies only if a Partnership Property is sold for less than
its original purchase price. Under this provision, Limited Partners holding
Class A Status Units are allocated the first Sale Proceeds generated from any
such sale in an amount equal to the excess of the original purchase price of
such Partnership Property over the sale price of the Partnership Property sold
but not in excess of the amount of the special allocation to Limited Partners
holding Class B Status Units of deductions for depreciation, amortization and
cost recovery with respect to the specific Partnership Property sold.
A Limited Partner who acquires Units from a prior owner should note that
the Partnership Agreement also provides for a special allocation of Gain on Sale
to Limited Partners holding Class B Status Units in an amount equal to the
deductions for depreciation, amortization and cost recovery which were
previously allocated to such Units, which special allocation could have the
effect of allocating substantial income to the new Limited Partner upon a sale
or other disposition of a Partnership Property caused by the special allocation
of deductions for depreciation, amortization and cost recovery previously
allocated to the prior Limited Partner even though such new Limited Partner
would not have received any benefit from such prior allocation of deductions.
Even if the allocations of profits and losses of a partnership are deemed
to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation is
"substantial." In this regard, the Section 704(b) Regulations generally provide
that the economic effect of an allocation is "substantial" if there is a
reasonable possibility that the allocation will affect the dollar amounts to be
received by partners from a partnership, independent of tax consequences. The
economic effect of an allocation is presumed not to be substantial if there is a
strong likelihood that the net adjustments to the partner's capital account for
any taxable year will not differ substantially from the net adjustments which
would have been made for such year in the absence of such allocation and the
total tax liability of the partners for such year is less than it would have
been in the absence of such allocations. The economic effect will also be
presumed not to be substantial where: (i) the partnership agreement provides
for the possibility that the allocation will be largely offset by one or more
other allocations; (ii) the net adjustments to the partners' capital accounts
for the taxable years to which the allocations relate will not differ
substantially from the net adjustments which would have been recorded in such
partners' respective capital accounts for such years if the original allocations
and the offsetting allocations were not contained in the partnership agreement;
and (iii) the total tax liability of the partners for such year is less than it
would have been in the absence of such allocations. With respect to the
foregoing provision, the Section 704(b) Regulations state that original
allocations and offsetting allocations will not be deemed to not be substantial
if, at the time the allocations become part of the partnership agreement, there
is a strong likelihood that the offsetting allocations will not, in large part,
be made within five years after the original allocations are made. The Section
704(b) Regulations further state that for purposes of testing substantiality,
the adjusted tax basis of partnership property will be presumed to be the fair
market value of such property, and adjustments to the adjusted tax basis of
partnership property (such as depreciation or cost recovery deductions) will be
presumed to be matched by corresponding changes in the property's fair market
value.
There are no assurances that the IRS will not challenge the special
allocation of Partnership deductions for depreciation, amortization and cost
recovery to Limited Partners holding Class B Status Units or other allocations
set forth in the Partnership Agreement on the basis that such allocations are
either "insubstantial," within the meaning of the Section 704(b) Regulations, or
otherwise fail to comply with the Section 704(b) Regulations.
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If the allocations of profits and losses set forth in a partnership
agreement are deemed not to have substantial economic effect, the allocations
are then to be made in accordance with the partners' interests in the
partnership as determined by taking into account all facts and circumstances.
The Section 704(b) Regulations provide in this regard that a partner's interest
in a partnership will be determined by taking into account all facts and
circumstances relating to the economic arrangement of the partners, including:
(i) the partners' relative contributions to the partnership; (ii) the interests
of the partners in economic profits and losses (if different from those in
taxable income or loss); (iii) the interests of the partners in cash flow and
other nonliquidating distributions; and (iv) the rights of the partners to
distributions of capital upon liquidation.
Since the Partnership Agreement: (i) provides for the determination and
maintenance of Capital Accounts in accordance with the Section 704(b)
Regulations; (ii) provides that liquidation proceeds will be distributed to the
Partners in accordance with Capital Accounts; (iii) contains a qualified income
offset provision; and (iv) shifts the economic risk of loss to the Limited
Partners holding Class B Status Units, assuming the allocations of deductions
for depreciation, amortization and cost recovery to such Limited Partners were
matched by corresponding reductions in the fair market value of the
Partnership's Property; and assuming the accuracy of the representations of the
General Partners, including that the Partnership will be operated strictly in
accordance with the terms of the Partnership Agreement, Counsel has concluded
that it is more likely than not that Partnership items of income, gain, loss,
deduction and credit will be allocated among the General Partners and the
Limited Partners substantially in accordance with the allocation provisions of
the Partnership Agreement.
RISK OF TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS
A partner in a partnership is required to report his allocable share of the
partnership's taxable income on his personal income tax return regardless of
whether or not he has received any cash distributions from the partnership. For
example, a Limited Partner electing Class A Status Units who participates in the
Distribution Reinvestment Plan will be allocated his share of the Partnership's
Net Income and Gain on Sale (including Net Income and Gain on Sale allocable to
Units acquired pursuant to the Distribution Reinvestment Plan) even though such
Partner would receive no cash distributions from the Partnership. In addition,
a Limited Partner electing Class A Status who purchases Units pursuant to the
Deferred Commission Option will be allocated his share of the Partnership's Net
Income with respect to such Units even though Net Cash From Operations otherwise
distributable to such Limited Partner will instead be paid to third parties to
satisfy the deferred commission obligations with respect to such Units for a
period of seven years after the termination of the Offering. (See "PLAN OF
DISTRIBUTION.") The Partnership Agreement also provides for a "qualified income
offset," as described hereinabove, which could result in the allocation of
income or gain to a Limited Partner in the absence of cash distributions from
the Partnership. There are no assurances that a Limited Partner will not be
allocated items of Partnership income or gain in an amount which gives rise to
an income tax liability in excess of cash, if any, received from the Partnership
for the tax year in question, and investors are urged to consult with their
personal tax advisors in this regard.
INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES
Although the General Partners have used their best efforts to structure the
Partnership's activities to avoid having the Partnership's income characterized
as UBTI, any person who is a fiduciary of an IRA, Keogh Plan, Qualified Plan or
other tax-exempt entity (collectively referred to as "Exempt Organizations")
considering an investment in the Units should be aware that some risk remains
that income derived from ownership of Units may be subject to federal income tax
in the event that any portion of the Partnership's income is deemed to be UBTI
(generally defined as income derived from any unrelated trade or business
carried on by a tax-exempt entity or by a partnership of which it is a member).
A trustee of a charitable remainder trust should be aware that if any portion of
the income derived from its ownership of Units is deemed to be UBTI, the trust
will lose its exemption from income taxation with respect to all of its income
for the tax year in question. (See "Investment by Charitable Remainder Trusts"
below.) A tax-exempt Limited Partner (other than a charitable remainder trust)
which has UBTI in any tax year from all sources of more than $1,000 will be
subject to taxation on such income.
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While the types of Partnership income and gain which should be realized by
investing Exempt Organizations would not generally constitute UBTI, such income
would constitute UBTI if the Partnership were to own "debt-financed property"
which is subject to "acquisition indebtedness." The portion of income or gain
from "debt-financed property" that will constitute UBTI is based on the ratio of
the "average acquisition indebtedness" to the basis of the property. In
computing the portion of gain from a sale which constitutes UBTI, "average
acquisition indebtedness" means the highest amount of the acquisition
indebtedness with respect to such property during the 12 month period ending on
the date of sale while, for determining the portion of income from sources other
than a sale, "average acquisition indebtedness" means the average monthly level
of acquisition indebtedness during the taxable year for the year in which such
income was recognized. Acquisition indebtedness includes: (i) indebtedness
incurred in acquiring or improving property; (ii) indebtedness incurred before
the acquisition or improvement of property if such indebtedness would not have
been incurred but for such acquisition or improvement; and (iii) indebtedness
incurred after the acquisition or improvement of property if such indebtedness
would not have been incurred but for such acquisition or improvement and the
incurrence of such indebtedness was reasonably foreseeable at the time of such
acquisition or improvement.
The Partnership will under no circumstances incur indebtedness to acquire
Partnership Properties. The Partnership's authority to incur indebtedness
thereafter may be exercised only in limited circumstances. Specifically, the
General Partners have the authority to incur indebtedness only in the event that
they deem such borrowing necessary to finance improvements of its properties, to
protect the capital previously invested in a property, to protect the value of
the Partnership's investment in a property or to make a property more attractive
for sale or lease. (See "INVESTMENT OBJECTIVES AND CRITERIA--Borrowing
Policies.") The General Partners have represented, however, that they will not
cause the Partnership to incur indebtedness unless the Partnership first
receives an opinion of counsel or an opinion from its tax accountants that the
proposed indebtedness more likely than not will not cause income of the
Partnership to be characterized as UBTI. Investors should be aware, however,
that any such opinion would be is based upon various representations and
assumptions, and would have no binding effect on the IRS or any court.
Accordingly, no assurance can be given that the conclusions reached in any such
opinion, if contested, would be sustained by a court, or that any such
indebtedness to be obtained by the Partnership in the future would not cause the
income allocated to Limited Partners that are tax-exempt entities to be taxed as
UBTI. In addition, Partnership income could also constitute UBTI in the event
that the Partnership were deemed to hold Partnership Properties primarily for
sale to customers in the ordinary course of business. (See "Property Held
Primarily for Sale" below.)
Any person who is a fiduciary of an Exempt Organization considering an
investment in Units should also consider the impact of minimum distribution
requirements under the Code. The Code provides generally that certain minimum
distributions from Retirement Plans must be made commencing no later than the
April 1st following the calendar year during which the recipient attains age
70 1/2. Accordingly, if Units are still held by Retirement Plans and
Partnership Properties have not yet been sold at such time as mandatory
distributions are required to commence to an IRA beneficiary or a Qualified Plan
participant, it is likely that a distribution in kind of the Units will be
required to be made, which distribution will be includable in the taxable income
of said IRA beneficiary or Qualified Plan participant for the year in which the
Units are received at the fair market value of the Units without any
corresponding cash distributions with which to pay the income tax liability
arising out of any such distribution. In certain circumstances, a distribution
in kind of the Units may be deferred beyond the date for required distributions,
but only upon a showing of compliance with the minimum distribution requirements
of the Code by reason of distributions from other Retirement Plans established
for the benefit of the recipient. Compliance with these requirements is complex,
however, and potential investors are urged to consult with and rely upon their
individual tax advisors with regard to all matters concerning the tax effects of
distributions from Retirement Plans. No assurances can be given that Partnership
Properties will be sold or otherwise disposed of in a fashion which would permit
sufficient liquidity in any Retirement Plan holding Units for the Retirement
Plan to be able to avoid making a mandatory distribution in kind of Units. ("See
"RISK FACTORS.")
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INVESTMENT BY CHARITABLE REMAINDER TRUSTS
A charitable remainder trust ("CRT") is a trust created to provide income
for the benefit of at least one non-charitable beneficiary for life or a term of
up to 20 years, with the property comprising the trust corpus then transferred
to a charitable beneficiary upon the expiration of the trust. Upon the creation
of a CRT, the grantor would normally be entitled to a charitable income tax
deduction equal to the current fair market value of the remainder interest which
will ultimately pass to charity. A CRT is also exempt from federal income
taxation if the trust is established and maintained in compliance with highly
complex rules contained in the Code and underlying Treasury Regulations. Among
these rules is a provision that if any portion of income derived by a CRT is
deemed to be UBTI, all of the CRT's income for the taxable year in which UBTI is
incurred, from whatever sources derived, will be subject to income taxes at the
trust level. As set forth above in "Investment by Qualified Plans and Other
Tax-Exempt Entities," the General Partners have used their best efforts to
structure the Partnership's activities to avoid having the Partnership's income
characterized as UBTI. In summary, unless the Partnership incurs indebtedness
for the purpose of acquiring or improving real properties, and hence is deemed
to be holding property subject to "acquisition indebtedness," or is deemed to
hold its properties primarily for sale to customers in the ordinary course of
business, under current law the Partnership's income should not be deemed to
constitute UBTI. (See "Investment by Qualified Plans and Other Tax-Exempt
Entities" above.)
DEPRECIATION AND COST RECOVERY
It is currently anticipated that the real property improvements acquired or
constructed by the Partnership and any personal property acquired by the
Partnership will be depreciated for tax purposes using the Alternative
Depreciation System set forth in the Code for partnerships (such as the
Partnership) having both taxable and tax-exempt partners; i.e., real property
improvements on a straight-line basis over a recovery period of 40 years, and
personal property acquired by the Partnership over a recovery period of 12 years
on a straight-line basis.
SYNDICATION AND ORGANIZATIONAL EXPENSES
No deduction is allowed for expenses incurred in connection with organizing
the Partnership or syndicating the Partnership. Syndication expenses include
costs and expenses incurred in connection with promoting and marketing the Units
such as sales commissions, professional fees and printing costs and are neither
deductible nor amortizable. Amounts which qualify as organizational expenses,
however, as well as other start-up expenditures, may, if so elected, be
amortized ratably over 60 months. There are no assurances that the IRS will not
attempt to recharacterize as nondeductible syndication expenses certain costs
and expenses which the Partnership attempts to deduct or amortize over 60
months.
Since the appropriate classification of fees and expenses paid by the
Partnership into their proper categories and a determination of whether certain
fees and expenses are ordinary and necessary and reasonable in amount depends
upon facts relating to and existing at the time the services are to be rendered
to the Partnership, Counsel is unable to render an opinion as to the probable
outcome if the IRS were to challenge the deductibility or the timing of
deduction or amortization of those fees and expenses, if such challenge to any
or all of such fees and expenses were to be litigated and judicially decided.
Disallowance by the IRS of any of these fees and expenses would result in an
increase in the taxable income of the Partnership and its Partners with no
associated increase in Net Cash From Operations.
ACTIVITIES NOT ENGAGED IN FOR PROFIT
Section 183 of the Code provides for the disallowance of deductions
attributable to activities "not engaged in for profit." The term "not engaged
in for profit" is defined as any activity other than an activity that
constitutes a trade or business or an activity that is engaged in for the
production or collection of income. In general, an activity will be considered
as entered into for profit where there is a reasonable expectation of profit in
the future.
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The determination of whether an activity is engaged in for profit is based upon
the facts and circumstances of each case.
Based upon the investment objectives of the Partnership and the
representation of the General Partners that the Partnership will be operated in
a business-like manner in all material respects and strictly in accordance with
the Partnership Agreement and this Prospectus, and assuming the determination as
to whether the activities of the Partnership are activities entered into for
profit under Section 183 is made at the partnership level, Counsel in the Tax
Opinion has concluded that it is more likely than not that the activities
contemplated by the Partnership will be considered activities entered into for
profit by the Partnership, if such issue were challenged by the IRS, litigated
and judicially decided. However, the IRS may also apply Section 183 to Limited
Partners notwithstanding any determination made with respect to the Partnership
in this regard, and since the test of whether an activity is deemed to be
engaged in for profit is based upon facts and circumstances that exist from time
to time, no assurance can be given that Section 183 of the Code may not be
applied in the future to disallow deductions allocable to Limited Partners from
Partnership operations. Investors should also be aware that Counsel in the Tax
Opinion gives no opinion as to the application of Section 183 of the Code at the
partner level. Accordingly, prospective investors should consult with their own
tax advisors regarding the impact of Section 183 on their particular situations.
FEDERAL INCOME TAX CONSEQUENCES RELATING TO THE CUSTODIAL AGENCY AGREEMENT AND
OTHER POTENTIAL USES OF NOMINEE CORPORATIONS
As previously discussed, title to properties acquired on behalf of the
Partnership will be held in the name of The Bank of New York (the "Agent"), as
agent for the Partnership. (See "CUSTODIAL AGENCY AGREEMENT.") In addition,
the Partnership may be required to utilize other nominee corporations or land
trusts to hold title to property by reason of local, state or other
jurisdiction's laws. The use of the Agent to hold legal title to a Partnership
Property and the use of any other nominee corporation or land trust to hold
legal title to properties for the benefit of the Partnership will be with the
intention that for tax purposes the entity would be disregarded and the
Partnership would be treated as the owner of the property.
In the event the Partnership is not treated as the owner of a Partnership
Property, the Partnership would lose the benefit of depreciation and other
deductions ordinarily claimed by the equitable owner of a property.
Accordingly, a determination by the IRS that the Partnership is not the owner of
a Partnership Property for tax purposes could result in substantial adverse tax
consequences, including depriving Limited Partners holding Class B Status Units
of deductions for depreciation and cost recovery. In this connection, however,
recent judicial decisions have held that in instances where an agent, pursuant
to a written agency agreement, holds title to real property as an agent for
limited purposes, holds itself out as an agent and not as a principal in all
dealings with third parties, has no obligation to maintain the property, and is
indemnified and held harmless by the principal from and against liabilities
which it might sustain as agent, the principal rather than the agent will be
treated as the owner of the real property for federal income tax purposes.
Under the terms of the Custodial Agency Agreement, the Agent will hold
title to properties as agent for the Partnership, the Agent is required to hold
itself out as agent for the Partnership and not as principal in all dealings
with third parties, the Agent has no obligation to maintain Partnership
Properties, and the Partnership and the General Partners have agreed to
indemnify and hold the Agent harmless from and against liabilities which it
might sustain as agent under the Custodial Agency Agreement. Based upon
Counsel's review of the judicial decisions in this area and the Custodial Agency
Agreement between the Partnership and the Agent, Counsel has concluded that it
is more likely than not the Partnership will be treated for income tax purposes
as the owner of Partnership Properties, title to which is held in the name of
the Agent under the terms of the Custodial Agency Agreement.
In other instances where nominee corporations are deemed necessary in
connection with a particular Partnership Property, it is the Partnership's
intention, if and to the extent practical, and on advice of counsel (although
the Partnership will not be required to obtain an opinion of counsel with
respect to such matter) (i) to
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contract on an arm's-length basis with the nominee corporation which will not be
controlled by either the Partnership or a majority in interest of its Partners,
and (ii) to seek to provide real estate documentation of the arrangement between
the nominee corporation and the Partnership in a manner which, under applicable
tax law principles, will result in the Partnership being treated as the owner of
the property for tax purposes. No assurances can be given, however, that such
efforts will be successful, and in the event a nominee corporation or land trust
is deemed to be the equitable owner of a Partnership Property for tax purposes,
items of income, gain, loss, deduction or credit attributable to any such
property would be required to be reported by the corporation or trust and would
not flow through to the Limited Partners.
CHARACTERIZATION OF LEASES
The Partnership has the authority to purchase properties and lease them
back to the sellers of such properties pursuant to "sale-leaseback" transactions
as described in "INVESTMENT OBJECTIVES AND CRITERIA." The tax benefits
described herein associated with ownership of a property, such as depreciation
or cost recovery deductions, depend on having the lease in any such leaseback
transaction treated as a "true lease" under which the Partnership is treated as
the owner of the property for federal income tax purposes, rather than having
such transaction treated as a conditional sale of the property or a financing
transaction entered into with the seller.
While the General Partners will use their best efforts to structure any
such sale-leaseback transaction to insure that the lease will be characterized
as a "true lease," so that the Partnership will be treated as the owner of the
property in question for federal income tax purposes, the Partnership will not
seek an advance ruling from the IRS or obtain an opinion of counsel that it will
be treated as the owner of any leased properties for federal income tax
purposes. A determination by the IRS that the Partnership is not the owner of
leased properties could result in substantial adverse tax consequences,
including depriving Limited Partners holding Class B Status Units of deductions
for depreciation and cost recovery. In addition, if a sale-leaseback
transaction is recharacterized as a financing for federal income tax purposes,
any Partnership income derived from such leaseback would be treated as interest
which is portfolio income, rather than passive activity income which may be
offset by passive activity losses generated by the Partnership or from
investments in other passive activities. (See "Passive Loss Limitations"
above.)
PROPERTY HELD PRIMARILY FOR SALE
The Partnership has been organized for the purpose of acquiring and
developing real estate for investment and rental purposes. However, if the
Partnership were at any time deemed for tax purposes to be a "dealer" in real
property (one who holds real estate primarily for sale to customers in the
ordinary course of business), any gain recognized upon a sale of such real
property would be taxable as ordinary income, rather than as capital gain, and
would constitute UBTI to Limited Partners which are tax-exempt entities.
Under existing law, whether property is or was held primarily for sale to
customers in the ordinary course of business must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The Partnership intends to acquire real estate and construct
improvements thereon for investment and rental only and to engage in the
business of owning and operating such improvements. The Partnership will make
sales thereof only as, in the opinion of the General Partners, are consistent
with the Partnership's investment objectives. Although the General Partners do
not anticipate that the Partnership will be treated as a dealer with respect to
any of its properties, there is no assurance that the IRS will not take a
contrary position. Because the issue is dependent upon facts which will not be
known until the time a property is sold or held for sale and due to the lack of
directly applicable judicial authority in this area, Counsel is unable to render
an opinion as to whether the Partnership will be considered to hold any or all
of its properties primarily for sale to customers in the ordinary course of
business.
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SALES OF PARTNERSHIP PROPERTIES
Upon the sale of Partnership Properties, the Partnership will recognize
gain or loss to the extent that the amount realized is more or less than the
adjusted basis of the Partnership Property sold. The amount realized upon the
sale of a Partnership Property will generally be equal to the sum of the cash
received plus the amount of indebtedness encumbering the property, if any,
assumed by the purchaser or to which the property remains subject upon the
transfer of the property to the purchaser. The adjusted basis of Partnership
Property will in general be equal to the original cost of the property less
depreciation and cost recovery allowances allowed to the Partnership with
respect to such property.
Assuming that the Partnership is not deemed to be a dealer with respect to
its properties (see "Property Held Primarily for Sale" above), such gain or loss
will generally be taxable under Section 1231 of the Code. A Limited Partner's
share of the gains or losses resulting from the sale of Partnership Properties
would generally be combined with any other Section 1231 gains or losses realized
by the Limited Partner in that year from sources other than the Partnership, and
the net Section 1231 gain or loss is generally treated as long-term capital gain
(subject to depreciation or cost recovery allowance recapture, if any) or
ordinary loss, as the case may be. Investors should be aware that the amount of
taxable gain allocated to a Limited Partner with respect to the sale of a
Partnership Property may exceed the cash proceeds received by such Limited
Partner with respect to such sale. (See "RISK FACTORS.")
SALES OF LIMITED PARTNERSHIP UNITS
A Limited Partner may be unable to sell any of his Units by reason of the
nonexistence of any market therefor. In the event that Units are sold, however,
the selling Limited Partner will realize gain or loss equal to the difference
between the gross sale price or proceeds received from sale and the Limited
Partner's adjusted tax basis in his Units. Assuming the Limited Partner is not
a "dealer" with respect to such Units and has held the Units for more than 18
months, his gain or loss will be long-term capital gain or loss, except for that
portion of any gain attributable to such Limited Partner's share of the
Partnership's "unrealized receivables" and "inventory items," as defined in
Section 751 of the Code, which would be taxable as ordinary income. Any
recapture of cost recovery allowance taken previously by the Partnership with
respect to personal property associated with Partnership Properties will be
treated as "unrealized receivables" for this purpose. Investors should note in
this regard that the Code requires the Partnership to report any sale of Units
to the IRS if any portion of the gain realized upon such sale is attributable to
the transferor's share of the Partnership's Section 751 property.
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
The dissolution and liquidation of the Partnership will involve the
distribution to the Partners of the cash remaining after the sale of its assets,
if any, and after payment of all the Partnership's debts and liabilities. If a
Limited Partner receives cash in excess of the basis of his Units, such excess
will be taxable as a gain. If a Limited Partner were to receive only cash upon
dissolution and liquidation, he would recognize a loss to the extent, if any,
that the adjusted basis of his Units exceeded the amount of cash received. No
loss would be recognized if a Limited Partner were to receive property other
than money, unrealized receivables and "substantially appreciated" inventory (as
defined in Section 751 of the Code). There are a number of exceptions to these
general rules, including but not limited to, the effect of a special basis
election under Section 732(d) of the Code for a Limited Partner who may have
acquired his Partnership interest within the two years prior to the dissolution,
and the effects of distributing one kind of property to some Partners and a
different kind of property to others as determined under Section 751(b) of the
Code.
CAPITAL GAINS AND LOSSES
Ordinary income for individual taxpayers is currently taxed at a maximum
marginal rate of 39.6%. While capital gains, until very recently, were taxed at
a maximum marginal rate of 28%, changes to the Code signed into
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law during 1997 now provide for a maximum marginal rate of 20% for gains
realized with respect to capital assets held for more than 18 months (the
maximum marginal rate of 28% remains intact with respect to dispositions of
capital assets held for more than 12, but less than 18 months). Moreover, TRA 97
also provides that the portion of long-term capital gain from the sale or
exchange of depreciable real property which would constitute depreciation
recapture will be taxed at a maximum marginal rate of 25%, rather than 20%.
Capital losses may generally be used to offset capital gains or may, in the
absence of capital gains, be deductible against ordinary income on a dollar-for-
dollar basis up to a maximum annual deduction of $3,000 ($1,500 in the case of a
married individual filing a separate return).
ELECTION FOR BASIS ADJUSTMENTS
Under Section 754 of the Code, partnerships may elect to adjust the basis
of partnership property upon the transfer of an interest in the partnership so
that the transferee of a partnership interest will be treated for purposes of
calculating depreciation and realizing gain as though he had acquired a direct
interest in the partnership's assets. However, as a result of the complexities
and added expense of the tax accounting required to implement such an election,
the General Partners do not intend to cause the Partnership to make any such
election on behalf of the Partnership. As a consequence, depreciation available
to a transferee of Units will be limited to the transferor's share of the
remaining depreciable basis of Partnership Properties, and upon a sale of a
Partnership Property, taxable income or loss to the transferee of the Units will
be measured by the difference between his share of the amount realized upon such
sale and his share of the Partnership's tax basis in the property, which may
result in greater tax liability to him than if a Section 754 election had been
made. In addition, the absence of such an election by the Partnership may
result in Limited Partners having greater difficulty in selling their Units.
ALTERNATIVE MINIMUM TAX
Alternative minimum tax is payable to the extent that a taxpayer's
alternative minimum tax exceeds his regular federal income tax liability for the
taxable year. Alternative minimum tax for individual taxpayers is a percentage
of "alternative minimum taxable income" ("AMTI") in excess of certain exemption
amounts. The first $175,000 of AMTI in excess of the exemption amount is taxed
currently at 26%, and AMTI in excess of $175,000 over the exemption amount is
taxed currently at 28%. Alternative minimum taxable income is generally
computed by adding what are called "tax preference items" to the taxpayer's
regular taxable income, with certain adjustments. While it is not anticipated
that an investment in the Partnership will give rise to any specific tax
preference items, the amount of alternative minimum tax imposed depends upon
various factors unique to each particular taxpayer. Accordingly, each Limited
Partner should consult with his own personal tax advisor regarding the possible
application of the alternative minimum tax.
PENALTIES
Under Section 6662 of the Code, a 20% penalty is imposed on any portion of
an underpayment of tax attributable to a "substantial understatement of income
tax." In general, a "substantial understatement of income tax" will exist if
the actual income tax liability of the taxpayer exceeds the income tax liability
shown on his return by the greater of 10% of the actual income tax liability or
$5,000. Unless the understatement is attributable to a "tax shelter," the
amount of an understatement is reduced by any portion of such understatement
which is attributable to (i) the income tax treatment of any item shown on the
return if there is "substantial authority" for the taxpayer's treatment of such
item on his return or (ii) any item with respect to which the taxpayer
adequately discloses on his return the relevant facts affecting the item's
income tax treatment. In the case of a "tax shelter," which has been re-defined
by TRA 97 to be, inter alia, a partnership or other entity that has as "a
significant purpose" (rather than "its principal purpose") the avoidance or
evasion of federal income tax, this reduction in the understatement only will
apply in cases where, in addition to having "substantial authority" for
treatment of the item in question, the taxpayer reasonably believed that the
income tax treatment of that item was more likely than not the proper treatment.
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Although the Partnership is not intended to be a so-called "tax shelter,"
it is possible that it may be considered a tax shelter for purposes of Section
6662 of the Code and that certain Partnership tax items could be considered tax
shelter items within the meaning of Section 6662. Existing Regulations under
Section 6662 provide that an entity will be deemed to be a tax shelter if the
tax avoidance or evasion motive exceeds all other motives; however, it is
anticipated that the definitions in the Regulations will be modified to a lower
standard in accordance with the changes made to Section 6662 by TRA 97. Based
on the investment objectives of the Partnership, the General Partners believe
there are substantial grounds for a determination that the Partnership does not
constitute a tax shelter; however, because the issue is dependent upon facts
relating to future Partnership operations and other factual determinations which
are not known at this time, and because of the changes made to the definition of
a "tax shelter" made by TRA 97, the interpretation of which is currently
uncertain, Counsel is unable to render an opinion as to whether an investment in
the Partnership will be considered a tax shelter for purposes of Section 6662 of
the Code.
In addition to the substantial understatement penalty, Section 6662 of the
Code also imposes a 20% penalty on any portion of an underpayment of tax (i)
attributable to any substantial valuation misstatement (generally where the
value or adjusted basis of a property claimed on a return is 200% or more of the
correct value or adjusted basis), or (ii) attributable to negligence, defined as
any failure to make a reasonable attempt to comply with the Code, or a careless,
reckless or intentional disregard of federal income tax rules or regulations.
TAX SHELTER REGISTRATION
Any entity deemed to be a "tax shelter," as defined in Section 6111 of the
Code, is required to register with the IRS. Regulations under Section 6111
define a "tax shelter" as an investment in connection with which an investor can
reasonably infer from the representations made that the "tax shelter ratio" may
be greater than 2 to 1 as of the close of any of the first five years ending
after the date in which the investment is offered for sale. The "tax shelter
ratio" is generally determined by dividing the investor's share of the aggregate
deductions derived from the investment, determined without regard to income, by
the amount of the investor's capital contributions.
The Partnership is not intended to constitute a "tax shelter." Further,
the General Partners have represented that, in the absence of events which are
unlikely to occur, the aggregate amount of deductions derived from any Limited
Partner's investment in the Partnership, determined without regard to income,
will not exceed twice the amount of any such Limited Partner's investment in the
Partnership as of the close of any year in the Partnership's first five calendar
years.
Based upon the authority of the Regulations under Section 6111 and the
representations of the General Partners that, in the absence of events which are
unlikely to occur, the "tax shelter ratio" with respect to an investment in the
Partnership will not exceed 2 to 1 for any investor as of the close of any year
in the Partnership's first five calendar years, Counsel in the Tax Opinion has
concluded that it is more likely than not the Partnership is not currently
required to register as a tax shelter with the IRS under Section 6111 of the
Code prior to the offer and sale of the Units.
AUDITS
The IRS has undertaken an intensified audit program with respect to
partnerships and partnership returns. While this should generally not affect
Units which are being treated as Class A Status Units, prospective investors in
Class B Status Units should be aware that deductions which are claimed on the
Partnership's return may be challenged and disallowed by the IRS. Any such
disallowance may deprive Limited Partners holding Units treated as Class B
Status Units of some or all of the tax benefits incidental to an investment in
the Partnership.
In the event of an audit of the Partnership's tax return, the General
Partners will take primary responsibility for contesting federal income tax
adjustments proposed by the IRS, to extend the statute of limitations as to all
Partners and, in certain circumstances, to bind the Limited Partners to such
adjustments. Although the
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General Partners will attempt to inform each Limited Partner of the commencement
and disposition of any such audit or subsequent proceedings, Limited Partners
should be aware that their participation in administrative or judicial
proceedings relating to Partnership items will be substantially restricted. An
audit of the Partnership could result in substantial legal and accounting fees
required to be paid to substantiate the reporting positions taken, and any such
fees would reduce the cash otherwise available for distribution to the Limited
Partners. Any such audit may result in adjustments to the tax returns of the
Partnership which would require adjustments to each Limited Partner's personal
income tax return and may require such Limited Partners to pay additional taxes
plus interest, compounded daily. In addition, any audit of a Limited Partner's
return could result in adjustments of other items of income and deductions not
related to the Partnership.
It should also be noted that in the event the General Partners cause the
Partnership to elect to be treated as an "Electing Large Partnership" under TRA
97, which would enable the Partnership to take advantage of simplified flow-
through reporting of partnership items, any adjustments to the tax returns of
the Partnership would be accounted for in the year such adjustments take effect,
rather than the tax year to which such adjustments relate. Further, the General
Partners will have the discretion in such circumstances either to pass along
adjustments to the Partners, or to cause such adjustments to be borne at the
Partnership level, which could reduce the cash otherwise available for
distribution to Limited Partners. Any penalties and interest could also be
borne at the Partnership level. To the extent that elections to change the
status of Units are made between the years in which a tax benefit is claimed and
an adjustment is made, holders of a particular class of Units may suffer a
disproportionate adverse impact with respect to any such adjustment. Potential
investors are urged to consult their own tax advisors with regard to the effect
of simplified pass-through reporting and the changes to Partnership audit
procedures enacted by TRA 97.
FOREIGN INVESTORS AS LIMITED PARTNERS
As a general matter, foreign investors may purchase Units in the
Partnership. A foreign investor who purchases Units and becomes a Limited
Partner in the Partnership will generally be required to file a United States
tax return on which he must report his distributive share of the Partnership's
items of income, gain, loss, deduction and credit, and pay United States federal
income tax at regular United States tax rates on his share of any net income,
whether ordinary or capital gains. A foreign investor may also be subject to
tax on his distributive share of the Partnership's income and gain in his
country of nationality or residence or elsewhere. In addition, cash
distributions of Net Cash From Operations or Sale Proceeds otherwise payable to
a foreign investor from the Partnership or amounts payable upon the sale of a
foreign investor's Units may be reduced by United States tax withholdings made
pursuant to applicable provisions of the Code.
FOREIGN INVESTORS SHOULD CONSULT THEIR OWN TAX ADVISORS WITH REGARD TO THE
EFFECT OF BOTH THE UNITED STATES TAX LAWS AND FOREIGN LAWS ON AN INVESTMENT IN
THE PARTNERSHIP AND THE POTENTIAL THAT THE PARTNERSHIP WILL BE REQUIRED TO
WITHHOLD FEDERAL INCOME TAXES FROM AMOUNTS OTHERWISE PAYABLE TO FOREIGN
INVESTORS.
TAX LEGISLATION AND REGULATORY PROPOSALS
In addition to TRA 97, legislative proposals continue to be made which
could significantly change the federal income tax laws as they relate to an
investment in the Partnership. It is impossible at this time, however, to
predict whether or in what form any such legislation will be enacted. Further,
the interpretation of changes made by TRA 97 is uncertain at this time. EACH
PROSPECTIVE INVESTOR IS URGED TO CONSULT HIS OWN TAX ADVISOR WITH RESPECT TO HIS
OWN TAX SITUATION, THE EFFECT OF ANY LEGISLATIVE, REGULATORY OR ADMINISTRATIVE
DEVELOPMENTS OR PROPOSALS ON AN INVESTMENT IN UNITS IN THE PARTNERSHIP, OR OTHER
POTENTIAL CHANGES IN APPLICABLE TAX LAWS.
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STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above, prospective
investors should consider potential state and local tax consequences of an
investment in the Partnership. This Prospectus makes no attempt to summarize
the state and local tax consequences to an investor in those states in which the
Partnership may own properties or carry on activities, and each investor is
urged to consult his own tax advisor on all matters relating to state and local
taxation, including the following: (i) whether the state in which he resides
will impose a tax upon his share of the taxable income of the Partnership, (ii)
whether an income tax or other return must also be filed in those states where
the Partnership will own properties, and (iii) whether he will be subject to
state income tax withholding in states where the Partnership will own
properties.
Because the Partnership will conduct its activities and own properties in
different taxing jurisdictions, an investment in the Partnership may impose upon
a Limited Partner the obligation to file annual tax returns in a number of
different states or localities, as well as the obligation to pay taxes to a
number of different states or localities. Additional costs incurred in having
to prepare various state and local tax returns, as well as the additional state
and local tax which may be payable, should be considered by prospective
investors in deciding whether to make an investment in the Partnership.
It should be noted that many states have implemented or are in the process
of implementing programs to require partnerships to withhold and pay state
income taxes owed by non-resident partners relating to income-producing
properties located in their states. For example, all partnerships which own
property or do business within the State of Georgia are subject to a withholding
tax in the amount of 4% of distributions paid to non-resident partners receiving
annual distributions of $1,000 or more. The Georgia withholding requirements
will apply to all cash distributions except distributions constituting a return
of capital and may have the effect of reducing the amount of cash which the
Partnership would otherwise be able to distribute to non-resident Limited
Partners receiving distributions from the Partnership. In addition, the State
of North Carolina has required certain of the Prior Wells Public Programs to
withhold and pay state taxes relating to income-producing properties located in
North Carolina. In the event that the Partnership is required to withhold state
taxes from cash distributions otherwise payable to Limited Partners, the amount
of the Net Cash From Operations otherwise payable to such Limited Partners would
likely be reduced. In addition, such collection and filing requirements at the
state level may result in increases in the Partnership's administrative expenses
which would likely have the effect of reducing returns to the Limited Partners.
(See "RISK FACTORS.")
EACH PROSPECTIVE PURCHASER OF UNITS IS URGED TO CONSULT WITH HIS OWN TAX
ADVISOR WITH RESPECT TO THE IMPACT OF APPLICABLE STATE AND LOCAL TAXES ON HIS
PROPOSED INVESTMENT IN THE PARTNERSHIP.
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership is a Georgia limited partnership whose General Partners are
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership having
Wells Capital, Inc., a Georgia corporation, as its sole General Partner. (See
"MANAGEMENT.")
The rights and obligations of the Partners in the Partnership will be
governed by the Partnership Agreement, the form of which is set out in its
entirety as Exhibit "B" to this Prospectus. The Amended and Restated Agreement
of Limited Partnership of the Partnership will be executed and become effective
as of the effective date of this Prospectus. Prospective investors should study
carefully the Partnership Agreement before making any investment decision with
regard to the Units. The following statements are intended to supplement other
statements in this Prospectus concerning the Partnership Agreement and related
matters, are intended to be a
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summary only and, since they do not purport to be complete, are qualified in
their entirety by reference to the Partnership Agreement.
POWERS OF THE GENERAL PARTNERS
The General Partners have full, exclusive and complete authority and
discretion in the management and control of the business of the Partnership.
Limited Partners have no right or power to take part in the management of, or to
bind, the Partnership. (Articles XI and XVI.)
LIABILITIES OF THE LIMITED PARTNERS
The Partnership was organized as a limited partnership under the Georgia
Revised Uniform Limited Partnership Act ("GRULPA"). Investors whose
subscriptions are accepted by the General Partners will be admitted as Limited
Partners. Under GRULPA, Limited Partners have no personal liability for
Partnership debts or obligations in excess of their Capital Contributions.
OTHER ACTIVITIES OF THE GENERAL PARTNERS
The General Partners may engage in or possess interests in other business
ventures of every kind and description for their own account, including, without
limitation, the syndication, ownership or management of other real estate. They
shall incur no liability to the Partnership, or to the Limited Partners, as a
result of engaging in any other business or venture.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS;
NONASSESSABILITY OF UNITS
Limited Partners are not permitted to participate in the management and
control of the business of the Partnership and may not transact any business in
the name of the Partnership. Pursuant to the Partnership Agreement, each
Limited Partner appoints the General Partners, with full power and substitution,
as his lawful attorneys-in-fact to act in his name, place and stead: (i) to
amend the Certificate of Limited Partnership and the Partnership Agreement,
including amendments necessary to properly reflect allocations of profits and
losses as may be required for tax purposes; and (ii) to take any further action
which the General Partners deem necessary or advisable in connection with the
foregoing.
Units acquired by Limited Partners pursuant to the Partnership Agreement
will be fully paid and nonassessable. (Section 8.5(d).) No Limited Partner has
the right to withdraw all or any portion of his Capital Contribution until the
full and complete winding up and liquidation of the business of the Partnership,
except as otherwise provided by law. (Section 8.10(b).) No Limited Partner
will be liable for any debts or obligations of the Partnership in excess of his
Capital Contribution. (Section 16.3.)
VOTING RIGHTS OF THE LIMITED PARTNERS
Limited Partners may, with the affirmative vote of those holding more than
50% of the Units in the aggregate, take action on the following matters: (i) the
approval or disapproval of any sale, exchange or pledge of all or substantially
all of the Partnership's real properties; (ii) dissolution of the Partnership;
(iii) removal of a General Partner or any successor general partner; (iv)
election of a new General Partner upon the retirement, withdrawal or removal of
a General Partner or upon the death or the occurrence of another Event of
Withdrawal of a General Partner; (v) change in the business purpose or
investment objectives of the Partnership; and (vi) amendment to the Partnership
Agreement, except as to certain matters specified in Section 11.2(b) which the
General Partners alone may amend without a vote of the Limited Partners.
(Section 16.1.) In addition, Limited Partners holding a majority of the Units
have the right to authorize a proposed merger or consolidation of the
Partnership under certain circumstances. (Section 11.3(u).) Accordingly,
Limited Partners holding a majority of
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the Units may amend the Partnership Agreement, change the business purpose or
investment objectives of the Partnership, remove a General Partner and authorize
a merger or consolidation of the Partnership. Except as otherwise provided in
the Partnership Agreement in connection with a "partnership roll-up" transaction
as described below, Limited Partners not voting with the majority on such
transactions will nonetheless be bound by the majority vote and will have no
right to dissent from the majority vote and obtain fair value for their Units.
(See "RISK FACTORS.")
Notwithstanding the foregoing, the Partnership Agreement may not be amended
to change the limited liability of the Limited Partners without the vote or
consent of all Limited Partners or to diminish the rights or benefits to which
the General Partners or Limited Partners are entitled without the consent of the
Limited Partners holding a majority of the Units who would be adversely
effected, in the case of diminishing the rights or benefits of the Limited
Partners, or the majority vote of the General Partners, in the case of
diminishing the rights or benefits of the General Partners. (Section 16.2.)
Amendments to the Partnership Agreement receiving the requisite vote will
be executed by a General Partner on behalf of all Limited Partners acting
pursuant to the power of attorney contained in the Partnership Agreement.
(Section 19.1.)
MERGERS AND CONSOLIDATIONS
The Partnership Agreement prohibits the General Partners from initiating
any transaction wherein the Partnership is merged or consolidated with any other
partnership or corporation, which type of transaction is commonly referred to as
a "partnership roll-up," and further provides that the General Partners shall
not be authorized to merge or consolidate the Partnership with any other
partnership or corporation or to convert the Partnership into a real estate
investment trust, which is often referred to as a "REIT," unless Limited
Partners owning more than 50% of the Units consent in writing to such
transaction. (Section 11.3(u).)
In addition, the Partnership Agreement contains a further provision
prohibiting the General Partners from entering into any acquisition, merger,
conversion or consolidation unless the Partnership obtains a current appraisal
of the Partnership's assets by an independent appraiser and Limited Partners who
vote against or dissent from the proposal have the choice of: (a) accepting the
securities offered in the proposed roll-up; or (b) one of the following: (i)
remaining as Limited Partners in the Partnership and preserving their interests
in the Partnership on the same terms and conditions as existed previously, or
(ii) receiving cash in an amount equal to the Limited Partners' pro rata share
of the appraised value of the net assets of the Partnership. (Section 11.3(u).)
SPECIAL PARTNERSHIP PROVISIONS
Leo F. Wells, III, who owns 100% of the issued and outstanding stock of
Wells Real Estate Funds, Inc., which owns all of the issued and outstanding
stock of Wells Capital, Inc., the sole general partner of Wells Partners, L.P.,
has agreed that he will not sell or otherwise voluntarily transfer or convey a
majority or controlling interest in the outstanding stock of Wells Real Estate
Funds, Inc. to any non-affiliated person or entity unless Limited Partners
owning more than 50% of the Units consent in writing to any such sale, transfer
or conveyance. (Section 17.1(a).)
The Partnership Agreement also prohibits the General Partners and their
Affiliates from receiving any rebates or give-ups or participating in any
reciprocal business arrangements which would circumvent the provisions of the
Partnership Agreement. (Section 12.7(a).)
REMOVAL OF GENERAL PARTNERS
The Partnership Agreement provides that a General Partner may be removed
and a new General Partner elected upon the written consent or affirmative vote
of Limited Partners owning more than 50% of the Units.
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(Section 17.1(d).) If a General Partner is removed, the fair market value of the
interest of the removed General Partner in the Partnership will be determined by
independent appraisers and will be paid to him or it as provided in Section 20.4
of the Partnership Agreement. Payment of this amount may be made by the delivery
of a promissory note of the Partnership for such fair market value payable in
equal consecutive annual installments over a period of not less than five years
commencing on the first anniversary of the date of such note. Such promissory
note shall bear interest at the rate of 9% per annum. Within 120 days after the
determination of the fair market value of the former General Partner's interest,
the Partnership may, with the consent of a majority in interest of the Limited
Partners, sell such interest to one or more persons who may be Affiliates of the
remaining General Partner or General Partners, and admit such person or persons
to the Partnership as substitute General Partners; provided, however, that the
purchase price to be paid to the Partnership for the Partnership interest of the
former General Partner shall not be less than its fair market value as
determined by the appraisal described above. Such substitute General Partner or
Partners may pay said purchase price in installments in the manner set forth
above.
ASSIGNABILITY OF GENERAL PARTNERS' INTERESTS
With the consent of all other General Partners and Limited Partners holding
more than 50% of the Units, after providing 90 days written notice to the other
General Partners and Limited Partners, a General Partner may designate a
successor or additional general partner, in each case with such participation in
such General Partner's interest as such General Partner and such successor or
additional General Partner may agree upon, provided that the interests of the
Limited Partners are not adversely affected thereby. Generally, except in
connection with such a designation, no General Partner shall have the right to
retire or withdraw voluntarily from the Partnership or to sell, transfer or
assign his or its interest without the consent of the Limited Partners holding
more than 50% of the Units. (Section 17.1.)
BOOKS AND RECORDS; RIGHTS TO INFORMATION; ANNUAL AUDITS
The General Partners are required to maintain at the Partnership's
principal office full and accurate books and records for the Partnership. All
Limited Partners have the right to inspect, examine and obtain copies at their
reasonable cost of such books and records at all reasonable times. In addition,
an alphabetical list of the names, addresses and business telephone numbers of
all Limited Partners, along with the number of Units owned by each of them,
shall be available for inspection and copying by the Limited Partners or their
designated representatives. (Section 15.1.) Annual audits of the Partnership's
affairs will be conducted by such firm of independent certified public
accountants as may from time to time be engaged by the Partnership. (Section
15.2(b).)
MEETINGS OF LIMITED PARTNERS
There will generally be no annual or periodic meetings of Limited Partners.
However, the General Partners shall be required to call a meeting of the Limited
Partners upon the written request of Limited Partners holding 10% or more of the
outstanding Units. In such event, a detailed statement of the action proposed,
including a verbatim statement of the wording of any resolution proposed for
adoption by the Limited Partners and any proposed amendment to the Partnership
Agreement, shall be included with the notice of the meeting. (Section 16.4.)
TRANSFERABILITY OF UNITS
There are a number of restrictions on the transferability of Units. Except
for intra-family transfers and transfers by gift, inheritance or family
dissolution, no Units may be transferred unless the proposed transferee meets
the minimum suitability standards set forth in this Prospectus. Investors
transferring less than all of their Units must transfer a number of Units such
that, after the transfer, both the transferor and transferee shall own no less
than the minimum number of Units required to be purchased by an investor, unless
such transfer is made on behalf of a Retirement Plan, or by gift, inheritance,
intra-family transfer, family dissolution or to an affiliate. Payment of a
transfer fee in an amount sufficient to cover transfer costs, as established by
the General Partners, is a condition to effectiveness of a transfer. All
transfers of Units must be pursuant to documentation satisfactory in form and
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substance to the General Partners, including, without limitation, confirmation
by the transferee that the transferee has been informed of all pertinent facts
relating to the liquidity and marketability of the Units. Additional
restrictions on transfers of Units are imposed under the securities laws of
various states upon the residents of such states. Further, no Unit may be sold,
assigned or exchanged if the sale of such Unit, when added to the total of all
other sales or exchanges of Units within the period of 12 consecutive months
prior to the proposed date of sale or exchange, would, in the opinion of counsel
for the Partnership, result in the termination of the Partnership under Section
708 of the Code (dealing with transfers of 50% or more of the outstanding
interests of a partnership) unless the Partnership and the transferring holder
shall have received a ruling from the IRS that the proposed sale or exchange
will not cause such a termination. (Section 17.3(a).)
In addition to the foregoing restrictions, the Partnership Agreement
contains substantial restrictions on the transfer or assignment of Units in
order to prevent the Partnership from being deemed a "publicly traded
partnership." These restrictions are those described in the Section 7704
Regulations, the most significant of which prohibits the transfer during any
taxable year of more than 2% of the total interest in the Partnership's capital
or profits excluding transfers by gift, transfers at death, transfers between
family members, distributions from a qualified retirement plan and block
transfers, which are defined as transfers by a partner during any 30 calendar
day period of partnership interests representing more than 2% of the total
interest in a partnership's capital or profits. Further, the Partnership
Agreement provides that any transfer or assignment of Units which the General
Partners believe will cause the Partnership to be treated as a publicly traded
partnership will be void ab initio and will not be recognized by the
Partnership. (See "FEDERAL INCOME TAX CONSEQUENCES--Publicly Traded
Partnerships" and Section 17.3(g) of the Partnership Agreement.)
Transferees of Units are not eligible to participate in the Partnership's
Distribution Reinvestment Plan with respect to investment of their distributions
from the Partnership in additional Units of the same Partnership. However, such
transferees are not disqualified from participation in the Distribution
Reinvestment Plan with respect to investment of their distributions from the
Partnership in Units issued by subsequent limited partnerships sponsored by the
General Partners, if such Plan is established and the transferee meets the
Plan's requirements for participation. (See "Distribution Reinvestment Plan.")
An assignee of Units shall not become a substituted Limited Partner in
place of his assignor unless the assignee shall have expressly agreed to become
a party to the Partnership Agreement. (Section 17.4.) An assignee of Units who
does not become a substituted Limited Partner shall be entitled to receive
distributions attributable to the Units properly transferred to him (Section
17.5), but shall not have any of the other rights of a Limited Partner,
including the right to vote as a Limited Partner and the right to inspect and
copy the Partnership's books. Assignments of Units are restricted similarly to
transfers of Units.
PARTNERSHIP BORROWING
The General Partners are prohibited from borrowing to finance the
acquisition, construction or ownership of the Partnership's properties.
However, the Partnership may incur debt for the following limited purposes: (a)
in the event of unforeseen circumstances in which the Partnership's working
capital reserves and other cash resources available to the Partnership are
insufficient for operating purposes; and (b) in order to finance property
improvements, when the General Partners deem such improvements to be necessary
or appropriate to protect the capital previously invested in the properties, to
protect the value of the Partnership's investment in a particular property or to
make a particular property more attractive for sale or lease. The aggregate
amount of Partnership borrowings at any given time may not exceed 25% of the
total purchase price of Partnership Properties. (See "INVESTMENT OBJECTIVES AND
CRITERIA--Borrowing Policies" and Section 11.3(e) of the Partnership
Agreement.)
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REPURCHASE OF UNITS
After a period of one year following the termination of the Offering of
Units, the Partnership may establish a Repurchase Reserve of up to 5% of Cash
Flow in any year, subject to the various restrictions and limitations set forth
below. (Sections 8.11 and 11.3(h).) The establishment of the Repurchase
Reserve is in the sole discretion of the General Partners, and if established,
the Repurchase Reserve may be terminated at any time in the sole discretion of
the General Partners. The Partnership Agreement provides that under certain
circumstances the Partnership may, in the sole discretion of the General
Partners and upon the request of a Limited Partner, repurchase the Units held by
such Limited Partner, provided that no such repurchase may be made if either (i)
following the repurchase such Limited Partner's interests would not be fully
redeemed but such Limited Partner would hold less than the minimum investment in
the Offering (100 Units) or (ii) such repurchase would impair the capital or
operations of the Partnership. In no event will a Limited Partner be permitted
to have his Units repurchased prior to termination of the Offering. Units owned
by the General Partners or their Affiliates may not be repurchased by the
Partnership. Further, in order to prevent the classification of the Partnership
as an investment company under the Investment Company Act of 1940 and to prevent
the Partnership from being deemed a "publicly traded partnership" under the
Code, the opportunity of Limited Partners to have their Units repurchased has
been substantially restricted under the Partnership Agreement.
A Limited Partner wishing to have Units repurchased must mail or deliver a
written request to the Partnership, executed by his or its trustee or authorized
agent in the case of qualified profit sharing, pension and other retirement
trusts, indicating his or its desire to have such Units repurchased. Such
requests will be considered by the General Partners in the order in which they
are received. Except for the fact that the Repurchase Reserve will not be
established, if at all, until at least one year after the termination of the
Offering, Limited Partners are not required to hold Units for any specified
period of time prior to making such a redemption request.
In the event that the General Partners decide to honor a request, they will
notify the requesting Limited Partner in writing of such fact, of the purchase
price for the repurchased Units and of the effective date of the repurchase
transaction (which will be not less than 60 nor more than 75 calendar days
following the receipt of the written request by the Partnership) and will
forward to such Limited Partner the documents necessary to effect such
repurchase transaction. The purchase price per Unit will be equal to 85% of the
fair market value of the Units until three years from the effective date of the
Registration Statement and 90% of the fair market value of the Units thereafter.
Fair market value shall be determined by the General Partners based upon an
estimate of the amount the Limited Partners would receive if the Partnership's
real estate investments were sold for their estimated value and if such proceeds
were distributed in a liquidation of the Partnership. For the first three full
fiscal years following the year in which the Offering of Units terminates, the
fair market value of the Units will be deemed to be their initial purchase price
of $10.00. Thereafter, the fair market value will be based on annual appraisals
of Partnership Properties performed by the General Partners and not by an
independent appraiser. However, the General Partners will obtain an opinion of
an independent third party annually that their estimate of the fair market value
of each Unit for such year is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. Fully executed documents must be
returned to the Partnership at least 30 days prior to the effective date. The
Partnership will, as soon as possible following return of such documents from
the Limited Partner, repurchase the Units of the Limited Partner, provided, that
if insufficient amounts are then available in the Repurchase Reserve to
repurchase all of such Units, only a portion of such Units will be repurchased;
and provided further, that the Partnership may not repurchase less than all of
the Units of such Limited Partner if as a result thereof the Limited Partner
would own less than the minimum investment in the Offering (100 Units). Units
repurchased by the Partnership will be canceled. In the event that insufficient
funds are available in the Repurchase Reserve to repurchase all of such Units,
the Limited Partner will be deemed to have priority for subsequent Partnership
repurchases over other Limited Partners who subsequently request repurchases.
In addition to the other restrictions described herein, the Partnership
Agreement provides that (i) repurchases out of the Repurchase Reserve may not
exceed in the aggregate more than 2% of total Gross Offering Proceeds throughout
the life of the Partnership excluding repurchases of Units relating to the death
or legal
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incapacity of the owner or a substantial reduction in the owner's net
worth or income (defined to mean an involuntary loss of not less than 50% in
income or net worth during the year in which such repurchase occurs), and (ii)
not more than 2% of the outstanding Units may be purchased in any year, provided
in each case that the Partnership has sufficient cash to make the purchase and
that the purchase will not be in violation of any other applicable legal
requirements. (Section 8.11(k).) Due to the various restrictions and
limitations relating to the potential establishment of a Repurchase Reserve by
the Partnership, in considering an investment in the Partnership, prospective
investors should not assume that they will be able to resell their Units to the
Partnership. (See "RISK FACTORS.") In addition, prospective investors should
consider that a resale of their Units to the Partnership may result in adverse
tax consequences to the Limited Partner. (See "FEDERAL INCOME TAX
CONSEQUENCES--Sales of Limited Partnership Units.")
DISTRIBUTION REINVESTMENT PLAN
It is anticipated that a Distribution Reinvestment Plan (the "Distribution
Reinvestment Plan") will be available which will be designed to enable Limited
Partners holding Class A Status Units to have their distributions of Net Cash
From Operations from the Partnership invested in additional Units of the
Partnership during the Offering or in units issued by subsequent limited
partnerships sponsored by the General Partners or their Affiliates which have
substantially identical investment objectives as the Partnership. (Section
8.15.) In addition, in the event the Distribution Reinvestment Plan is
effected, it is anticipated that Limited Partners in Wells Fund III and Limited
Partners holding Class A Units (or Class A Status Units) in Wells Fund IV, Wells
Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX and Wells
Fund X will have the opportunity to have their distributions of Net Cash From
Operations from Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI,
Wells Fund VII, Wells Fund VIII, Wells Fund IX and Wells Fund X invested in
Units in the Partnership during the Offering period. Units issued by the
Partnership pursuant to the Distribution Reinvestment Plan will be available
only until the termination of its Offering. The General Partners in their
discretion may elect not to provide a Distribution Reinvestment Plan or to
terminate any existing Distribution Reinvestment Plan. Limited Partners will
not be eligible to participate in the Distribution Reinvestment Plan with
respect to Class B Status Units since no distributions of Net Cash From
Operations are payable with respect to Class B Status Units. Limited Partners
who acquire their Units outside the Offering (i.e., transferees of Units) may
not participate in the Distribution Reinvestment Plan with respect to Units in
the Partnership in which they are Limited Partners, but may have their
distributions from the Partnership invested in Units of a subsequent limited
partnership sponsored by the General Partners or their Affiliates if such a
distribution reinvestment plan is made available by the General Partners in
their discretion.
Limited Partners participating in the Distribution Reinvestment Plan may
purchase fractional Units and shall not be subject to minimum investment
requirements, although the General Partners may, at their option, impose certain
minimum investment requirements and other restrictions with respect to purchases
of Units pursuant to the Distribution Reinvestment Plan. Limited Partners
electing to participate in the Distribution Reinvestment Plan will receive with
each confirmation a notice advising such Limited Partner that he is entitled to
change his election with respect to subsequent distributions by returning a
notice to the Partnership. If sufficient Units are not available for purchase
pursuant to the Distribution Reinvestment Plan, the Partnership will remit all
excess distributions of Net Cash From Operations to the participants.
Net Cash From Operations may only be reinvested in units issued by
subsequent limited partnerships sponsored by the General Partners or their
Affiliates if: (i) prior to the time of such reinvestment, the Limited Partner
has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii) the offer and sale of
such interests is qualified for sale under the applicable state securities laws;
(iv) the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership; (v) the participant qualifies
under applicable investor suitability standards as contained in the prospectus
for the subsequent limited partnership; and (vi) the subsequent limited
partnership has substantially identical
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investment objectives as the Partnership. In addition, amounts reinvested by a
participant under the Distribution Reinvestment Plan will not be considered by
the subsequent limited partnership in connection with meeting applicable minimum
escrow requirements. Limited Partners who invest in subsequent limited
partnerships pursuant to a distribution reinvestment plan will become, and will
be treated as, limited partners in such subsequent limited partnership in all
respects and, as such, will receive the same applicable reports as other limited
partners in the subsequent limited partnership as required by the then
applicable NASAA Guidelines.
EACH LIMITED PARTNER ELECTING TO PARTICIPATE IN THE DISTRIBUTION
REINVESTMENT PLAN AGREES THAT IF AT ANY TIME HE FAILS TO MEET THE APPLICABLE
REAL ESTATE LIMITED PARTNERSHIP INVESTOR SUITABILITY STANDARDS OR CANNOT MAKE
THE OTHER INVESTOR REPRESENTATIONS OR WARRANTIES SET FORTH IN THE THEN CURRENT
REAL ESTATE LIMITED PARTNERSHIP PROSPECTUS, THE SUBSCRIPTION AGREEMENT OR
PARTNERSHIP AGREEMENT RELATING THERETO, HE WILL PROMPTLY NOTIFY THE GENERAL
PARTNERS IN WRITING.
Subscribers should note that affirmative action must be taken to change or
withdraw from participation in the Distribution Reinvestment Plan. Change in or
withdrawal from participation in the Distribution Reinvestment Plan shall be
effective only with respect to distributions made more than 30 days following
receipt by the General Partners of written notice of such change or withdrawal.
In the event a Limited Partner transfers his Units, such transfer shall
terminate the Limited Partner's participation in the Distribution Reinvestment
Plan as of the first day of the quarter in which such transfer is effective.
Selling Commissions not to exceed 7% and dealer management fees not to
exceed 2.5% may be paid by the Partnership with respect to Units purchased
pursuant to the Distribution Reinvestment Plan. Payment of selling commissions
may be subject to certain minimum levels of additional investment. Each holder
of Units is permitted to identify, change or eliminate the name of his account
executive at a participating dealer. Identification of such account executive
may be retained, changed or eliminated for subsequent distributions. In the
event that no account executive is identified at any time during the Offering,
or in the event that the account executive is not employed by a broker-dealer
having a valid selling agreement with the Dealer Manager, no selling commission
will be paid with respect to distributions which are then being reinvested, and
the Partnership will retain for additional investments in real estate any
amounts otherwise payable as selling commissions. All holders of Units, based
on the number of Units owned by each of them, will receive the benefit of
savings realized by the Partnership from investors who do not identify account
executives. Accordingly, the economic benefit to investors who do not identify
account executives will be diluted and shared with all holders, including those
for whose contributions the Partnership has paid selling commissions.
Unless the General Partners are otherwise notified in writing, Units issued
pursuant to the Distribution Reinvestment Plan will initially be treated as
Class A Status Units. Units purchased pursuant to the Distribution Reinvestment
Plan will entitle participants to the same rights and to be treated in the same
manner as Units issued pursuant to the Offering.
Following the reinvestment, each participant will be sent a statement and
accounting showing the distributions received, the number and price of Units
purchased, and the total amount of Units acquired under the Distribution
Reinvestment Plan. Taxable participants will incur tax liability for
Partnership income allocated to them even though they have elected not to
receive their distributions in cash but rather to have their distributions held
in their account under the Distribution Reinvestment Plan. (See "RISK FACTORS
Federal Income Tax Risks--Risk of Taxable Income Without Cash Distributions.")
The Partnership reserves the right to amend any aspect of the Distribution
Reinvestment Plan effective with respect to any distribution paid subsequent to
the notice, provided that the notice is sent to participants in the Distribution
Reinvestment Plan at least ten days before the record date for a distribution.
The Partnership also
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reserves the right to terminate the Distribution Reinvestment Plan for any
reason at any time, by sending written notice of termination to all
participants.
Nothing contained herein shall be construed as obligating the General
Partners or their Affiliates to continue to offer units in subsequent real
estate limited partnerships or to include a distribution reinvestment plan as
part of the offering of such partnerships or to permit reinvestment of
distributions therein.
PROXY TO LIQUIDATE
At any time commencing eight years after the termination of the Offering,
if the General Partners receive written requests from Limited Partners holding
10% or more of the outstanding Units directing that the General Partners
formally proxy the Limited Partners to determine whether the assets of the
Partnership should be liquidated (the "Proxy to Liquidate"), the General
Partners will send a Proxy to Liquidate to each Limited Partner. The General
Partners shall not be required to send Proxies to Liquidate to the Limited
Partners more frequently than once during every two year period. If the Proxy
to Liquidate results in Limited Partners owing more than 50% of the Units
(without regard to Units owned or otherwise controlled by the General Partners)
voting in favor of a liquidation of the Partnership, the assets of the
Partnership will be fully liquidated within 30 months from the close of the 45-
day deadline applicable to the Proxy to Liquidate. (Section 20.2.)
DISSOLUTION AND TERMINATION
The Partnership is to continue until December 31, 2026, but may be
dissolved earlier as provided in the Partnership Agreement or by law. (Article
VI.) The Partnership will also be dissolved upon: (a) the decision by holders
of more than 50% of the Units to dissolve and terminate the Partnership; (b) the
retirement or withdrawal of a General Partner unless within 90 days from the
date of such event, (i) the remaining General Partner, if any, elects to
continue the business of the Partnership, or (ii) if there is no remaining
General Partner, a majority in interest of the Limited Partners elect to
continue the business of the Partnership; (c) the removal of a General Partner
unless within 90 days from the date of such removal, (i) the remaining General
Partner, if any, elects to continue the business of the Partnership, or (ii) if
there is no remaining General Partner, a majority in interest of the Limited
Partners elect to continue the business of the Partnership; (d) the sale or
disposition of all interests in real property and other assets of the
Partnership; (e) the effective date of the occurrence of an Event of Withdrawal
of the last remaining General Partner unless, within 120 days from such event, a
majority in interest of the Limited Partners elect to continue the business of
the Partnership; or (f) the happening of any other event causing the dissolution
of the Partnership under the laws of Georgia. (Section 20.1.) However, the
retirement or withdrawal of a General Partner will not dissolve the Partnership
if any remaining General Partner or General Partners, within 90 days of the date
of such event, elect to continue the business of the Partnership, or in the
event that there is no remaining General Partner within 120 days, a majority in
interest of the Limited Partners elect to continue the business of the
Partnership and elect a successor General Partner or General Partners. (Section
20.3.)
In addition to the foregoing events, the General Partners may also
terminate the Offering, compel a termination and dissolution of the Partnership,
or restructure the Partnership's affairs, upon notice to all Limited Partners
but without the consent of any Limited Partner, if upon the advice of counsel to
the Partnership, either (a) the Partnership's assets constitute "Plan Assets,"
as such term is defined for purposes of ERISA, or (b) any of the transactions
contemplated in the Partnership Agreement constitute "prohibited transactions"
under ERISA.
In the event the Partnership is dissolved, the assets of the Partnership
shall be converted to cash. The General Partners shall be given a reasonable
amount of time to collect any notes receivable with respect to the sale of
Partnership assets and to collect any other outstanding debts. All cash on hand
shall be distributed first to creditors to satisfy debts and liabilities of the
Partnership other than loans or advances made by Partners to the Partnership,
including the establishment of reserves deemed reasonably necessary to satisfy
contingent or unforeseen liabilities or obligations of the Partnership. Any
remaining cash will then be used to repay loans or advances made by any of the
Partners to the Partnership and to pay any fees due the General Partners. The
balance, if any, shall
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be distributed among the Partners in accordance with the positive balance in
their Capital Accounts as of the date of distribution. Upon completion of the
foregoing distributions, the Partnership shall be terminated. (Section 9.3.)
DISTRIBUTIONS AND ALLOCATIONS
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Net Cash From Operations (defined in the Partnership Agreement to mean
generally the Partnership's cash flow from operations, after payment of all
operating expenses and adjustments for reserves), if any, will be distributed in
each year as follows and in the following priority:
(i) First, to Limited Partners holding Class A Status Units on a per
Unit basis until they have received a 10% annual return on their Net Capital
Contributions (defined in the Partnership Agreement to mean generally the amount
of cash contributed to the Partnership reduced by prior distributions of net
proceeds from any sale or exchange of Partnership Properties);
(ii) Then, to the General Partners until they have received an amount
equal to 10% of the total amount thus far distributed; and
(iii) Then, 90% to Limited Partners holding Class A Status Units and
10% to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Class A Status
Units who have purchased Units pursuant to the Deferred Commission Option shall
for a period of six years after termination of the Offering have deducted and
withheld from distributions of Net Cash From Operations otherwise payable to
such Limited Partners an annual amount equal to $0.10 per Unit purchased
pursuant to the Deferred Commission Option, which amounts shall instead be used
by the Partnership to pay deferred commissions due with respect to such Units.
(See "PLAN OF DISTRIBUTION.")
No distributions of Net Cash From Operations shall be made out of
Capital Contributions, and no Net Cash From Operations will be distributed with
respect to Class B Status Units.
The Partnership Agreement prohibits the General Partners from making
any distributions of Net Cash From Operations out of Capital Contributions.
Distributions of Net Cash From Operations will be allocated among the Limited
Partners on a daily basis based on the ratio which the number of Units owned by
each Limited Partner as of the last day of the preceding quarter bears to the
total number of Units outstanding. A transferee of Units will be deemed the
owner of such Units as of the first day of the quarter following the quarter
during which the transfer occurred and, therefore, will not participate in
distributions made with respect to the quarter in which such transfer occurs.
It is anticipated that distributions of Net Cash From Operations will be made on
a quarterly basis, unless Limited Partners elect to receive distributions on a
monthly basis. (See "Monthly Distributions" below.)
DISTRIBUTION OF NET SALE PROCEEDS
Nonliquidating Net Sale Proceeds (defined in the Partnership Agreement
to mean generally the net proceeds from any sale or exchange of Partnership
Properties) will be distributed generally as follows and in the following
priority:
(i) First, to Limited Partners holding Units which have at any time
been treated as Class B Status Units on a per Unit basis until each such Limited
Partner has received an amount which, when added to any Net Cash From
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Operations previously distributed to such Limited Partner, will equal the amount
of Net Cash From Operations previously paid or deemed paid to Limited Partners
holding Units which at all times have been treated as Class A Status Units;
(ii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received an amount equal
to his Net Capital Contribution;
(iii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions equal to a 10% per annum cumulative (noncompounded) return on his
Net Capital Contribution;
(iv) Then, to Limited Partners on a per Unit basis until each Limited
Partner has received or has been deemed to have received aggregate distributions
equal to his Preferential Limited Partner Return (defined as the sum of (a) a
10% per annum cumulative return on his Net Capital Contribution with respect to
such Unit for all periods during which such Unit was treated as a Class A Status
Unit, and (b) a 15% per annum cumulative return on his Net Capital Contribution
with respect to such Unit for all periods during which such Unit was treated as
a Class B Status Unit);
(v) Then, to the General Partners until they have received an amount
equal to their Capital Contributions;
(vi) Then, if and only in the event that Limited Partners have received
any Excess Limited Partner Distributions, to the General Partners until they
have received an amount equal to 20% of the sum of any such Excess Limited
Partner Distributions plus the amount distributed to the General Partners
pursuant to this provision; and
(vii) Then, 80% to the Limited Partners on a per Unit basis and 20% to the
General Partners; provided, however, that in no event will the General Partners
receive in the aggregate in excess of the NASAA Guidelines Resale Proceeds
Maximum Amount. It is the intent of the foregoing limitation that the General
Partners receive no more of the net proceeds from the sale or financing of
Partnership Properties than is allowed pursuant to applicable provisions of the
NASAA Guidelines. Any such excess amounts otherwise distributable to the General
Partners will instead be reallocated and distributed to the Limited Partners on
a per Unit basis.
Potential investors should be aware that their share of distributions
of Sale Proceeds may be less than their Net Capital Contributions unless the
Partnership's aggregate Sale Proceeds are sufficient to fund the sum of (i) the
required payments to each Limited Partner holding Units which have been treated
as Class B Status Units in an amount which, when added to any Net Cash From
Operations previously distributed to such Limited Partner, will equal the amount
of Net Cash From Operations previously paid to Limited Partners holding Units
which at all times were treated as Class A Status Units, plus (ii) the amount
required to repay aggregate Net Capital Contributions to all Limited Partners.
Notwithstanding the foregoing, in the event the Partnership sells any
Partnership Property at a net sale price which is less than the purchase price
originally paid for such property, prior to the foregoing distribution of
Nonliquidating Net Sale Proceeds, Limited Partners holding Class A Status Units
shall first receive distributions of Nonliquidating Net Sale Proceeds in an
amount equal to the following: the excess of the original purchase price of the
Partnership Property sold over the sale price of such Partnership Property, but
not greater than the amount of special allocations of deductions for
depreciation, amortization and cost recovery with respect to such Partnership
Property previously made to Limited Partners holding Class B Status Units. The
General Partners have included the foregoing provision in the Partnership
Agreement for distributions of Nonliquidating Net Sale Proceeds in favor of
Limited Partners holding Class A Status Units in order to ensure that Limited
Partners holding Class B Status Units will bear the actual economic risk of loss
in the event a Partnership Property is sold at a loss, in order to support the
special allocation of depreciation, amortization and cost recovery deductions to
such Limited Partners.
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LIQUIDATING DISTRIBUTIONS
Liquidating Distributions (defined in the Partnership Agreement to
mean generally the distribution of the net proceeds from a dissolution and
termination of the Partnership or from the sale of substantially all of the last
remaining assets of the Partnership) will be distributed among the General
Partners and the Limited Partners in accordance with each such Partner's
positive Capital Account balance, after the allocation of Gain on Sale and other
appropriate Capital Account adjustments.
RETURN OF UNUSED CAPITAL CONTRIBUTIONS
Funds not expended, committed or reserved for working capital purposes by
the later of the second anniversary of the effective date of the Registration
Statement or one year after the termination of the Offering will be returned to
Limited Partners, without reduction for Front-End Fees or Selling Commissions
relating to such uncommitted funds and without interest thereon. For purposes
of the foregoing, funds will be deemed to have been committed and will not be
returned to the extent that such funds would be required to complete the
acquisition of Partnership Properties with respect to which contracts,
agreements in principle or letters of understanding have been executed,
regardless of whether such property is actually acquired. Any funds reserved in
order to make contingent payments in connection with the acquisition of any
Partnership Property will be treated as committed whether or not any such
payments are actually made.
PARTNERSHIP ALLOCATIONS
Since the Partnership does not intend to borrow funds, no Partner's Capital
Account will be allocated items that will cause the Capital Account to have a
deficit balance. This means that, although holders of Class B Status Units may
receive allocations of certain deductions over the life of the Partnership equal
to their Capital Contributions, they cannot be allocated additional deductions.
NET LOSS. Net Loss (defined in the Partnership Agreement to mean generally
the net losses of the Partnership for federal income tax purposes, but excluding
deductions for depreciation, amortization and cost recovery, which will be
allocated separately as set forth below) for each fiscal year shall be allocated
as follows:
(i) 99% to Limited Partners holding Class B Status Units and 1% to
the General Partners until the Capital Accounts of all such Partners have been
reduced to zero;
(ii) Then, to any Partner having a positive balance in his Capital
Account in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(iii) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to which the
Partnership incurs an aggregate Net Loss, interest income of the Partnership
shall be specially allocated to Limited Partners holding Class A Status Units
and the Net Loss of the Partnership for such fiscal year shall be determined
without regard to such interest income.
All deductions for depreciation, amortization and cost recovery for each
fiscal year shall be allocated as follows:
(i) 99% to Limited Partners holding Class B Status Units and 1% to
the General Partners until the Capital Accounts of all such Partners have been
reduced to zero;
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(ii) Then, to any Partner having a positive balance in his Capital
Account in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(iii) Then, 100% to the General Partners.
NET INCOME. Net Income (defined in the Partnership Agreement to mean
generally the net income of the Partnership for federal income tax purposes,
including any income exempt from tax, but excluding all deductions for
depreciation, amortization and cost recovery and Gain on Sale) for each fiscal
year shall be allocated as follows:
(i) To Limited Partners holding Class A Status Units and to the
General Partners in the same proportion as and to the extent that Net Cash From
Operations is distributed or deemed distributed; and
(ii) To the extent Net Income exceeds Net Cash From Operations with
respect to such fiscal year, such excess Net Income shall be allocated 99% to
Limited Partners holding Class A Status Units and 1% to the General Partners.
GAIN ON SALE. Gain on Sale (defined in the Partnership Agreement to
mean generally the taxable income or gain from the sale or exchange of
Partnership Properties) for each fiscal year shall be allocated as follows:
(i) First, pursuant to the qualified income offset provision described
below;
(ii) Then, to Partners having negative Capital Accounts until all
negative Capital Accounts have been restored to zero;
(iii) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery previously allocated to them with
respect to the specific Partnership Property, the sale or other disposition of
which resulted in Gain on Sale being allocated, but not in excess of the amount
of Gain on Sale recognized by the Partnership pursuant to the sale or other
disposition of said Partnership Property;
(iv) Then, to the Limited Partners in amounts equal to the deductions
for depreciation, amortization and cost recovery previously allocated to said
Limited Partners with respect to the specific Partnership Property, the sale or
other disposition of which resulted in Gain on Sale being allocated;
(v) Then, to Limited Partners holding Units which at any time have been
treated as Class B Status Units on a per Unit basis until each such Limited
Partner has received an amount which, when added to any Net Cash From Operations
previously distributed to such Limited Partner, will equal the amount of Net
Cash From Operations previously paid to Limited Partners holding Units which at
all times have been treated as Class A Status Units;
(vi) Then, to Limited Partners on a per Unit basis in amounts equal to
the excess of each Limited Partner's Net Capital Contribution over all prior
distributions to such Limited Partner of net proceeds from the sale of
Partnership Properties;
(vii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of a 10%
cumulative (noncompounded) return on his Net Capital Contribution over prior
distributions to such Limited Partner of Net Cash From Operations;
(viii) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return over prior distributions to such Limited
Partner of Net Cash From Operations;
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(ix) Then, to the General Partners in an amount equal to their Capital
Contributions;
(x) Then if and only to the extent that Limited Partners have received
any Excess Limited Partner Distributions, to the General Partners until the
General Partners have been allocated Gain on Sale equal to 20% of the sum of any
such Excess Limited Partner Distributions plus any Gain on Sale allocated to the
General Partners pursuant to this provision; and
(xi) Then, 80% to the Limited Partners and 20% to the General Partners;
provided, however, that in no event will the General Partners be allocated Gain
on Sale which would result in distributions to the General Partners in excess of
the NASAA Guidelines Resale Proceeds Maximum Amount. Any such excess allocations
of Gain on Sale will instead be reallocated to the Limited Partners on a per
Unit basis.
The Partnership Agreement contains a "qualified income offset" provision
which provides that in the event that any Partner receives an adjustment,
allocation or distribution of certain items which causes a deficit or negative
balance in such Partner's Capital Account, such Partner will be allocated items
of income or gain (consisting of a pro rata portion of each item of Partnership
income, including gross income, and gain for such year) in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. The intent
of the foregoing provision is to prohibit allocations of losses or distributions
of cash to a Limited Partner which would cause his Capital Account to become
negative (which would occur in the event that the aggregate amount of losses
allocated and cash distributed to such Limited Partner exceeded the sum of his
Capital Contributions plus any income allocated to him) or, in the event such
allocation or distribution did cause his Capital Account to become negative,
such Limited Partner would be allocated income or gain in an amount necessary to
bring his Capital Account back to zero. (See "FEDERAL INCOME TAX CONSEQUENCES--
Allocations of Profit and Loss.")
THE QUALIFIED INCOME OFFSET PROVISION MAY RESULT IN INCOME BEING
SPECIALLY ALLOCATED TO LIMITED PARTNERS EVEN IN A FISCAL YEAR WHEN THE
PARTNERSHIP HAS A NET LOSS FROM OPERATIONS OR FROM THE SALE OF PROPERTY.
Income, losses and distributions of cash relating to Units which are
acquired directly from the Partnership during the Offering will be allocated
among the Limited Partners on a pro rata basis based on the number of days such
Units have been owned by such Limited Partner.
MONTHLY DISTRIBUTIONS
Limited Partners holding Class A Status Units may, at their option, elect
to receive distributions of Net Cash From Operations, if any, on a monthly
basis. This program is called the Monthly Distribution Option (the "MDO"). It
should be understood, however, that Limited Partners electing the MDO will in
all likelihood receive lower distributions per Unit, on an annual basis, than
Limited Partners receiving their distributions on a quarterly basis due to the
fact that income received by the Partnership during the early portion of a
quarter will be invested and will earn interest until distribution shortly after
the end of the quarter. This compounding effect will be available to Limited
Partners selecting the MDO to a lesser degree due to the greater frequency of
their distributions.
Limited Partners holding Class A Status Units who elect the MDO will begin
receiving their distributions on a monthly basis with respect to the calendar
quarter following the calendar quarter in which the General Partners receive the
Limited Partner's written election along with a check for the MDO fee, described
below. Monthly distributions will be paid to the Limited Partner during the
month following the month to which the distribution is attributable. For
example, if a Limited Partner elects the MDO during the first calendar quarter
of a year, his election is effective at the beginning of the second calendar
quarter (i.e., April 1). Accordingly, the Limited Partner would receive a
distribution, if at all, for the first calendar quarter of the year, and
beginning in April, the Limited
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Partner electing the MDO would receive monthly distributions for the remainder
of the year, with the first monthly distribution being paid during the month of
May.
There is an annual fee of $20 per Limited Partner electing the MDO. This
annual fee is designed to cover additional administrative expenses, postage and
handling costs associated with more frequent distributions and will in no event
result in any additional compensation to the General Partners or their
Affiliates. In the event the actual administrative expenses, postage and
handling costs are less than $20 per Limited Partner per year, which is not
anticipated, any such savings will be reimbursed to Limited Partners electing
the MDO. The first fee payment is due at the time of the initial election, and
each subsequent fee payment is due by each December 31. Each Limited Partner
electing the MDO will receive a bill for the annual fee in conjunction with his
November distribution. Limited Partners may elect to have the Partnership
deduct subsequent annual MDO fees from the distributions.
A Limited Partner holding Class A Status Units may withdraw from the MDO by
either notifying the General Partners in writing or by simply failing to pay the
annual fee on a timely basis. A Limited Partner will then begin to receive his
distributions on a quarterly basis at the beginning of the following calendar
year. If payment is not received by the due date, then the MDO with respect to
that Limited Partner is canceled. To reinstate the MDO, the Limited Partner may
make his $20 payment, and the MDO will again be effective at the beginning of
the calendar quarter following the calendar quarter in which payment is made. A
Limited Partner holding Class A Status Units may elect the MDO by sending a
completed MDO form to the Partnership (which form may be obtained by calling or
writing the Partnership).
REPORTS TO INVESTORS
Within 75 days after the end of each fiscal year of the Partnership, the
General Partners will deliver to each Limited Partner and any assignee such
information as is necessary for the preparation of his federal income tax return
and state income or other tax returns with regard to jurisdictions in which
Partnership Properties are located. Within 120 days after the end of the
Partnership's fiscal year, the General Partners will deliver to each Limited
Partner and any assignee an annual report which includes financial statements of
the Partnership, audited by independent certified public accountants and
prepared in accordance with generally accepted accounting principles. Such
financial statements will include a profit and loss statement, a balance sheet
of the Partnership, a cash flow statement and a statement of changes in
Partners' capital. The notes to the annual financial statements will contain a
detailed reconciliation of the Partnership's net income for financial reporting
purposes to net income for tax purposes for the periods covered by the report.
The annual report for each year will report on the Partnership's activities for
that year, identify the source of Partnership distributions, set forth the
compensation paid to the General Partners and their Affiliates and a statement
of the services performed in consideration therefor, provide a category-by-
category breakdown of the general and administrative expenses incurred,
including a breakdown of all costs reimbursed to the General Partners and their
Affiliates in accordance with Section 11.4(b) of the Partnership Agreement, and
contain such other information as is deemed reasonably necessary by the General
Partners to advise the Limited Partners of the affairs of the Partnership.
For as long as the Partnership is required to file quarterly reports on
Form 10-Q with the Securities and Exchange Commission, financial information
substantially similar to the financial informed contained in each such report
shall be sent to the Limited Partners within 60 days after the end of such
quarter. Whether or not such reports are required to be filed, each Limited
Partner will be furnished, within 60 days after the end of each of the first
three quarters of the Partnership's fiscal year, an unaudited financial report
for that period including a profit and loss statement, a balance sheet and a
cash flow statement. The foregoing reports for any period in which fees are
paid to the General Partners or their Affiliates for services shall set forth
the fees paid and the services rendered. In addition, until all of the net
proceeds from the Offering are expended or committed (or used to establish a
working capital reserve) or returned to the Partners, each Limited Partner shall
be furnished, at least quarterly within 60 days after the end of each quarter
during which the Partnership has acquired real property, an acquisition
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report describing the properties acquired since the prior special report and
including a description of locations and of the market upon which the General
Partners are relying in projecting successful operation of the properties. The
acquisition report shall include a description of the present or proposed use of
the property and its suitability or adequacy for such use and the terms of any
material lease affecting the property, a statement of the appraised value,
purchase price, terms of purchase, all costs related to the acquisition, and an
estimate of all proposed subsequent expenditures for development or other
improvements of the property, a statement that title insurance and any required
performance bonds or other assurances in accordance with Section 11.3(k) of the
Partnership Agreement with respect to builders have been or will be obtained on
the property, and a statement regarding the amount of proceeds (in both dollar
amount and as a percentage of the total amount of the Offering) to the
Partnership which remain unexpended or uncommitted. In addition, the acquisition
report will identify any real property which the General Partners presently
intend to be acquired by or leased to the Partnership, providing its location
and a description of its general character.
The appraisal received by the Partnership at the time of each acquisition
of property shall be maintained in its records for at least five years
thereafter and, during such time, shall be made available to the Limited
Partners for inspection and duplication at reasonable times.
The Partnership will distribute annually to Limited Partners a report on
the estimated value of each Unit in the next annual or quarterly report on Form
10-K or Form 10-Q sent to Limited Partners following the valuation process.
Such estimated value will be based upon annual appraisals of Partnership
Properties performed by the General Partners and not by an independent
appraiser. The General Partners are, however, required to obtain the opinion of
an independent third party that their estimate of the value of each Unit is
reasonable and was prepared in accordance with appropriate methods for valuing
real estate. For the first three full fiscal years following the year in which
the Offering of Units terminates, the value of the Units will be deemed to be
their initial purchase price of $10.00, and no valuation of Partnership
Properties will be performed. (See "INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA
CONSIDERATIONS--Annual Valuation.")
In addition, upon request from any prospective investor or Limited Partner,
the Partnership will provide without charge a copy of the NASAA Guidelines (as
referred to elsewhere herein).
PLAN OF DISTRIBUTION
A minimum of 125,000 Units and a maximum of 3,500,000 Units are being
offered to the public through Wells Investment Securities, Inc. (the "Dealer
Manager"), a registered broker-dealer affiliated with the General Partners.
(See "CONFLICTS OF INTEREST" and "MANAGEMENT.") The Units are being offered at
a per Unit price of $10.00 per Unit on a "best efforts" basis (which means
generally that the Dealer Manager will be required to use only its best efforts
to sell the Units and has no firm commitment or obligation to purchase any of
the Units).
Except as provided below, the Dealer Manager will receive commissions of 7%
of the Gross Offering Proceeds. The Dealer Manager will also receive 2.5% of
the Gross Offering Proceeds in the form of a dealer manager fee as compensation
for acting as the Dealer Manager and for expenses incurred in connection with
coordinating sales efforts, training of personnel and generally performing
"wholesaling" functions. In addition, the Partnership may reimburse the
expenses incurred by nonaffiliated dealers for actual due diligence purposes in
the maximum amount of .5% of the Gross Offering Proceeds. The Partnership will
not pay referral or similar fees to any accountants, attorneys or other persons
in connection with the distribution of the Units. Limited Partners who elect to
participate in the Distribution Reinvestment Plan will be charged Selling
Commissions and dealer manager fees on Units purchased pursuant to the
Distribution Reinvestment Plan on the same basis as Limited Partners purchasing
Units other than pursuant to the Distribution Reinvestment Plan. Units issued
by the Partnership under the Distribution Reinvestment Plan will be available
only until the termination of the Offering, as described above.
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The Dealer Manager may authorize certain other broker-dealers who are
members of the NASD to sell Units. In the event of the sale of Units by such
other broker-dealers, the Dealer Manager may reallow its commissions in the
amount of up to 7% of the Gross Offering Proceeds to such participating broker-
dealers. In addition, the Dealer Manager, in its sole discretion, may reallow
to broker-dealers participating in the Offering a portion of its dealer manager
fee in the aggregate amount of up to 1.5% of Gross Offering Proceeds to be paid
to such participating broker-dealer as a marketing fee, based on such factors as
the number of Units sold by such participating broker-dealer, the assistance of
such participating broker-dealer in marketing the Offering and bona fide
conference fees incurred.
In no event shall the total underwriting compensation, including sales
commissions, the dealer manager fee and underwriting expense reimbursements,
exceed 10% of Gross Offering Proceeds, except for the additional .5% of Gross
Offering Proceeds which may be paid by the Partnership in connection with due
diligence activities.
The General Partners have agreed to indemnify the participating broker-
dealers, including the Dealer Manager, against certain liabilities arising under
the Securities Act of 1933, as amended.
The broker-dealers are not obligated to obtain any subscriptions, and there
is no assurance that any Units will be sold.
The General Partners may at their option purchase Units offered hereby at
the public offering price, in which case they would expect to hold such Units as
Limited Partners for investment and not for distribution. Units purchased by
the General Partners or their Affiliates shall not be entitled to vote on any
matter presented to the Limited Partners for a vote. No selling commissions
will be payable by the Partnership in connection with any Units purchased by the
General Partners. (See "RISK FACTORS.")
Payment for Units should be made by check payable to "The Bank of New York,
as Agent." Subscriptions will be effective only upon acceptance by the General
Partners, and the General Partners reserve the right to reject any subscription
in whole or in part. In no event may a subscription for Units be accepted until
at least five business days after the date the subscriber receives this
Prospectus. Each subscriber will receive a confirmation of the investor's
purchase. Except for purchases pursuant to the Distribution Reinvestment Plan,
all accepted subscriptions will be for whole Units and for not less than 100
Units ($1,000). (See "SUITABILITY STANDARDS.") Except in Maine, Minnesota,
Nebraska and Washington, investors who have satisfied the minimum purchase
requirement and have purchased units in Prior Wells Public Programs may purchase
less than the minimum number of Units discussed above, provided that such
investors purchase a minimum of 2.5 Units ($25). After investors have satisfied
the minimum purchase requirement, minimum additional purchases must be in
increments of at least 2.5 Units ($25), except for purchases pursuant to the
Distribution Reinvestment Plan.
Subscription proceeds will be placed in an interest-bearing account with
The Bank of New York, Atlanta, Georgia (the "Escrow Agent") until such
subscriptions aggregating at least $1,250,000 (exclusive of any subscriptions
for Units by the General Partners or their Affiliates) have been received and
accepted by the General Partners (the "Minimum Offering"). Any Units purchased
by the General Partners or their Affiliates will not be counted in calculating
the Minimum Offering. Subscription proceeds held in the escrow account will be
invested in obligations of, or obligations guaranteed by, the United States
government or bank money-market accounts or certificates of deposit of national
or state banks that have deposits insured by the Federal Deposit Insurance
Corporation (including certificates of deposit of any bank acting as depository
or custodian for any such funds), as directed by the General Partners.
Subscribers may not withdraw funds from the escrow account.
Investors who desire to establish an IRA for purposes of investing in Units
may do so by having Wells Advisors, Inc., a qualified non-bank IRA custodian
affiliated with the General Partners, act as their IRA custodian. In the event
that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the
authority of Wells Advisors, Inc. will be limited to holding the Units on behalf
of the beneficiary of the IRA and making distributions
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or reinvestments in Units solely at the discretion of the beneficiary of the
IRA. Wells Advisors, Inc. will not have the authority to vote any of the Units
held in an IRA except strictly in accordance with the written instructions of
the beneficiary of the IRA. (See "MANAGEMENT.")
If the Minimum Offering of the Partnership has not been received and
accepted by June 30, 1998, the Escrow Agent will promptly so notify the
Partnership and this Offering will be terminated. In such event, the Escrow
Agent is obligated to use its best efforts to obtain an executed IRS Form W-9
from each subscriber. No later than five business days after termination of the
Offering, the Escrow Agent will refund and return all monies to subscribers and
any interest earned thereon after deducting escrow expenses (except for Maine,
Missouri, Ohio and Pennsylvania residents). In the event that a subscriber
fails to remit an executed IRS Form W-9 to the Escrow Agent prior to the date
the Escrow Agent returns the subscriber's funds, the Escrow Agent will be
required to withhold from such funds 31% of the earnings attributable to such
subscriber in accordance with IRS Regulations. Units purchased by the General
Partners will not be counted for the purpose of achieving the Minimum Offering.
During the period in which subscription proceeds are held in escrow, interest
earned thereon will be allocated among subscribers on the basis of the
respective amounts of their subscriptions and the number of days that such
amounts were on deposit. Such interest net of escrow expenses will be paid to
subscribers upon the termination of the escrow period.
Initial subscribers may be admitted to the Partnership and the payments
transferred from escrow to the Partnership at any time after the Partnership has
received and accepted the Minimum Offering, except that subscribers residing in
New York and Pennsylvania may not be admitted to the Partnership until
subscriptions have been received and accepted for 250,000 Units ($2,500,000)
from all sources. The funds representing subscriptions for Units from New York
and Pennsylvania residents will not be released from the escrow account until
subscriptions for at least $2,500,000 have been received from all sources.
Subscriptions from New York residents may not be included in determining whether
subscriptions for the Minimum Offering have been obtained. In addition, certain
other states may impose different requirements than those set forth herein. Any
such additional requirements will be set forth in a supplement to this
Prospectus.
The offering of Units of the Partnership will commence upon the effective
date of this Prospectus and will continue until and terminate upon the earlier
of (i) December 31, 1998, or (ii) the date on which all $35,000,000 in Units of
the Partnership have been sold.
The proceeds of this Offering will be received and held in trust for the
benefit of purchasers of Units and will be retained in trust after closing to be
used only for the purposes set forth in the "ESTIMATED USE OF PROCEEDS" section.
After the close of the Minimum Offering, subscriptions will be accepted or
rejected within 30 days of receipt by the Partnership, and if rejected, all
funds shall be returned to subscribers within 10 business days. Investors whose
subscriptions are accepted will be deemed admitted as Limited Partners of the
Partnership on the day on which their subscriptions are accepted.
The General Partners may sell Units to Retirement Plans of broker-dealers
participating in the Offering, to broker-dealers in their individual capacities,
to IRAs and Qualified Plans of their registered representatives or to any one of
their registered representatives in their individual capacities for 93% of the
Unit's public offering price in consideration of the services rendered by such
broker-dealers and registered representatives in the distribution. The net
proceeds to the Partnership from such sales will be identical to the
Partnership's net proceeds from other sales of Units.
In connection with sales of 25,000 or more Units ($250,000) to a
"purchaser" (as defined below), investors may agree with their registered
representatives to reduce the amount of selling commissions payable to
participating broker-dealers. Such reduction will be credited to the purchaser
by reducing the total purchase price payable by such purchaser. The following
table illustrates the various discount levels:
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<TABLE>
<CAPTION>
DOLLAR NET
VOLUME SALES COMMISSIONS PURCHASE PROCEEDS TO
OF UNITS -------------------- PRICE PARTNERSHIP
PURCHASED PERCENT PER UNIT PER UNIT PER UNIT
--------- ------- -------- -------- -----------
<S> <C> <C> <C> <C>
Under $250,000 7.0% $ 0.70 $ 10.00 $9.30
$250,000-$499,999 6.0% $0.5936 $9.8936 $9.30
$500,000-$749,999 5.0% $0.4895 $9.7895 $9.30
$750,000-$999,999 3.0% $0.2876 $9.5876 $9.30
$1,000,000-$1,999,999 1.0% $0.0939 $9.3939 $9.30
Over $2,000,000 0.5% $0.0467 $9.3467 $9.30
</TABLE>
For example, if an investor purchases 100,000 Units in the Partnership, he
could pay as little as $939,390 rather than $1,000,000 for the Units, in which
event the commission on the sale of such Units would be $9,390 ($0.0939 per
Unit), and the Partnership would receive net proceeds of $930,000 ($9.30 per
Unit). The net proceeds to the Partnership will not be affected by volume
discounts.
Because all investors will be deemed to have contributed the same amount
per Unit to the Partnership for purposes of tax allocations and distributions of
Net Cash From Operations and Sale Proceeds, an investor qualifying for a volume
discount will receive a higher return on his investment in the Partnership than
investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such Units are purchased through the same broker-
dealer. The volume discount shall be prorated among the separate subscribers
considered to be a single "purchaser." Any request to combine more than one
subscription must be made in writing, and must set forth the basis for such
request. Any such request will be subject to verification by the General
Partners that all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser" includes
(i) an individual, his or her spouse and their children under the age of 21 who
purchase the Units for his, her or their own accounts; (ii) a corporation,
partnership, association, joint-stock company, trust fund or any organized group
of persons, whether incorporated or not; (iii) an employees' trust, pension,
profit sharing or other employee benefit plan qualified under Section 401(a) of
the Code; and (iv) all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to
investors in the Partnership, the General Partners may, in their sole
discretion, waive the "purchaser" requirements and aggregate subscriptions
(including subscriptions to Prior Wells Public Programs) as part of a combined
order for purposes of determining the number of Units purchased, provided that
any aggregate group of subscriptions must be received from the same broker-
dealer, including the Dealer Manager. Any such reduction in selling commission
will be prorated among the separate subscribers except that, in the case of
purchases through the Dealer Manager, the Dealer Manager may allocate such
reduction among separate subscribers considered to be a single "purchaser" as it
deems appropriate. An investor may reduce the amount of his purchase price to
the net amount shown in the foregoing table, if applicable. If such investor
does not reduce the purchase price, the excess amount submitted over the
discounted purchase price shall be returned to the actual separate subscribers
for Units. Except as provided in this paragraph, separate subscriptions will
not be cumulated, combined or aggregated.
In addition, in order to encourage purchases in amounts of 500,000 or more
Units, a potential purchaser who proposes to purchase at least 500,000 Units in
the Partnership may agree with the General Partners and the Dealer Manager to
have the Acquisition and Advisory Fees payable to the General Partners with
respect to the sale of such Units reduced to 0.5%, to have the dealer manager
fee payable to the Dealer Manager with respect to the sale of such Units reduced
to 0.5%, and to have the selling commissions payable with respect to the sale of
such
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Units reduced to 0.5%, in which event the aggregate fees payable with
respect to the sale of such Units would be reduced by $1.10 per Unit, and the
purchaser of such Units would be required to pay a total of $8.90 per Unit
purchased, rather than $10.00 per Unit. The net proceeds to the Partnership
would not be affected by such fee reductions. Of the $8.90 paid per Unit, it is
anticipated that approximately $8.40 per Unit (or approximately 94.4%) will be
used to acquire Partnership Properties and pay required acquisition expenses
relating to the acquisition of Partnership Properties. All such sales must be
made through registered broker-dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of Units made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant
to this Rule, volume discounts can be made available to California residents
only in accordance with the following conditions: (i) there can be no variance
in the net proceeds to the Partnership from the sale of the Units to different
purchasers of the same offering, (ii) all purchasers of the Units must be
informed of the availability of quantity discounts, (iii) the same volume
discounts must be allowed to all purchasers of Units which are part of the
offering, (iv) the minimum amount of Units as to which volume discounts are
allowed cannot be less than $10,000, (v) the variance in the price of the Units
must result solely from a different range of commissions, and all discounts
allowed must be based on a uniform scale of commissions, and (vi) no discounts
are allowed to any group of purchasers. Accordingly, volume discounts for
California residents will be available in accordance with the foregoing table of
uniform discount levels based on dollar volume of Units purchased, but no
discounts are allowed to any group of purchasers, and no subscriptions may be
aggregated as part of a combined order for purposes of determining the number of
Units purchased.
Investors who, in connection with their purchase of Units, have engaged the
services of a registered investment advisor with whom the investor has agreed to
pay a fee for investment advisory services in lieu of normal commissions based
on the volume of securities sold may agree with the participating broker-dealer
selling such Units and the Dealer Manager to reduce the amount of selling
commissions payable with respect to such sale to zero. The net proceeds to the
Partnership will not be affected by eliminating the commissions payable in
connection with sales to investors purchasing through such investment advisors.
All such sales must be made through registered broker-dealers.
Neither the Dealer Manager nor its Affiliates will directly or indirectly
compensate any person engaged as an investment advisor by a potential investor
as an inducement for such investment advisor to advise favorably for investment
in the Partnership.
In addition, subscribers for Units may agree with their participating
broker-dealers and the Dealer Manager to have sales commissions due with respect
to the purchase of their Units paid over an eight year period pursuant to a
deferred commission arrangement (the "Deferred Commission Option"). Limited
Partners electing the Deferred Commission Option will be required to pay a total
of $9.40 per Unit purchased upon subscription, rather than $10.00 per Unit, with
respect to which $0.10 per Unit will be payable as commissions due upon
subscription. For each of the six years following termination of the Offering,
$0.10 per Unit will be paid by the Partnership as deferred commissions with
respect to Units sold pursuant to the Deferred Commission Option, which amounts
will be deducted from and paid out of distributions of Net Cash From Operations
otherwise payable to Limited Partners holding such Units. The net proceeds to
the Partnership will not be affected by the election of the Deferred Commission
Option. Under this arrangement, a Limited Partner electing the Deferred
Commission Option will pay a 1% commission upon subscription (rather than a 7%
commission) and an amount equal to a 1% commission per year thereafter for the
next six years will be deducted from and paid by the Partnership out of Net Cash
From Operations otherwise distributable to such Limited Partner. (See
"DISTRIBUTIONS AND ALLOCATIONS--Distributions of Net Cash From Operations.")
Each Limited Partner purchasing Units pursuant to the Deferred Commission
Option must elect upon subscription to have a sufficient number of Units treated
as Class A Status Units, in the discretion of the General Partners, to generate
at least the amount of Net Cash From Operations distributable with respect to
such Units
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needed to satisfy the deferred commission obligations each year with
respect to the total number of Units purchased. In addition, Limited Partners
electing the Deferred Commission Option will have limited rights to elect to
have their Class A Status Units treated as Class B Status Units during the
initial six years following termination of the Offering since Limited Partners
owning Units purchased pursuant to the Deferred Commission Option must own a
sufficient number of Class A Status Units during the initial seven years of the
Partnership to generate enough Net Cash From Operations to allow the Partnership
to satisfy the deferred commission obligations with respect to the total number
of Class A and Class B Status Units purchased. (See "DESCRIPTION OF THE UNITS
Election of Class A or Class B Status.") Further, taxable participants electing
the Deferred Commission Option will incur tax liability for Partnership income
allocated to them with respect to their Units even though distributions of Net
Cash From Operations otherwise distributable to such Limited Partners will
instead be paid to third parties to satisfy the deferred commission obligations
with respect to such Units for a period of six years after the termination of
the Offering. (SEE "RISK FACTORS--Federal Tax Risks--Risk of Taxable Income
Without Cash Distributions.")
As set forth above, in no event shall the total underwriting compensation,
including sales commissions, the dealer manager fee and underwriting expense
reimbursements, exceed 10% of Gross Offering Proceeds, except for the additional
.5% of Gross Offering Proceeds which may be paid by the Partnership in
connection with due diligence activities.
SUPPLEMENTAL SALES MATERIAL
In addition to this Prospectus, the Partnership may utilize certain sales
material in connection with the Offering of the Units, although only when
accompanied by or preceded by the delivery of this Prospectus. In certain
jurisdictions, some or all of such sales material may not be available. This
material may include information relating to this Offering, the past performance
of the General Partners and their Affiliates, property brochures and articles
and publications concerning real estate. In addition, the sales material may
contain certain quotes from various publications without obtaining the consent
of the author or the publication for use of the quoted material in the sales
material.
The Offering of Units in the Partnership is made only by means of this
Prospectus. Although the information contained in such sales material does not
conflict with any of the information contained in this Prospectus, such material
does not purport to be complete, and should not be considered a part of this
Prospectus or the Registration Statement of which this Prospectus is a part, or
as incorporated by reference in this Prospectus or said Registration Statement
or as forming the basis of the Offering of the Units.
LEGAL OPINIONS
The legality of the Units being offered hereby has been passed upon for the
Partnership by Holland & Knight LLP ("Counsel"). The statements under the
caption "FEDERAL INCOME TAX CONSEQUENCES" as they relate to federal income tax
matters have been reviewed by Counsel, and Counsel has opined as to certain
income tax matters relating to an investment in the Partnership. Counsel has
represented the General Partners, as well as Affiliates of the General Partners,
in other matters and may continue to do so in the future. (See "CONFLICTS OF
INTEREST.")
EXPERTS
AUDITED FINANCIAL STATEMENTS
The financial statements of Wells Real Estate Fund XI, L.P. (the
"Partnership") as of December 31, 1996, the financial statements and attached
schedule of Wells Partners, L.P. as of December 31, 1996 and 1995, and for each
of the years in the two year period ended December 31, 1996, and the financial
statements of Wells Capital, Inc. as of December 31, 1996 and 1995, and for each
of the years in the two year period ended December 31,
99
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1996, included in Appendix I to this Prospectus and elsewhere in the
Registration Statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
UNAUDITED FINANCIAL STATEMENTS
The interim financial information of Wells Partners, L.P. and Wells
Capital, Inc. as of August 31, 1997 and for the eight month periods ended August
31, 1997 and 1996, and the interim financial information of the Partnership
which are included in Appendix I to this Prospectus have not been audited.
ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement under the Securities
Act of 1933, as amended, with respect to the Units offered pursuant to this
Prospectus. This Prospectus does not contain all the information set forth in
the Registration Statement and the exhibits related thereto filed with the
Commission, reference to which is hereby made. Copies of the Registration
Statement and exhibits related thereto, as well as periodic reports and
information filed by the Partnership, may be obtained upon payment of the fees
prescribed by the Commission, or may be examined at the offices of the
Commission without charge, at (i) the public reference facilities in Washington,
D.C. at Judiciary Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, (ii) the Northeast Regional Office in New York at 7 World Trade Center,
Suite 1300, New York, New York 10048, and (iii) the Midwest Regional Office in
Chicago, Illinois at 500 West Madison Street, Suite 1400, Chicago, Illinois
66661-2511. The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission (the address of such site is
http://www.sec.gov).
GLOSSARY
The following are definitions of certain terms used in this Prospectus and
not otherwise defined herein or in the Partnership Agreement:
"ACQUISITION EXPENSES" means expenses incurred in connection with the
selection and acquisition of properties, whether or not acquired, including, but
not limited to, legal fees and expenses, travel and communications expenses,
costs of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses and title insurance and other miscellaneous costs
and expenses relating to the selection and acquisition of properties.
"ACQUISITION FEES" means the total of all fees and commissions paid by any
party to any person in connection with the purchase, development or construction
of property by the Partnership, including Acquisition and Advisory Fees payable
to the General Partners or their Affiliates, real estate brokerage commissions,
investment advisory fees, finder's fees, selection fees, development fees,
construction fees, nonrecurring management fees, or any other fees of a similar
nature, however designated, except development fees and construction fees paid
to a person not affiliated with the Sponsor in connection with the actual
development or construction of a Partnership Property.
"AFFILIATE" means (i) any person directly or indirectly controlling,
controlled by or under common control with a General Partner, (ii) any person
owning or controlling 10% or more of the outstanding voting securities of a
General Partner, (iii) any officer, director or partner of a General Partner,
and (iv) if such other person is an officer, director or partner, any company
for which such person acts in any such capacity.
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"CAPITAL ACCOUNT" means the account established for each Partner pursuant
to Section 8.1 of the Partnership Agreement. Each Partner's Capital Account
shall be determined in accordance with Treasury Regulations Section 1.704-1(b).
Capital Accounts generally will be adjusted as follows. Each Partner's Capital
Account shall be credited with: (i) the amount of the cash contributed to the
Partnership by him; and (ii) his distributive share of Partnership income and
gain; and each Partner's Capital Account shall be debited with: (iii) his
distributive share of Partnership losses and deductions or items thereof; and
(iv) the cash distributed to him.
"CAPITAL CONTRIBUTION" means the amount of cash contributed to the capital
of the Partnership by a Partner.
"CASH FLOW" means cash funds derived from operations of the Partnership,
including without limitation interest and investment income, but excluding
Capital Contributions, and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
"CLASS A STATUS UNIT" means a Unit with respect to which the Limited
Partner holding such Unit has made an effective election pursuant to Section
8.16 of the Partnership Agreement to be treated as a Class A Status Unit for the
applicable accounting period.
"CLASS B STATUS UNIT" means a Unit with respect to which the Limited
Partner holding such Unit has made an effective election pursuant to Section
8.16 of the Partnership Agreement to be treated as a Class B Status Unit for the
applicable accounting period.
"CODE" means the Internal Revenue Code of 1986, as amended.
"DEFERRED COMMISSION OPTION" means an agreement among a subscriber for
Units in the Partnership, such subscriber's participating broker-dealer and the
Dealer Manager to have sales commissions due with respect to the purchase of the
subscriber's Units paid over a seven year period, in the manner described in the
"PLAN OF DISTRIBUTION" section of the Prospectus.
"EXCESS LIMITED PARTNER DISTRIBUTIONS" means any distributions to Limited
Partners over the life of their investment in the Partnership in excess of the
sum of their Net Capital Contributions plus their Preferential Limited Partner
Return.
"FRONT-END FEES" means fees and expenses paid by any party for any services
rendered during the Partnership's organizational or acquisition phase including
Organization and Offering Expenses, Acquisition Fees, Acquisition Expenses,
interest on deferred fees and expenses, if applicable, and any other similar
fees, however designated.
"GAIN ON SALE" means the taxable income or gain for federal income tax
purposes in the aggregate for each fiscal year from the sale or exchange of all
or any portion of a Partnership asset after netting losses from such sales or
exchanges against the gains from such transactions.
"GROSS OFFERING PROCEEDS" means the total gross proceeds from the sale of
the Units.
"GRULPA" means the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq.
"INITIAL LIMITED PARTNER" means Brian M. Conlon.
"INVESTMENT IN PROPERTIES" means the amount of Capital Contributions
actually paid or allocated to the purchase, development, construction or
improvement of properties acquired by the Partnership, including the
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<PAGE>
purchase of properties, working capital reserves allocable thereto (except that
working capital reserves in excess of 5% shall not be included) and other cash
payments such as interest and taxes, but excluding Front-End Fees.
"IRA" means an Individual Retirement Account established pursuant to
Section 408 of the Code.
"LIQUIDATING DISTRIBUTIONS" means the net cash proceeds received by the
Partnership from (a) the sale, exchange, condemnation, eminent domain taking,
casualty or other disposition of substantially all of the assets of the
Partnership or the last remaining assets of the Partnership or (b) a liquidation
of the Partnership's assets in connection with a dissolution of the Partnership,
after (i) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty, other disposition or liquidation, including real estate
commissions, if applicable, (ii) the payment of any outstanding indebtedness and
other liabilities of the Partnership, (iii) any amounts used to restore any such
assets of the Partnership, and (iv) any amounts set aside as reserves which the
General Partners in their sole discretion may deem necessary or desirable.
"MINIMUM OFFERING" means the receipt and acceptance by the General Partners
of subscriptions for Units aggregating at least $1,250,000 in offering proceeds.
"NASAA GUIDELINES" means the Statement of Policy Regarding Real Estate
Programs of the North American Securities Administrators Association, Inc.
adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
"NASAA GUIDELINES RESALE PROCEEDS MAXIMUM AMOUNT" means an amount equal to
15% of Sale Proceeds remaining after payments to Limited Partners from such
proceeds of amounts equal to the sum of 100% of their Net Capital Contributions
plus a 6% per annum return on their Net Capital Contributions, calculated on a
cumulative (noncompounded) basis.
"NET CAPITAL CONTRIBUTION" means, with respect to any Partner, the
Partner's Capital Contribution as reduced from time to time by distributions
constituting a return of unused capital or of Nonliquidating Net Sale Proceeds,
but not reduced by (i) distributions of Sale Proceeds made to each Limited
Partner holding Units which at any time were treated as Class B Status Units in
an amount which, when added to any Net Cash From Operations previously
distributed to such Limited Partner, will equal the amount of Net Cash From
Operations previously paid to Limited Partners holding Units which at all times
have been treated as Class A Status Units, or (ii) distributions of Net Cash
From Operations. (See "DISTRIBUTIONS AND ALLOCATIONS.")
"NET CASH FROM OPERATIONS" means Cash Flow, less adequate cash reserves for
other obligations of the Partnership for which there is no provision, and the
Repurchase Reserve, if any.
"NET INCOME" or "NET LOSS" means the net income or loss realized or
recognized by the Partnership for a fiscal year, as determined for federal
income tax purposes, including any income exempt from tax, but excluding all
deductions for depreciation, amortization and cost recovery and Gain on Sale.
"NET WORTH" means, except where otherwise provided herein, the excess of
total assets over total liabilities as determined by generally accepted
accounting principles, except that if any of such assets have been depreciated,
then the amount of depreciation relative to any particular asset may be added to
the depreciated cost of such asset to compute total assets, provided that the
amount of depreciation may be added only to the extent that the amount resulting
after adding such depreciation does not exceed the fair market value of such
asset.
"NONLIQUIDATING NET SALE PROCEEDS" means the net cash proceeds received by
the Partnership from a sale, exchange, condemnation, eminent domain taking,
casualty or other disposition of assets of the Partnership, which does not
constitute substantially all of the remaining assets of the Partnership, after
(i) the payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty, sale or other disposition, including real
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<PAGE>
estate commissions, if applicable, (ii) the payment of any outstanding
indebtedness and other Partnership liabilities relating to such assets, (iii)
any amounts used to restore any such assets of the Partnership, and (iv) any
amounts set aside as reserves which the General Partners in their sole
discretion may deem necessary or desirable.
"OFFERING" means the offering and sale of the Units pursuant to the terms
and conditions of this Prospectus.
"ORGANIZATION AND OFFERING EXPENSES" means those expenses incurred in
connection with organizing the Partnership, preparing the Partnership for
registration and subsequently offering and distributing the Units to the public,
including without limitation, legal and accounting fees, sales commissions paid
to broker-dealers in connection with the distribution of the Units and all
advertising expenses.
"PARTNERS" means, collectively, the General Partners and the Limited
Partners.
"PARTNERSHIP" means Wells Real Estate Fund XI, L.P., the Georgia limited
partnership which will be organized pursuant to the Partnership Agreement.
"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of Limited
Partnership in the form attached hereto as Exhibit "B" entered into by the
General Partners and the Initial Limited Partner and to be adopted by the
Limited Partners.
"PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" means any and all land
and improvements as may be purchased or constructed by the Partnership and all
repairs, replacements or renewals thereof, together with all personal property
acquired by the Partnership which is from time to time located thereon or
specifically used in connection therewith.
"PREFERENTIAL LIMITED PARTNER RETURN" means with respect to each Limited
Partner Unit the sum of (i) a cumulative (noncompounded) 10% per annum on a
Limited Partner's Net Capital Contribution with respect to such Unit for all
periods during which such Unit was treated as a Class A Status Unit, and (ii) a
cumulative (noncompounded) 15% return on such Limited Partner's Net Capital
Contribution with respect to such Unit for all periods during which such Unit
was treated as a Class B Status Unit. Each Limited Partner's Preferential
Limited Partner Return shall be calculated from the date on which such Limited
Partner's Capital Contribution was made to the Partnership.
"PRIOR WELLS PUBLIC PROGRAMS" means other public real estate programs
previously or currently sponsored by the General Partners or their Affiliates
having substantially identical investment objectives as the Partnership,
specifically, Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real
Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV,
L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells
Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate
Fund IX, L.P., Wells Real Estate Fund X, L.P. and Wells Real Estate Investment
Trust, Inc.
"PROPERTY MANAGEMENT AND LEASING FEE" means the fee payable for day-to-day
professional property management services rendered in connection with the
Partnership Properties, initially payable to Wells Management Company, Inc.
"QUALIFIED PLAN" means a qualified sole proprietorship, partnership or
corporate pension or profit sharing plan established under Section 401(a) of the
Code.
"REGISTRATION STATEMENT" means the Registration Statement filed by the
Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
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"RESIDUAL PROCEEDS" means any Sale Proceeds available for distribution to
the Partners after the Limited Partners have first received distributions of
Sale Proceeds in an amount equal to 100% of their Capital Contributions plus
their Preferential Limited Partner Return (reduced by all prior distributions of
Net Cash From Operations) and after the General Partners have received
distributions of Sale Proceeds in an amount equal to 100% of their Capital
Contributions.
"RETIREMENT PLANS" means Individual Retirement Accounts ("IRAs")
established under Section 408 of the Code and Qualified Plans.
"SALE PROCEEDS" means, collectively, Nonliquidating Net Sale Proceeds and
Liquidating Distributions.
"SPONSOR" means any individual, partnership, corporation or other legal
entity which (i) is directly or indirectly instrumental in organizing, wholly or
in part, the Partnership, (ii) will manage or participate in the management of
the Partnership, and any Affiliate of any such person, other than a person whose
only relationship with the Partnership is that of an independent property
manager, whose only compensation is as such, (iii) takes the initiative,
directly or indirectly, in founding or organizing the Partnership, either alone
or in conjunction with one or more other persons, (iv) receives a material
participation in the Partnership in connection with the founding or organizing
of the business of the Partnership, in consideration of services or property, or
both services and property, (v) has a substantial number of relationships and
contacts with the Partnership, (vi) possesses significant rights to control
Partnership Properties, (vii) receives fees for providing services to the
Partnership which are paid on a basis that is not customary in the industry, or
(viii) provides goods or services to the Partnership on a basis which was not
negotiated at arm's-length with the Partnership. Based upon the foregoing,
Sponsors of the Partnership include the General Partners, Wells Capital, Inc.,
Wells Real Estate Funds, Inc., Wells Investment Securities, Inc., Wells
Management Company, Inc., Wells Development Corporation and Prior Wells Public
Programs.
"UBTI" means unrelated business taxable income, as that term is defined in
Sections 511 through 514 of the Code.
"UNUSED CAPITAL CONTRIBUTIONS" means so much of the Capital Contributions
of Partners which are not required to acquire property and improvements thereon
with respect to which contracts, agreements in principle or letters of
understanding have been executed within the later of two years following the
effective date of the Registration Statement or one year after the termination
of the Offering of the Units.
"WELLS CAPITAL" means Wells Capital, Inc., a Georgia corporation which is
the sole general partner of Wells Partners, L.P.
"WELLS PARTNERS" means Wells Partners, L.P., a Georgia limited partnership
which has Wells Capital, Inc. as its sole general partner and is a General
Partner of the Partnership.
For additional definitions, see Article III of the Partnership Agreement.
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APPENDIX I
FINANCIAL STATEMENTS
<PAGE>
APPENDIX I
INDEX TO AUDITED AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Audited Financial Statements
Independent Auditors' Reports I-1
Balance Sheets as of December 31, 1996 and 1995 I-2
Statements of Loss for the years ended December 31, 1996 and 1995 I-3
Statements of Partners' Capital for the years ended December 31, 1996 and 1995 I-4
Statements of Cash Flows for the years ended December 31, 1996 and 1995 I-5
Notes to Financial Statements I-6
Schedule I - Market Value of Investments in Partnerships I-8
WELLS CAPITAL, INC.
Audited Financial Statements
Independent Auditors' Reports I-9
Balance Sheets as of December 31, 1996 and 1995 I-10
Statements of Income for the years ended December 31, 1996
and 1995 I-11
Statements of Stockholder's Equity for the years ended December 31, 1996
and 1995 I-12
Statements of Cash Flows for the years ended December 31, 1996 and 1995 I-13
Notes to Financial Statements I-14
WELLS REAL ESTATE FUND XI, L.P.
Audited Balance Sheet
Independent Auditors' Report I-18
Balance Sheet as of December 31, 1996 I-19
Notes to Balance Sheet I-20
</TABLE>
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Partners, L.P.:
We have audited the accompanying balance sheets of WELLS PARTNERS, L.P. (a
Georgia limited partnership) as of December 31, 1996 and 1995 and the related
statements of loss, partners' capital, and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Partners, L.P. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I, market value of investment
in partnerships, is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has not been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, accordingly, we express no opinion on it.
/s/ ARTHUR ANDERSEN
Atlanta, Georgia
January 10, 1997
I-1
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
BALANCE SHEETS
December 31, 1996 and 1995
<TABLE>
<CAPTION>
ASSETS
1996 1995
-------- --------
<S> <C> <C>
CASH $ 70 $ 70
INVESTMENT IN PARTNERSHIPS 128,618 128,944
-------- --------
Total assets $128,688 $129,014
======== ========
PARTNERS' CAPITAL
COMMITMENTS AND CONTINGENCIES (NOTE 4)
GENERAL PARTNER $ 6,771 $ 5,982
LIMITED PARTNERS 121,917 123,032
-------- --------
Total partners' capital $128,688 $129,014
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-2
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
STATEMENTS OF LOSS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------ -----
<S> <C> <C>
EQUITY IN LOSS OF PARTNERSHIPS AND LOSS $1,126 $ 480
====== =====
</TABLE>
The accompanying notes are an integral part of these statements.
I-3
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- --------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $2,477 $123,507 $125,984
Capital contribution 3,510 0 3,510
Net loss (5) (475) (480)
------ -------- --------
BALANCE AT DECEMBER 31, 1995 5,982 123,032 129,014
Capital contribution 800 0 800
Net loss (11) (1,115) (1,126)
------ -------- --------
BALANCE AT DECEMBER 31, 1996 $6,771 $121,917 $128,688
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
I-4
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $ 1,126 $ 480
Adjustment to reconcile net loss to net
cash used by operating activities:
Equity in loss of partnerships (1,126) (480)
------- -------
Net cash used by operating activities 0 0
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in limited partnership (800) (3,510)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
General partner contributions 800 3,510
------- -------
NET CHANGE IN CASH 0 0
CASH AT BEGINNING OF YEAR 70 70
------- -------
CASH AT END OF YEAR $ 70 $ 70
</TABLE>
The accompanying notes are an integral part of these statements.
I-5
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Partners, L.P. (the "Partnership") is a limited partnership under the laws
of the state of Georgia. The general partner is Wells Capital, Inc. ("Wells
Capital"), a Georgia corporation. The Partnership serves as the general partner
in several affiliated limited partnerships. The Partnership is currently a
general partner in Wells Real Estate Fund IV, L.P., Wells Real Estate Fund V,
L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII, L.P., Wells
Real Estate Fund VIII, L.P. ("Fund VIII"), Wells Real Estate Fund IX, L.P.
("Fund IX"), Wells Real Estate Fund X, L.P. ("Fund X"), and Wells Real Estate
Fund XI, L.P. ("Fund XI"), collectively referred to as the "Funds". The
Partnership also owns limited partnership interests in Beaver Ruin--Arc Way,
Ltd. ("Beaver Ruin") and Carter Boulevard, Ltd. ("Carter Boulevard").
Although, as set forth above, the Partnership is a general partner in the Funds,
Wells Capital has acted as the general partner for the Funds on behalf of the
Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and therefore,
none have been provided for in the accompanying financial statements. The
partners are required to include their respective share of profits and losses in
their individual income tax returns.
2. INVESTMENT IN PARTNERSHIPS
The Partnership does not control the Funds, Beaver Ruin, or Carter Boulevard;
however, it does exercise significant influence. Accordingly, investment in
partnerships is recorded using the equity method of accounting. Each of the
I-6
<PAGE>
partnerships in which the Partnership invests, except for Beaver Ruin and Carter
Boulevard, has been formed to acquire and operate commercial real properties,
including both properties which are to be developed or are under development and
properties which are newly constructed or have operating histories. Beaver Ruin
and Carter Boulevard were formed to acquire and eventually sell the Beaver Ruin
and Carter Boulevard properties. The Partnership's investment in partnerships
at December 31, 1996 and 1995 includes the following:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
18.8% ownership interest in Beaver Ruin $ 81,781 $ 81,910
51.27% ownership interest in Carter 45,873 46,284
Boulevard
Wells Real Estate Fund VIII, L.P. 0 350
Wells Real Estate Fund IX, L.P. 164 400
Wells Real Estate Fund X, L.P. 400 0
Wells Real Estate Fund XI, L.P. 400 0
-------- --------
$128,618 $128,944
======== ========
</TABLE>
The assets of Beaver Ruin and Carter Boulevard are comprised primarily of an
investment in a parcel of undeveloped land. Wells Capital is also one of the
general partners of Beaver Ruin.
Fund VIII owns all of its properties through an investment in three joint
ventures which, as of December 31, 1996, owned an interest in two office
buildings, a retail office building, two office buildings under construction,
and a retail shopping center under construction.
Fund IX owns a parcel of land under development. In addition, Fund IX owns
properties through an investment in a joint venture which, as of December 31,
1996, owned an interest in an office building and an office building under
construction.
Fund X and Fund XI had no operations as of December 31, 1996.
The Partnership is entitled to share in the allocation of cash distributions and
net income (loss) based on ownership percentages outlined in the partnership
agreements.
3. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service to
the effect that it will be treated as a partnership and not an association
taxable as a corporation for federal income tax purposes. The Partnership has
requested an opinion of legal counsel as to its tax status but such an opinion
is not binding upon the Internal Revenue Service.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Partnership. In the normal course of business,
the Partnership may be subject to litigation or claims.
I-7
<PAGE>
SCHEDULE 1
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
MARKET VALUE OF INVESTMENT IN PARTNERSHIPS
As of December 31, 1996
(Unaudited)
<TABLE>
<CAPTION>
<S> <C> <C>
* 18.8% OWNERSHIP INTEREST IN BEAVER RUIN ARC WAY, LTD. $ 752,000
* 51.27% OWNERSHIP INTEREST IN CARTER BOULEVARD, LTD. 252,000
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND IX, L.P. 164
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND X, L.P. 400
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND XI, L.P. 400
----------
$1,004,964
==========
</TABLE>
*The market value of the undeveloped land owned by Beaver Ruin and Carter
Boulevard is based on an appraisal by an outside party.
The accompanying notes are an integral part of this schedule.
I-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Wells Capital, Inc.:
We have audited the accompanying balance sheets of WELLS CAPITAL, INC. (a
Georgia corporation) as of December 31, 1996 and 1995 and the related statements
of income, stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. as of
December 31, 1996 and 1995 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN
Atlanta, Georgia
January 10, 1997
I-9
<PAGE>
WELLS CAPITAL, INC.
BALANCE SHEETS
December 31, 1996 and 1995
ASSETS
<TABLE>
<CAPTION>
1996 1995
---------- --------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 148,873 $130,457
Due from affiliates 872,843 306,229
Other receivables 31,300 8,533
---------- --------
Total current assets 1,053,016 445,219
INVESTMENTS IN PARTNERSHIPS 16,995 16,483
---------- --------
Total assets $1,070,011 $461,702
========== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
ACCOUNTS PAYABLE $ 204,340 $ 84,893
---------- --------
COMMITMENTS AND CONTINGENCIES (NOTE 5)
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000
shares authorized, 600 shares issued 600 600
Contributed capital 306,541 306,541
Retained earnings 558,530 69,668
---------- --------
Total stockholder's equity 865,671 376,809
---------- --------
Total liabilities and stockholder's equity $1,070,011 $461,702
========== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-10
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF INCOME
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
REVENUES:
<S> <C> <C>
Acquisition and advisory fees $1,608,952 $1,083,281
Equity in income of limited partnerships 0 11,984
---------- ----------
1,608,952 1,095,265
---------- ----------
EXPENSES:
Salaries and wages 811,754 725,274
Occupancy 26,484 26,484
General and administrative 281,852 313,479
---------- ----------
1,120,090 1,065,237
---------- ----------
NET INCOME $ 488,862 $ 30,028
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
I-11
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
Common Stock Total
-------------- Contributed Retained Stockholder's
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ----- ----------- --------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1994 600 $600 $306,541 $ 39,640 $346,781
Net income 0 0 0 30,028 30,028
------ ----- ----------- --------- -------------
BALANCE, DECEMBER 31, 1995 600 600 306,541 69,668 376,809
Net income 0 0 0 488,862 488,862
------ ----- ----------- --------- -------------
BALANCE, DECEMBER 31, 1996 600 $600 $306,541 $558,530 $865,671
------ ----- ----------- --------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
I-12
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
--------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 488,862 $ 30,028
--------- --------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Equity in income from limited partnerships 0 (11,984)
Distributions from limited partnerships 288 15,536
Changes in assets and liabilities:
Due from affiliates (566,614) 95,748
Other receivables (22,767) 1,029
Accounts payable 119,447 (3,763)
--------- --------
Total adjustments (469,646) 96,566
--------- --------
Net cash provided by operating activities 19,216 126,594
CASH FLOWS FROM INVESTING ACTIVITIES:
Additional investment in limited partnerships (800) 0
--------- --------
NET INCREASE IN CASH 18,416 126,594
CASH AT BEGINNING OF YEAR 130,457 3,863
--------- --------
CASH AT END OF YEAR $ 148,873 $130,457
========= ========
</TABLE>
The accompanying notes are an integral part of these statements.
I-13
<PAGE>
WELLS CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
December 31, 1996 and 1995
1. SUMMARY OF SIGNIFCANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Capital, Inc. (the "Company") was organized on April 18, 1984 as a
corporation under the Georgia Business Corporation Code. The Company is in the
business of serving as a general partner in public limited partnerships. As a
general partner, the Company performs certain administrative services for the
Wells Real Estate funds, such as accounting and other administration, and incurs
the related expenses. Such expenses are allocated among the various Wells Real
Estate funds based on time spent on each fund by individual administrative
personnel. The sole stockholder of the Company is Leo F. Wells, III.
The Company is a general partner in Wells Real Estate Fund I ("Fund I"), Wells
Real Estate Fund II ("Fund II"), Wells Real Estate Fund II-OW ("Fund II-OW"),
and Wells Real Estate Fund III, L.P. ("Fund III"), all of which are Georgia
public limited partnerships, and Wells Partners, L.P. ("Wells Partners"), a
Georgia limited partnership. The Company is also a limited partner in Fund I
and Fund II. The Company does not have control over the operations of the
partnerships; however, it does exercise significant influence. Accordingly,
investment in partnerships is recorded using the equity method of accounting.
Each of the partnerships, except for Wells Partners, has been formed to acquire
and operate commercial real properties, including both properties which are to
be developed or are under development and properties which are newly constructed
or have operating histories. Wells Partners was formed during 1990 to act as a
general partner for all other Wells funds. Wells Partners serves as a general
partner for Wells Real Estate Fund IV, L.P. ("Fund IV"), Wells Real Estate Fund
V, L.P. ("Fund V"), Wells Real Estate Fund VI, L.P. ("Fund VI"), Wells Real
Estate Fund VII, L.P. ("Fund VII"), Wells Real Estate Fund VIII, L.P. ("Fund
VIII"), and Wells Real Estate Fund IX, L.P. ("Fund IX"). In June 1996, Wells
Partners became the general partner for Wells Real Estate Fund X, L.P. ("Fund
X") and Wells Real Estate Fund XI, L.P. ("Fund XI"). Funds IV, V, VI, VII,
VIII, IX, X and XI have the same investment objectives as Funds I, II, II-OW,
and III (Note 3).
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
I-14
<PAGE>
INCOME TAXES
The Company elected to be treated as an S corporation effective January 1, 1987.
No provision for income taxes is recorded, as any income tax liability is the
responsibility of the stockholder.
2. RELATED-PARTY TRANSACTIONS
The Company is entitled to share in the allocation of cash distributions and net
income (loss) based on percentages outlined in the partnership agreements. The
Company, as general partner, paid all the organization and offering expenses for
Fund I, Fund II, Fund II-OW, and Fund III and was reimbursed pursuant to the
partnership agreements, which provided that the partnerships could reimburse the
Company up to 5% of total limited partners' contributions in organization and
offering expenses. The Company also paid, or is currently paying, on behalf of
Wells Partners the organization and offering expenses for Fund IV, Fund V, Fund
VI, Fund VII, Fund VIII, and Fund IX. Pursuant to the partnership agreements of
Fund IV and Fund V, these two partnerships can only pay up to 3% of total
limited partners' contributions in organization and offering expenses. The
remaining partnerships can reimburse the Company up to 5% of total limited
partners' contributions in organization and offering costs pursuant to the
partnership agreements.
During the year ended December 31, 1995, the Company paid and was reimbursed for
organization and offering costs related to Fund VII totaling approximately
$40,260, which did not exceed the 5% reimbursement limitation. During 1995, the
Company expensed approximately $40,432 of organization and offering costs
related to Fund VII, which exceeded the 5% reimbursement limitation.
As of December 31, 1996 and 1995, the Company had a receivable for unreimbursed
organization and offering costs related to Fund VIII totaling $152,501 and
$96,972, respectively, which are included in due from affiliates. During 1996
and 1995, the Company expensed approximately $67,000 and $38,000, respectively,
of organization and offering costs related to Fund VIII which exceeded the 5%
reimbursement limitation.
As of December 31, 1996 and 1995, the Company had a receivable for unreimbursed
organization and offering costs and acquisition and advisory fees related to
Fund IX totaling $422,996 and $142,229, respectively, which are included in due
from affiliates. During 1996, the Company expensed $73,296 of organization and
offering costs related to Fund IX which exceeded the 5% reimbursement
limitation.
During the year ended December 31, 1996, the Company paid organization and
offering costs related to Fund X of $97,691 and Fund XI of $84,578. Fund X and
Fund IX both filed a registration statement with the Securities and Exchange
Commission for the offering and sale of its limited partnership units, which
became effective on December 31, 1996. In order for the Company to be
reimbursed for these expenses, Fund X and Fund XI will each need to receive
approximately $1,250,000 in limited partners' contributions. At this time, the
Company believes that all of the foregoing organization and offering expenses
will be reimbursed.
I-15
<PAGE>
Due from affiliates at December 31, 1996 and 1995 represents primarily
organization and offering expenses paid by the Company on behalf of Fund VIII,
Fund IX, Fund X, and Fund XI. In addition, Wells Investment Securities, Inc.
has agreed to reimburse a portion of Fund IX organization and offering expenses
totaling $104,037. The remaining due from affiliates represents operating
expenses paid by the Company on behalf of the affiliates. The following is a
detail of due from affiliates at December 31:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Fund VIII $152,501 $136,436
Fund IX 422,996 142,229
Fund X 97,691 0
Fund XI 84,578 0
Wells Management Company, Inc. 2,113 6,709
Wells Investment Securities, Inc. 104,037 0
Other affiliates 8,927 20,855
-------- --------
$872,843 $306,229
======== ========
</TABLE>
Offering costs paid by the Company on behalf of and reimbursed by Fund VIII and
Fund IX of approximately $126,000 and $84,000, respectively, were paid to
related parties.
3. Investment in Partnerships
The following is a rollforward of the Company's investment in partnerships as of
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
------- --------
<S> <C> <C>
Investment in partnerships, beginning of period $16,483 $ 20,035
Contribution to partnerships 800 0
Equity in income of partnerships 0 11,984
Distributions from partnerships (288) (15,536)
------- --------
Investment in partnerships, end of period $16,995 $ 16,483
======= ========
</TABLE>
The Company's investment in each partnership at December 31, 1996 and 1995 is as
follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Fund I $11,027 $11,027
Fund II 2,808 3,096
Wells Partners (Note 1) 3,160 2,360
------- -------
$16,995 $16,483
======= =======
</TABLE>
As of December 31, 1996 and 1995, Fund I owned interests in a medical office
building, two commercial office buildings, three retail shopping centers, and a
project consisting of seven office buildings and a shopping center.
I-16
<PAGE>
Fund II owns all of its properties through a joint venture, which, as of
December 31, 1996 and 1995, owned interests in a retail shopping center, a
project consisting of seven office buildings and a shopping center, two office
buildings, a parcel of land upon which a restaurant was developed and a retail
shopping center which was substantially completed and commenced operations in
1996.
4. ACQUISITION AND ADVISORY FEES
Acquisition and advisory fees were earned from Fund VIII and Fund IX in 1996 and
from Fund VII and Fund VIII in 1995. Pursuant to the partnership agreements of
Fund VII, Fund VIII, and Fund IX, total fees earned may not exceed 4% of limited
partners' contributions. As of December 31, 1996 and 1995, all fees were
collected for limited partners' contributions received by Fund VII. As of
December 31, 1996, $152,501 and $106,211 of Fund VIII and Fund IX fees,
respectively, remain uncollected and are included in due from affiliates.
5. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed the indebtedness of an affiliate, Wells Management
Company, Inc. ("Wells Management"), for an amount not to exceed $200,000.
Management believes, however, that Wells Management has sufficient resources to
pay its indebtedness and does not anticipate that it will incur a loss as a
result of this guarantee.
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Company. In the normal course of business, the
Company may be subject to litigation or claims.
I-17
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund XI, L.P.:
We have audited the accompanying balance sheet of WELLS REAL ESTATE FUND XI,
L.P. (a Georgia public limited partnership) as of December 31, 1996. This
financial statement is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statement is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statement. 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Wells Real Estate Fund XI, L.P.
as of December 31, 1996 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN
Atlanta, Georgia
January 10, 1997
I-18
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEET
DECEMBER 31, 1996
ASSETS
CASH $ 600
DEFERRED OFFERING COSTS 84,578
-------
Total assets $85,178
=======
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES, DUE TO AFFILIATE $84,578
-------
PARTNERS' CAPITAL:
General partners 500
Limited partner 100
-------
Total partners' capital 600
-------
Total liabilities and partners' capital $85,178
=======
The accompanying notes are an integral part of this balance sheet.
I-19
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A Georgia Public Limited Partnership)
NOTES TO BALANCE SHEET
December 31, 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund XI, L.P. (the "Partnership") is a public limited
partnership organized on June 20, 1996, under the laws of the state of Georgia.
The general partners are Leo F. Wells, III and Wells Partners, L.P., a Georgia
nonpublic limited partnership. The Partnership has one class of limited
partnership units. Upon subscription for units, each limited partner must elect
whether to have their units treated as Class A units (entitled to allocation of
substantially all of the Partnership's net income without allocation of any
deductions for depreciation, amortization, cost recovery, or net losses) or
Class B units (entitled to a larger share of deductions for depreciation,
amortization, cost recovery and net loss, and a higher percentage return on
appreciation (if any) of real estate investments, but no current cash
distributions). Thereafter, limited partners shall have the right to change
their prior election to have some or all of their units treated as Class A units
or Class B units one time during each quarterly accounting period. Limited
partners owning a majority of the units may vote to, among other things: (a)
amend the partnership agreement, subject to certain limitations, (b) change the
business purpose or investment objectives of the Partnership, (c) remove a
general partner, (d) elect a new general partner, (e) dissolve the Partnership,
and (f) approve a sale of assets, subject to certain limitations. Each limited
partnership unit has equal voting rights, regardless of class. The Partnership
had no operations as of December 31, 1996.
The Partnership intends to acquire on an all cash basis and operate commercial
real estate properties, including properties which are either to be developed,
currently under development or construction, newly constructed, or have
operating histories.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
I-20
<PAGE>
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and therefore,
none have been provided for in the accompanying financial statements. The
partners are required to include their respective share of profits and losses in
their individual income tax returns.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement, will
be distributed to the limited partners on a quarterly basis. In accordance with
the partnership agreement, distributions first are paid to limited partners
holding Class A units until they have received a 10% annual return on their net
capital contributions, as defined. Then such distributions are paid to the
general partners until they have received 10% of the total amount thus far
distributed. Any remaining cash available for distribution is split 90% to the
limited partners holding Class A units and 10% to the general partners. No such
distributions will be made to the limited partners holding Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds will be distributed in the
following order:
. To limited partners holding units which at any time have been treated as
Class B units until they receive an amount necessary to equal the net cash
available for distribution received by the limited partners holding Class A
units
. To limited partners on a per unit basis until each limited partner has
received 100% of their net capital contribution, as defined
. To all limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital contribution, as defined
. To limited partners on a per unit basis until they receive an amount
equal to their preferential limited partner return (defined as the sum of a 10%
per annum cumulative return on net capital contributions for all periods during
which the units were treated as Class A units and a 15% per annum cumulative
return on net capital contributions for all periods during which the units were
treated as Class B units)
. To the general partners until they have received 100% of their capital
contributions
. Then, if limited partners have received any excess limited partner
distributions (defined as distributions to limited partners over the life of
their investment in the Partnership in excess of their net capital
contributions, as defined, plus their preferential limited partner return), to
the general partners until they have received distributions equal to 20% of the
sum of any such excess limited partner distributions plus distributions made to
the general partners pursuant to this provision
I-21
<PAGE>
. Thereafter, 80% to the limited partners on a per unit basis and 20% to
the general partners
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same proportion
that net cash from operations is distributed to the partners. To the extent the
Partnership's net income in any year exceeds net cash from operations, it will
be allocated 99% to the limited partners holding Class A units and 1% to the
general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero; (b) then to any partner having a positive balance
in his capital account in an amount not to exceed such positive balance; and (c)
thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be allocated
generally in the same manner that the net proceeds from such sale are
distributed to partners after the following allocations are made, if applicable:
(a) allocations made pursuant to the qualified income offset provisions of the
partnership agreement; (b) allocations to partners having negative capital
accounts until all negative capital accounts have been restored to zero; and (c)
allocations to limited partners holding Class B units in amounts equal to the
deductions for depreciation, amortization, and cost recovery previously
allocated to them with respect to the specific partnership property sold, but
not in excess of the amount of gain on sale recognized by the Partnership with
respect to the sale of such property.
2. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 5% of gross
proceeds, will be paid by Wells Capital, Inc. (the "Company"), an affiliate of
the general partners, and not by the Partnership. Organization and offering
expenses do not include sales or underwriting commissions but do include such
costs as legal and accounting fees, printing costs, and other offering expenses.
As of December 31, 1996, the Company had paid organization and offering expenses
related to the Partnership of $84,578. A registration statement covering both
the Partnership and Wells Real Estate Fund X, L.P. was filed with the Securities
and Exchange Commission ("SEC") on July 11, 1996. The registration statement of
the Partnership was declared effective by the SEC on December 31, 1996. The
Partnership needs to receive approximately $1,250,000 in limited partners'
contributions before the liability to the Company will be paid. At this time,
the general partners believe that all of the foregoing organization and offering
expenses will be reimbursed by the Partnership.
I-22
<PAGE>
3. RELATED-PARTY TRANSACTIONS
The Partnership may enter into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the Partnership's
properties, the Partnership will pay Wells Management management and leasing
fees equal to the lesser of (a) fees that would be paid to a comparable outside
firm, or (b) 3% of the gross revenues for management and 3% of the gross
revenues for leasing (aggregate maximum of 6%) generally paid over the life of
the lease plus a separate competitive fee for the one-time initial lease-up of
newly constructed properties generally paid in conjunction with the receipt of
the first month's rent. In the case of commercial properties which are leased
on a long-term net basis (ten or more years), the maximum property management
fee from such leases shall be 1% of the gross revenues generally paid over the
life of the leases except for a one-time initial leasing fee of 3% of the gross
revenues on each lease payable over the first five full years of the original
lease term.
The general partners are also general partners in other Wells Real Estate funds.
As such, there may exist conflicts of interest where the general partners, while
serving in the capacity as general partners for other Wells Real Estate funds,
may be in competition with the Partnership for tenants in similar geographic
markets.
4. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service to
the effect that it will be treated as a partnership and not as an association
taxable as a corporation for Federal income tax purposes. The Partnership
received an opinion of legal counsel as to its tax status as a partnership, but
such an opinion is not binding upon the Internal Revenue Service.
I-23
<PAGE>
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Unaudited Financial Statements
Balance Sheets as of August 31, 1997 and December 31, 1996.................... I-25
Statements of Operations for the eight months ended August 31, 1997 and 1996.. I-26
Statements of Partners' Capital for the eight months ended August 31, 1997 and
the year ended December 31, 1996............................................. I-27
Statements of Cash Flows for the eight months ended August 31, 1997 and 1996.. I-28
Notes to Financial Statements................................................. I-29
WELLS CAPITAL, INC.
Unaudited Financial Statements
Balance Sheets as of August 31, 1997 and December 31, 1996.................... I-32
Statements of Earnings for the eight months ended August 31, 1997 and 1996.... I-33
Statements of Stockholder's Equity for the eight months ended August 31, 1997
and the year ended December 31, 1996......................................... I-34
Statements of Cash Flows for the eight months ended August 31, 1997 and 1996.. I-35
Notes to Financial Statements................................................. I-36
WELLS REAL ESTATE FUND XI, L.P.
Unaudited Balance Sheet
Balance Sheet as of August 31, 1997........................................... I-37
Notes to Balance Sheet........................................................ I-38
</TABLE>
I-24
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Balance Sheets
(Unaudited) (Audited)
August 31, 1997 December 31, 1996
--------------- -----------------
Assets
------
Cash $ 70 $ 70
Investments in limited partnerships (note 2) 128,202 128,618
-------- --------
Total Assets $128,272 $128,688
======== ========
Partners' Capital
-----------------
General Partner $ 6,767 $ 6,771
Limited Partners 121,505 121,917
-------- --------
Total Partners' Capital $128,272 $128,688
======== ========
See accompanying condensed notes to financial statements.
I-25
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Operations
(Unaudited)
Eight Months Ended
------------------------------------
August 31, 1997 August 31, 1996
------------------ ----------------
Equity in loss of partnership $416 $479
---- ----
Net loss $416 $479
==== ====
See accompanying condensed notes to financial statements.
I-26
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statement of Partners' Capital
For the Year Ended December 31, 1996
and the Eight Months Ended August 31, 1997
(Unaudited)
General Limited
Partner Partners Total
------- -------- --------
Balance of December 31, 1996 $6,771 $121,917 $128,688
Net Loss (4) (412) (416)
------ -------- --------
Balance at August 31, 1997 $6,767 $121,505 $128,272
====== ======== ========
I-27
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Eight Months Ended
--------------------------------
August 31, 1997 August 31, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(416) $(479)
Adjustments to reconcile net loss to net cash used
by operating activities-equity in loss of limited
partnership 416 479
----- -----
Net Cash used in operating activities 0 0
----- -----
Net change in cash 0 0
Cash at beginning of year 70 70
----- -----
Cash at end of year $ 70 $ 70
===== =====
</TABLE>
See accompanying condensed notes to financial statements.
I-28
<PAGE>
WELLS PARTNERS, L.P.
Condensed Notes to Financial Statements
(Unaudited)
(1) General
-------
The financial statements of Wells Partners, L.P. (the Partnership) do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
statements have not been examined by independent accountants, but in the
opinion of the General Partner of the Partnership, the statements for the
unaudited interim periods presented include only adjustments, which are of
normal and recurring nature, necessary to present a fair presentation of
the results for such periods. For further information, refer to the
financial statements and footnotes included in the audited Partnership
report for the year ended December 31, 1996.
Although the Partnership is a general partner in Wells Real Estate Fund IV,
L.P. (Fund IV), Wells Real Estate Fund V, L.P. (Fund V), Wells Real Estate
Fund VI, L.P. (Fund VI), Wells Real Estate Fund VII, L.P. (Fund VII), Wells
Real Estate Fund VIII, L.P. (Fund VIII), Wells Real Estate Fund IX, L.P.
(Fund IX), Wells Real Estate Fund X, L.P. (Fund X), and Wells Real Estate
Fund XI, L.P. (Fund XI) (collectively, the "Funds"), its general partner,
Wells Capital, Inc., has acted on behalf of the Partnership as the general
partner of such partnerships. Accordingly, all revenues and expenses
relating to the offering of the limited partnership units of the Funds were
recorded by Wells Capital, Inc. The Partnership also owns limited
partnership interests in Beaver Ruin - Arc Way, Ltd. (Beaver Ruin) and
Carter Boulevard, Ltd. (Carter Boulevard).
(2) Investment in Partnerships
--------------------------
The Partnership does not control the Funds, Beaver Ruin, or Carter
Boulevard; however, it does exercise significant influence. Accordingly,
investments in partnerships are recorded using the equity method of
accounting. Each of the Funds has been formed to acquire and operate
commercial real properties, including both properties which are to be
developed or are under development and properties which are newly
constructed or have operating histories. Beaver Ruin and Carter Boulevard
were formed to acquire and eventually sell the Beaver Ruin and Carter
Boulevard properties. The Partnership's investments in partnerships at
August 31, 1997 and December 31, 1996 is as follows:
I-29
<PAGE>
<TABLE>
<CAPTION>
August 31, 1997 December 31, 1996
------------------------ ------------------------
Cost Market Cost Market
-------- -------- -------- --------
<S> <C> <C> <C> <C>
19.2% ownership interest in Beaver
Ruin - Arc Way, Ltd. $ 81,781 $ 869,000 $ 81,781 $ 869,000
51.27% ownership interest in Carter
Boulevard, Ltd. 46,284 299,000 45,873 299,000
Wells Real Estate Fund VI, L.P. 0 0 0 0
Wells Real Estate Fund VII, L.P. 0 0 0 0
Wells Real Estate Fund VIII, L.P. 0 0 0 0
Wells Real Estate Fund IX, L.P. 0 0 164 164
Wells Real Estate Fund X, L.P. 400 400 400 400
Wells Real Estate Fund XI, L.P. 400 400 0 0
-------- ---------- -------- ----------
$128,865 $1,168,800 $128,218 $1,168,564
</TABLE>
The assets of Beaver Ruin and Carter Boulevard are comprised primarily of an
investment in a parcel of underdeveloped land. The general partner of the
Partnership is also the general partner of Beaver Ruin. The market value of
this land was based on an appraisal dated June, 1996, and has remained the same
as compared to December 31, 1996.
Fund VI owns all of its properties through an investment in six joint ventures
which, as of August 31, 1997, owned interests in three commercial office
buildings, five retail centers and an office/retail center.
Fund VII owns all of its properties through an investment in five joint ventures
which, as of August 31, 1997, owned interests in three commercial office
buildings, four retail centers and two office/retail centers.
Fund VIII owns all of its properties through an investment in three joint
ventures which, as of August 31, 1997, owned interests in three commercial
office buildings, one retail center and an office/retail center.
Fund IX owns all of its properties through an investment in three joint ventures
which, as of August 31, 1997, owned interests in four commercial office
buildings and a commercial office building under construction.
I-30
<PAGE>
Fund X owns all of its properties through an investment in a joint venture
which, as of August 31, 1997, owned an interest in a commercial office building
under construction.
In addition, the Partnership owns interest in Fund IV and Fund V. Fund IV owns
all of its properties through investments in two joint ventures which, as of
August 31, 1997, owned interests in a retail shopping center, two commercial
office buildings, and a medical center development comprising two office
buildings. Fund V owns all of its properties through investments in three joint
ventures which, as of August 31, 1997, owned interests in three commercial
office building, two retail buildings, and a medical center development
comprising two office buildings. The Partnership's investments in Fund IV and
Fund V were $0 at August 31, 1997 and December 31, 1996.
The Partnership is entitled to share in the allocation of cash distributions and
net income (losses) of the foregoing partnership investments based on ownership
percentages outlined in the partnership agreements.
[Remainder of page intentionally left blank.]
I-31
<PAGE>
WELLS CAPITAL, INC.
Balance Sheets
<TABLE>
<CAPTION>
<S> <C> <C>
(Unaudited) (Unaudited)
August 31, 1997 December 31, 1996
--------------- -----------------
Assets
------
Current Assets:
Cash $ 5,058 $ 148,873
Due from Affiliates 524,747 872,843
Other Receivables 3,292 31,300
---------- ------------
Total Current Assets 533,097 1,053,016
---------- ------------
Investments in Partnerships 17,967 16,995
---------- ------------
Total Assets $ 551,064 $ 1,070,011
========== ============
Liabilities and Stockholder's Equity
------------------------------------
Current Liabilities - Accounts Payable $ 34,264 $ 204,340
Stockholder's Equity
Common Stock, $1 par value. Authorized
100,000 shares; issued 600 shares 600 600
Contributed Capital 306,541 306,541
Accumulated Retained Earnings 209,659 558,530
---------- ------------
Total Stockholder's Equity 516,800 865,671
---------- ------------
Total Liabilities and Stockholder's Equity $ 551,064 $ 1,070,011
========== ============
</TABLE>
See accompanying condensed notes to financial statements.
I-32
<PAGE>
WELLS CAPITAL, INC.
Statements of Earnings
(Unaudited)
Eight Months Ended
------------------
August 31, 1997 August 31, 1996
--------------- ---------------
Revenues - Acquisition and
Advisory Fees $ 648,392 $ 679,303
Expenses:
Legal and Accounting 82,748 12,479
Salaries and Wages 829,274 586,623
Rent 15,449 15,449
General and Administrative 69,792 75,294
--------- --------
Total Expenses 997,263 689,845
--------- --------
Net Loss $(348,871) $ (10,542)
========= =========
See accompanying condensed notes to financial statements.
I-33
<PAGE>
WELLS CAPITAL, INC.
Statement of Stockholder's Equity
(Unaudited)
For the Eight Months Ended August 31, 1997 and the Year Ended December 31, 1996
<TABLE>
<CAPTION>
Total
Common Contributed Accumulated Stockholder's
Stock Capital Earnings Equity
----- ------- -------- ------
<S> <C> <C> <C> <C>
Balance at December 31, 1995 600 306,541 69,668 376,809
Net Earnings -- -- 488,862 488,862
------- ------- ------- -------
Balance at December 31, 1996 $ 600 306,541 558,530 865,671
Net Loss -- -- (348,871) (348,871)
------- ------- ------- -------
Balance at August 31, 1997 $ 600 306,541 209,659 516,800
======= ======= ======= =======
</TABLE>
See accompanying condensed notes to financial statements.
I-34
<PAGE>
WELLS CAPITAL, INC.
Statements of Cash Flows
(Unaudited)
Eight Months Ended
------------------
August 31, 1997 August 31, 1996
--------------- ---------------
Cash flows from operating activities:
Net Income $(348,871) $(10,542)
Adjustments to reconcile net earnings
to net cash used in operating activities:
Changes in assets and liabilities:
Due from Affiliates 348,096 (122,276)
Other Receivables 28,008 5,109
Accounts Payable (170,076) 8,349
--------- --------
Total Adjustments 206,028 (108,818)
--------- --------
Net Cash used in Operating
Activities (142,843) (119,360)
Cash flows from investing activities:
Additional investment in limited
partnerships (1,000) (800)
Distribution from limited partnerships 28 179
--------- --------
Net cash (used in) provided by
investing activities (972) (621)
--------- --------
Net decrease in cash (143,815) (119,981)
Cash at beginning of year 148,873 130,457
--------- --------
Cash at end of period $ 5,058 $ 10,476
========= ========
See accompanying condensed notes to financial statements.
I-35
<PAGE>
WELLS CAPITAL, INC.
Condensed Notes to Financial Statements
(Unaudited)
(1) General
-------
The financial statements of Wells Capital, Inc. (the Company) do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
statements have not been examined by independent accountants, but in the
opinion of the management, the statements for the unaudited interim periods
presented include only adjustments, which are of normal and recurring nature,
necessary to present a fair presentation of the results for such periods.
For further information, refer to the financial statements and footnotes
included in the audited report of the Company for the year ended December 31,
1996.
The Company is 100% owned by Wells Real Estate Funds, Inc. which is a
Georgia corporation formed on February 17, 1997, having Leo F. Wells, III
as the sole share owner. The Company is a general partner in Wells Real
Estate Fund I (Fund I), Wells Real Estate Fund II (Fund II), Wells Real
Estate Fund II-OW (Fund II-OW), Wells Real Estate Fund III, L.P. (Fund
III), and Wells Partners, L.P., each a Georgia limited partnership. The
Company, as general partner, paid all the organizational and offering
expenses for Fund I, Fund II, Fund II-OW, and Fund III and was reimbursed
pursuant to such partnerships' respective partnership agreements, each of
which provided that the partnerships could reimburse the Company up to 5%
of total limited partners' contributions in organizational and offering
expenses. The Company is the sole general partner of Wells Partners, L.P.,
which is a general partner of Wells Real Estate Fund IV, L.P. (Fund IV),
Wells Real Estate Fund V, L.P. (Fund V), Wells Real Estate Fund VI, L.P.
(Fund VI), Wells Real Estate Fund VII, L.P. (Fund VII), Wells Real Estate
Fund VIII, L.P. (Fund VIII), Wells Real Estate Fund IX, L.P. (Fund IX),
Wells Real Estate Fund X, L.P. (Fund X) and Wells Real Estate Fund XI, L.P.
(Fund XI) and as such, the Company also paid or is currently paying on
behalf of Wells Partners, L.P. the offering and organizational expenses for
Fund IV, Fund V, Fund VI, Fund VII, Fund VIII, Fund IX, Fund X and Fund XI.
Pursuant to the partnership agreements of Fund IV, Fund V and Fund XI,
these three partnerships can only reimburse the Company for up to 3% of
total limited partners' contributions in offering and organizational
expenses. Pursuant to the partnership agreements of Fund VI, Fund VII, Fund
VIII, Fund IX and Fund X, these partnerships can reimburse the Company for
up to 5% of total limited partners' contributions in offering and
organizational expenses.
I-36
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(a Georgia Limited Partnership)
Balance Sheet
(Unaudited)
August 31, 1997 December 31, 1996
--------------- -----------------
Assets
- ------
Cash $ 600 $ 600
Deferred Offering Costs (note 2) 87,054 84,578
------- -------
Total Assets $87,654 $85,178
======= =======
Liabilities and Partners' Capital
- ---------------------------------
Liabilities, due to Affiliate (note 2) $87,054 $84,578
Partners' Capital:
General Partner 500 500
Limited Partner 100 100
------- -------
Total Partners' Capital 600 600
------- -------
Total Liabilities and Partners' Capital $87,654 $85,178
======= =======
See accompanying notes to the balance sheet.
I-37
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(a Georgia limited partnership)
Notes to Financial Statement
(Unaudited)
August 31, 1997
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund XI, L.P. (the Partnership) is a limited partnership
organized on June 20, 1996, under the laws of the State of Georgia. The
general partners are Leo F. Wells, III and Wells Partners, L.P., a Georgia
limited partnership. Upon subscription for units, each limited partner must
elect whether to have his units treated as Class A Status Units (entitled to
allocation of substantially all of the Partnership's net income without
allocation of any deductions for depreciation, amortization, cost recovery,
or net losses) or Class B Status Units (entitled to a larger share of
deductions for depreciation, amortization, cost recovery and net loss, and a
higher percentage return on appreciation (if any) of real estate investments,
but no current cash distributions). Thereafter, limited partners shall have
the right to change their prior election to have some or all of their Units
treated as Class A Status Units or Class B Status Units one time during each
quarterly accounting period. Limited partners owning a majority of the Units
may vote to, among other things: (a) amend the partnership agreement, subject
to certain limitations, (b) change the business purpose or investment
objectives of the Partnership, (c) remove a general partner, (d) elect a new
general partner, (e) dissolve the Partnership, and (f) approve a sale of
assets, subject to certain limitations. Each limited partnership unit has
equal voting rights, regardless of class. The Partnership had no operations
as of August 30, 1997.
The Partnership intends to acquire on an all cash basis and operate
commercial real estate properties, including properties which are either to
be developed, currently under development or construction, newly constructed,
or have operating histories.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
I-38
<PAGE>
INCOME TAXES
The Partnership is not subject to federal or state income tax, and therefore,
none have been provided for in the accompanying financial statement. The
partners are required to include their respective share of profits and losses
in their individual income tax returns.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, such distributions first are paid
to limited partners holding Class A Status Units until they have received a
10% annual return on their net capital contributions, as defined. Then such
distributions are paid to the general partners until they have received 10%
of the total amount thus far distributed. Any remaining cash available for
distribution is split between the limited partners holding Class A Status
Units and the general partners on a basis of 90% and 10%, respectively. No
such distributions will be made to the limited partners holding Class B
Status Units.
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
Status Units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B Status Units and 1% to the general partners until their
capital accounts are reduced to zero; (b) then to any partner having a
positive balance in his capital account in an amount not to exceed such
positive balance; and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such are
distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to the qualified income offset
provisions of the partnership agreement; (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero; and (c) allocations to limited partners hold Class B Status
Units in amounts equal to the deductions for depreciation, amortization, and
cost recovery previously allocated to them with respect to the specific
partnership property sold, but not in excess of the amount of gain on sale
recognized by the Partnership with respect to the sale of such property.
I-39
<PAGE>
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds will be distributed in the
following order:
. To limited partners holding units which at any time have been treated as
Class B Status Units until they receive an amount necessary to equal the
net cash available for distribution received by the limited partners
holding Class A Status Units;
. To limited partners on a per unit basis until each limited partner has
received 100% of their net capital contribution, as defined;
. To all limited partners on a per unit basis until they receive a cumulative
10% per annum return on their net capital contribution, as defined;
. To limited partners on a per unit basis until they receive an amount equal
to their Preferential Limited Partner Return (defined as the sum of 10% per
annum cumulative return on net capital contributions for all periods during
which the units were treated as Class A Status Units and a 15% per annum
cumulative return on net capital contributions for all periods during which
the units were treated as Class B Status Units);
. To the general partners until they have received 100% of their capital
contributions;
. Then, if and only in the event that limited partners have received any
Excess Limited Partner Distributions (defined as distributions to limited
partners over the life of their investment in the Partnership in excess of
their net capital contributions, as defined, plus their Preferential
Limited Partner Return), to the general partners until they have received
distributions equal to 20% of the sum of any such Excess Limited Partner
Distributions plus distributions made to the general partners pursuant to
this provision; and
. Thereafter 80% to the limited partners on a per unit basis and 20% to the
general partners.
(2) DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
proceeds, will be paid by Wells Capital, Inc. (the "Company"), an affiliate
of the general partners, and not by the Partnership. Organization and
offering expenses do not include sales or underwriting commissions but do
include such costs as legal and accounting fees, printing costs, and other
offering expenses.
I-40
<PAGE>
As of August 31, 1997, the Company had paid organization and offering
expenses related to the Partnership of $87,054. A registration statement
covering both the Partnership and Wells Real Estate Fund X, L.P. was filed
with the Securities and Exchange commission ("SEC") on July 11, 1996. The
registration statement of the Partnership has to be declared effective by the
SEC, and the Partnership would need to receive approximately $1,741,080 in
limited partners' contributions before the liability to the Company would be
paid. At this time, the general partners believe that the registration
statement for the Partnership will be declared effective and that all of the
foregoing organization and offering expenses will be reimbursed by the
Partnership.
(3) RELATED-PARTY TRANSACTIONS
The Partnership may enter into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the
Partnership's properties, the Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) fees that would be
paid to a comparable outside firm, or (b) 4.5% of the gross revenues
generally paid over the life of the lease plus a separate competitive fee for
the one-time initial lease-up of newly constructed properties generally paid
in conjunction with the receipt of the first month's rent. In the case of
commercial properties which are leased on a long-term net basis (ten or more
years), the maximum property management fee from such leases shall be 1% of
the gross revenues generally paid over the life of the leases except for a
one-time initial leasing fee of 3% of the gross revenues on each lease
payable over the first five full years of the original lease term.
The general partners are also general partners or advisors in other real
estate programs. As such, there may exist conflicts of interest where the
general partners while serving in the capacity as general partners or
advisors for other real estate programs may be in competition with the
Partnership for tenants in similar geographic markets.
(4) INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an association
taxable as a corporation for Federal income tax purposes. The Partnership
has requested an opinion of legal counsel as to its tax status prior to its
effectiveness for the offering of limited partnership units, but such an
opinion is not binding upon the Internal Revenue Service.
(5) COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership. In the normal
course of business, the Partnership may become subject to such litigation or
claims.
I-41
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the General Partners or
their Affiliates ("Prior Programs") which have investment objectives similar to
the Partnership.
Prospective investors should read these Tables carefully together with the
summary information concerning the Prior Programs as set forth in "PRIOR
PERFORMANCE SUMMARY" elsewhere in this Prospectus.
INVESTORS IN THE PARTNERSHIP WILL NOT OWN ANY INTEREST IN THE PRIOR
PROGRAMS AND SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR PROGRAMS.
These Tables present actual results of Prior Programs that have investment
objectives similar to those of the Partnership. The Partnership's investment
objectives are to maximize Net Cash From Operations; to preserve original
Capital Contributions; and to realize capital appreciation over a period of
time. All of the General Partners' Prior Programs have used a substantial
amount of capital and not acquisition indebtedness to acquire their properties.
The General Partners are responsible for the acquisition, operation,
maintenance and resale of the Partnership Properties. The financial results of
the Prior Programs thus provide an indication of the General Partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included herein:
TABLE I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
TABLE II - Compensation to Sponsor (in Dollars)
TABLE III - Annual Operating Results of Prior Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in TABLE VI, which is included in the Registration
Statement which the Partnership has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"ACQUISITION FEES" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the partnership or with a general
partner of the partnership in connection with the actual development of a
project after acquisition of the land by the partnership.
"ORGANIZATION EXPENSES" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
general partners or their affiliates in connection with the planning and
formation of the partnership.
"UNDERWRITING FEES" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
A-1
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the General Partners and
their Affiliates in Prior Programs for which offerings have been completed since
December 31, 1993. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VI, L.P. VII, L.P. VIII, L.P. IX, L.P.
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Dollar Amount Raised $25,000,000/(3)/ $24,180,174/(4)/ $32,042,689/(5)/ $35,000,000/(6)/
================ ================ ================ ================
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 5.0% 5.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 1.0% 0.0% 0.0%
---- ---- ---- ----
Percent Available for Investment 84.0% 84.0% 85.0% 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related
to Purchase of Property 0.3% 0.0% 0.0% 0.0%
Cash Down Payment 40.4% 16.3% 6.3% 7.0%
Acquisition Fees/(2)/ 3.7% 3.5% 4.0% 4.0%
Development and Construction Costs 39.6% 64.2% 50.3% 30.0%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 84.0% 84.0% 60.6% 41.0%
---- ---- ---- ----
Percent Leveraged 0.0% 0.0% 0.0% 0.0%
==== ==== ==== ====
Date Offering Began 04/05/93 04/24/94 01/06/95 1/5/96
Length of Offering 12 mo. 12 mo. 12 mo. 12 mo.
Months to Invest 90% of Amount
Available for Investment (Measured
from Beginning of Offering) 15 mo. 12 mo. /(7)/ /(8)/
Number of Investors 1,791 1,865 2,086 2,098
- ------------------------------------
</TABLE>
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to Affiliates of the General Partners.
(3) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VI, L.P. closed its offering on April 4, 1994 and the
total dollar amount raised was $25,000,000.
(4) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VII, L.P. closed its offering on January 5, 1995 and
the total dollar amount raised was $24,180,174.
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund VIII, L.P. closed its offering on January 4, 1996 and
the total dollar amount raised was $32,042,689.
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund IX, L.P. closed its offering on December 30, 1996 and
the total dollar amount raised was $35,000,000.
(7) As of December 31, 1996, Wells Real Estate Fund VIII, L.P. had not yet
invested 90% of the amount available for investment. The amount invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1996 was 44% of the total dollar amount
raised.
(8) As of December 31, 1996, Wells Real Estate Fund IX, L.P. had not yet
invested 90% of the amount available for investment. The amount invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1996 was 17% of the total dollar amount
raised.
A-2
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by General Partners or
Affiliates of the General Partners, including compensation paid out of offering
proceeds and compensation paid in connection with the ongoing operations of
Prior Programs having similar or identical investment objectives the offerings
of which have been completed since December 31, 1993. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1996.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VI, L.P. VII, L.P. VIII, L.P. IX, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 04/05/93 04/06/94 01/06/95 01/05/96 --
Dollar Amount Raised $25,000,000 $24,180,174 $32,042,689 $35,000,000 $125,018,232
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 119,936 $ 178,122 $ 174,295 $ 309,556 $ 451,803
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 932,216 $ 846,306 $ 1,281,708 $ 1,400,000 $ 7,099,169
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 2,780,262 $ 1,943,504 $ 1,228,747 $ 161,427 $ 21,533,226
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 78,975 $ 58,433 $ 26,780 $ 486 $ 791,998
Partnership Management Fee -- -- -- -- --
Reimbursements $ 92,825 $ 90,160 $ 48,429 $ 8,332 $ 1,138,583
Leasing Commissions $ 41,428 $ 39,494 $ 25,209 $ 1,459 $ 817,520
General Partner Distributions -- -- -- -- 15,205
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
- ----------------------------------
</TABLE>
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P. and Wells Real Estate
Fund V, L.P. during the past three years. In addition to the amounts shown,
the General Partners of Wells Real Estate Fund I are entitled to certain
property management and leasing fees but have elected to defer the payment
of such fees until a later year on properties owned by Wells Real Estate
Fund I. At December 31, 1996, the amount of such fees due the General
Partners totaled $1,897,184.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VI, VII, VIII and IX, which were not reallowed to participating
broker-dealers.
(3) Fees paid to the General Partners or their Affiliates for acquisition
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(4) Includes $125,314 in net cash used by operating activities, $2,692,348 in
distributions paid to limited partners and $213,228 in payments to sponsors
for Wells Real Estate Fund VI, L.P.; $32,869 in net cash used by operating
activities, $1,732,250 in distributions paid to limited partners and
$188,087 in payments to sponsor for Wells Real Estate Fund VII, L.P.; $2,443
in net cash used by operating activities, $1,130,772 in distributions paid
to limited partners and $100,418 in payments to sponsor for Wells Real
Estate Fund VIII, L.P.; $1,725 in net cash provided by operating activities,
$149,425 in distributions paid to limited partners and $10,277 in payments
to sponsor for Wells Real Estate Fund IX, L.P.; and $855,331 in net cash
provided by operating activities, $19,618,669 in distributions paid to
limited partners and $2,763,306 in payments to sponsor for other public
programs.
A-3
<PAGE>
TABLE III
(UNAUDITED)
The tables on the following five (5) pages set forth operating results
of prior programs sponsored by the General Partners the offerings of which have
been completed since December 31, 1991. The information relates only to public
programs with investment objectives similar to those of the Partnership. All
figures are as of December 31 of the year indicated.
A-4
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND V, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ----------- ------------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 590,839 $ 764,624 $ 656,958 $ 458,213 $ 58,640
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 78,939 68,735 88,987 96,964 71,521
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 5,208
---------- ---------- ----------- ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 505,650 $ 689,639 $ 561,721 $ 354,999 $ (18,089)
========== ========== =========== =========== ===========
Taxable Income (Loss): Operations $ 666,780 $ 676,367 $ 528,025 $ 280,000 $ (18,089)
========== ========== =========== =========== ===========
Cash Generated (Used By):
Operations (65,728) (46,235) (10,395) 112,594 (33,006)
Joint Ventures 1,072,835 1,020,905 653,729 54,154 --
---------- ---------- ----------- ----------- -----------
$1,007,107 $ 974,670 $ 643,334 $ 166,748 $ (33,006)
Less Cash Distributions to Investors:
Operating Cash Flow 1,007,107 969,011 643,334 151,336 --
Return of Capital -- -- 44,257 -- --
Undistributed Cash Flow from
Prior Year Operations 3,672 -- 15,412
---------- ---------- ----------- ----------- -----------
Cash Generated (Deficiency) after
Cash Distributions $ (3,672) $ 5,659 $ (59,669) $ 15,412 $ (33,006)
Special Items (not including sales
and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- 5,589,786 11,416,234
---------- ---------- ----------- ----------- -----------
$ -- $ 5,659 $ (59,699) $ 5,605,198 $11,383,228
Use of Funds:
Sales Commissions and Offering Expenses -- -- 764,599 1,377,645
Return of Original Limited Partner's
Investment -- -- -- 100
Property Acquisitions and Deferred
Project Costs (225) (233,501) 2,366,507 7,755,116 4,181,338
---------- ---------- ----------- ----------- -----------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ (3,897) $ (227,842) $(2,426,206) $(2,914,517) $ 5,824,145
========== ========== =========== =========== ===========
Net Income and Distributions Data per
$1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 71 73 58 29 0
- Operations Class B Units (378) (272) (180) (54) (65)
Capital Gain (Loss) 0 0 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 69 69 55 36 --
- Operations Class B Units (260) (246) (181) (58) (21)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 65 63 46 10 --
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 65 63 43 10 --
- Return of Capital Class A Units -- -- 3 -- --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining
Invested in Program Properties at the
end of the Last Year Reported in the Table 100%
- -----------------------------------------
</TABLE>
(1) Includes $19,125 in equity in loss of joint ventures and $77,765 from
investment of reserve funds in 1992; $207,234 in equity in earnings of
joint ventures and $250,979 from investment of reserve funds in 1993;
$592,902 in equity in earnings of joint ventures and $64,056 from
investment of reserve funds in 1994; $745,173 in equity in earnings of
joint ventures and $19,451 from investment of reserve funds in 1995; and
$577,128 in equity in earnings of joint ventures and $13,711 from
investment of reserve funds in 1996. At December 31, 1996, the leasing
status of all developed property was 92%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $100,796 for 1993, $324,578 for 1994,
$440,333 for 1995 and $591,390 for 1996.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $(17,908) to Class
B Limited Partners and $(181) to General Partners for 1992; $442,135 to
Class A Limited Partners, $(87,868) to Class B Limited Partners and $732 to
General Partners for 1993; $879,232 to Class A Limited Partners, $(316,460)
to Class B Limited Partners and $(1,051) to General Partners for 1994;
$1,124,203 to Class A Limited Partners and $(434,564) to Class B Limited
Partners and $0 for 1995; and $1,095,296 to Class A Limited Partners and
$(589,646) to Class B Limited Partners for 1996.
A-5
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ -------------- ------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 675,782 $ 1,002,567 $ 819,535 $ 82,723 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 80,479 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 4,687
---------- ------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 589,053 $ 901,828 $ 700,896 $ 31,428
========== ============ =========== ===========
Taxable Loss: Operations $ 809,389 $ 916,531 $ 667,682 $ 31,428
========== ============ =========== ===========
Cash Generated (Used By):
Operations (2,716) 278,728 276,376 (2,478)
Joint Ventures 1,044,891 766,212 203,543 --
---------- ------------ ----------- -----------
$1,042,175 $ 1,044,940 $ 479,919 $ (2,478)
Less Cash Distributions to Investors:
Operating Cash Flow 1,042,175 1,044,940 245,800 --
Return of Capital 125,314 -- -- --
Undistributed Cash Flow from Prior Year Operations 18,027 216,092 -- --
---------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (143,341) $ (216,092) $ 234,119 $ (2,478)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- 12,163,461 12,836,539
---------- ------------ ----------- -----------
$ -- $ -- $12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses -- 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 234,924 10,721,376 5,912,454 3,856,239
---------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (378,265) $(10,937,468) $ 4,708,217 $ 7,195,998
========== ============ =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 59 57 43 9
- Operations Class B Units (160) (60) (12) (5)
Capital Gain (Loss) -- -- -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 56 56 41 1
- Operations Class B Units (99) (51) (22) --
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 56 57 14 --
- Return of Capital Class A Units -- 4 -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 50 61 14 --
- Return of Capital Class A Units 6 -- -- --
- Operations Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
- ------------------------------------
</TABLE>
(1) Includes $3,436 in equity in loss of joint ventures and $86,159 from
investment of reserve funds in 1993, $285,711 in equity in earnings of
joint ventures and $533,824 from investment of reserve funds in 1994,
$681,033 in equity in earnings of joint ventures and $321,534 from
investment of reserve funds in 1995 and $607,214 in equity in earnings of
joint ventures and $68,568 from investment of reserve funds in 1996. At
December 31, 1996, the leasing status was 93%.
(2) Includes partnership administrative expenses.
(3) Included in equity in loss of joint ventures in gross revenues is
depreciation of $3,436 for 1993, $107,807 for 1994, and $264,866 for 1995
and $648,478 for 1996.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $39,551 to Class A Limited
Partners, $(8,042) to Class B Limited Partners and $(81) to the General
Partner for 1993; $762,218 to Class A Limited Partners, $(62,731) to Class
B Limited Partners and $1,409 to the General Partners for 1994; $1,172,944
to Class A Limited Partners, $(269,288) to Class B Limited Partners and
$(1,828) to the General Partners for 1995; and $1,234,717 to Class A
Limited Partners, $(645,664) to Class B Limited Partners and $0 to the
General Partners for 1996.
A-6
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ -------------- ------------- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 543,291 $ 925,246 $ 286,371 N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 4,688
--------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 452,776 $ 804,043 $ 203,263
========= ============ ===========
Taxable Income: Operations $ 657,443 $ 812,402 $ 195,067
========= ============ ===========
Cash Generated (Used By):
Operations 20,883 431,728 47,595
Joint Ventures 760,628 424,304 14,243
--------- ------------ -----------
$ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 781,511 856,032 52,195
Return of Capital 10,805 22,064 --
Undistributed Cash Flow from Prior Year Operations -- 9,643 --
--------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (10,805) $ (31,707) $ 9,643
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions $ -- $ 805,212 $23,374,961
--------- ------------ -----------
$ -- $ 773,505 $23,384,604
Use of Funds:
Sales Commissions and Offering Expenses -- 244,207 3,351,569
Return of Original Limited Partner's Investment -- 100 --
Property Acquisitions and Deferred Project Costs 736,960 14,971,002 4,477,765
--------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(747,765) $(14,441,804) $15,555,270
========= ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 62 57 29
- Operations Class B Units (98) (20) (9)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 55 55 28
- Operations Class B Units (58) (16) 17
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 43 52 7
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 42 51 7
- Return of Capital Class A Units 1 1 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment income Class A Units 29 30 4
- Return of Capital Class A Units 14 22 3
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
- ------------------------------------------
</TABLE>
(1) Includes $78,799 in equity in earnings of joint ventures and $207,572 from
investment of reserve funds in 1994, and $403,325 in equity in earnings of
joint ventures and $521,921 from investment of reserve funds in 1995 and
$457,144 in equity in earnings of joint ventures and $86,147 from
investment of reserve funds in 1996. At December 31, 1996, the leasing
status was 90% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, $140,533 for 1995 and $605,247 for 1996.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $233,337 to Class A Limited
Partners, $(29,854) to Class B Limited Partners and $(220) to the General
Partner for 1994; $950,826 to Class A Limited Partners, $(146,503) to Class
B Limited Partners and $(280) to the General Partners for 1995; and
$1,062,605 to Class A Limited Partners, $(609,829) to Class B Limited
Partners and $0 to the General Partners for 1996.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1996, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$659,487.
A-7
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------ ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $1,057,694 $ 402,428 N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250
---------- -----------
Net Income GAAP Basis/(4)/ $ 936,590 $ 273,914
========== ===========
Taxable Income: Operations $1,001,974 $ 404,348
========== ===========
Cash Generated (Used By):
Operations 623,268 204,790
Joint Ventures 279,984 20,287
---------- -----------
$ 903,252 $ 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 903,252 --
Return of Capital 2,443 --
Undistributed Cash Flow from Prior Year Operations 222,077 --
---------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (227,520) $ 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions/(5)/ 1,898,147 30,144,542
---------- -----------
$1,670,627 $30,369,619
Use of Funds:
Sales Commissions and Offering Expenses 464,760 4,310,028
Return of Original Limited Partner's Investment -- --
Property Acquisitions and Deferred Project Costs 7,931,566 6,618,273
---------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $6,725,699 $19,441,318
========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 46 28
- Operations Class B Units (47) (3)
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 46 17
- Operations Class B Units (33) (3)
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 43 --
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 32 --
- Return of Capital Class A Units 11 --
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 33 --
- Return of Capital Class A Units 10 --
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
- --------------------------------
</TABLE>
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995 and $241,819 in equity in earnings of
joint ventures and $815,875 from investment of reserve funds in 1996. At
December 31, 1996, the leasing status was 93% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995 and $265,259 for 1996.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995; and $1,207,540 to Class A Limited Partners, $(270,653)
to Class B Limited Partners and $(297) to the General Partners for 1996.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1996, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$250,776.
A-8
<PAGE>
TABLE III
(UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 406,891 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 101,885
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 298,756
===========
Taxable Income: Operations $ 304,552
===========
Cash Generated (Used By):
Operations $ 151,150
Joint Ventures --
-----------
$ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 149,425
-----------
Cash Generated (Deficiency) after Cash Distributions $ 1,725
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions 35,000,000
-----------
$35,001,725
Use of Funds:
Sales Commissions and Offering Expenses 4,900,321
Return of Original Limited Partner's Investment --
Property Acquisitions and Deferred Project Costs 6,544,019
-----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $23,557,385
===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 28
- Operations Class B Units (11)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 26
- Operations Class B Units (48)
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 13
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units 13
- Return of Capital Class A Units --
- Operations Class B Units --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 10
- Return of Capital Class A Units 3
- Return of Capital Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
- ---------------------------------------------
</TABLE>
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996. At December 31, 1996, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1996, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$36,355.
A-9
<PAGE>
EXHIBIT B
FORM OF AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
WELLS REAL ESTATE FUND XI, L.P.
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
TABLE OF CONTENTS TO PARTNERSHIP AGREEMENT
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
I FORMATION.................................................................... B-1
II NAME......................................................................... B-1
III DEFINITIONS.................................................................. B-1
IV BUSINESS..................................................................... B-7
V NAMES AND ADDRESSES OF PARTNERS.............................................. B-7
VI TERM......................................................................... B-8
VII PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT......................... B-8
VIII CAPITAL CONTRIBUTIONS........................................................ B-8
IX DISTRIBUTIONS................................................................ B-13
X ALLOCATIONS.................................................................. B-16
XI MANAGEMENT OF THE PARTNERSHIP................................................ B-20
XII SERVICES TO PARTNERSHIP BY GENERAL PARTNERS.................................. B-29
XIII TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP.................... B-31
XIV INDEPENDENT ACTIVITIES OF PARTNERS........................................... B-32
XV BOOKS, REPORTS, FISCAL AND TAX MATTERS....................................... B-32
XVI RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS............................... B-36
XVII WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS.............................................. B-37
XVIII LOANS TO PARTNERSHIP......................................................... B-40
XIX POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS.......................... B-41
XX DISSOLUTION AND TERMINATION OF THE PARTNERSHIP............................... B-43
XXI DISTRIBUTION ON TERMINATION OF PARTNERSHIP................................... B-45
XXII GENERAL PROVISIONS........................................................... B-46
</TABLE>
<PAGE>
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS REAL ESTATE FUND XI, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into effective as of the 31st day of December, 1997, by and among LEO
F. WELLS, III, a Georgia resident, and WELLS PARTNERS, L.P., a Georgia limited
partnership, as the General Partners, and BRIAN M. CONLON, a Georgia resident,
as the Initial Limited Partner, and those parties who from time to time become
Limited Partners as provided in this Agreement, as the Limited Partners.
WHEREAS, on June 20, 1996, a Certificate of Limited Partnership was filed
with the Secretary of State of the State of Georgia, pursuant to which the
General Partners and the Initial Limited Partner formed a limited partnership
(the "Partnership") under the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq. (the "Act"); and
WHEREAS, the parties hereto desire to amend, restate and supersede in its
entirety the original partnership agreement pursuant to the terms and provisions
of this Amended and Restated Agreement of Limited Partnership.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions herein contained, the parties hereto hereby agree, and the
limited partnership agreement of the Partnership shall hereafter be restated and
amended in its entirety, as follows:
ARTICLE I
FORMATION
The General Partners have executed and filed a Certificate of Limited
Partnership dated June 20, 1996, with the Secretary of State of the State of
Georgia in accordance with the provisions of Section 14-9-201 of the Act,
pursuant to which the parties hereto have previously formed the Partnership.
ARTICLE II
NAME
The business of the Partnership shall be conducted under the name of "WELLS
REAL ESTATE FUND XI, L.P." or such other name as the General Partners shall
hereafter designate in their discretion from time to time.
ARTICLE III
DEFINITIONS
3.1 "ACT" shall mean the provisions of the Georgia Revised Uniform Limited
Partnership Act, O.C.G.A. (S)14-9-100, et seq.
3.2 "ACQUISITION EXPENSES" shall mean expenses, including, but not limited
to, legal fees and expenses, travel and communications expenses, costs of
appraisals, nonrefundable option payments on property notacquired, accounting
fees
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and expenses, title insurance and miscellaneous expenses related to selection
and acquisition of properties, whether or not acquired.
3.3 "ACQUISITION FEES" shall mean the total of all fees and commissions
paid by any party to any Person in connection with the purchase, development or
construction of property by the Partnership, including the Acquisition and
Advisory Fees payable to the General Partners or their Affiliates, real estate
brokerage commissions, investment advisory fees, finder's fees, selection fees,
Development Fees, Construction Fees, nonrecurring management fees, or any other
fees of a similar nature, however designated, but excluding any Development Fees
and Construction Fees paid to a Person not affiliated with the Sponsor in
connection with the actual development or construction of a property.
3.4 "ACQUISITION AND ADVISORY FEE" shall mean the fee payable to the
General Partners or their Affiliates pursuant to Section 12.1 hereof for
performing acquisition advisory services in connection with the review and
evaluation of potential real property acquisitions for the Partnership.
3.5 "ADDITIONAL LIMITED PARTNERS" shall refer to all persons who are
admitted as Limited Partners pursuant to the provisions hereof.
3.6 "AFFILIATE" shall mean (a) any Person directly or indirectly
controlling, controlled by or under common control with a General Partner, (b)
any Person owning or controlling 10% or more of the outstanding voting
securities of a General Partner, (c) any officer, director or partner of a
General Partner, and (d) if such other Person is an officer, director or
partner, any company for which a General Partner acts in any such capacity.
3.7 "AGREEMENT" shall mean this Agreement of Limited Partnership as
amended, modified or supplemented from time to time.
3.8 "ASSIGNEE" shall mean a Person who has acquired a Limited Partner's
beneficial interest in one or more Units and has not become a substituted
Limited Partner.
3.9 "CAPITAL ACCOUNT" shall mean the account established and maintained
for each Partner pursuant to Section 8.1 hereof.
3.10 "CAPITAL CONTRIBUTION" shall mean, in the case of the General
Partners, the aggregate amount of cash contributed by the General Partners to
the Partnership and, in the case of a Limited Partner, the gross amount of
investment in the Partnership by such Limited Partner, which shall be an amount
equal to $10.00 multiplied by the number of Units purchased by such Limited
Partner.
3.11 "CASH FLOW" shall mean cash funds from operations of the Partnership,
including without limitation interest and other investment income but excluding
Capital Contributions and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
3.12 "CERTIFICATE" shall mean the Certificate of Limited Partnership filed
by the General Partners with the Secretary of State of Georgia dated June 20,
1996.
3.13 "CLASS A STATUS UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class A Status Unit for the applicable
accounting period.
3.14 "CLASS B STATUS UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class B Status Unit for the applicable
accounting period.
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3.15 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
3.16 "CONSTRUCTION FEES" shall mean any fees or other remuneration for
acting as general contractor and/or construction manager to construct, supervise
and/or coordinate improvements in connection with the actual development or
construction of a Partnership Property.
3.17 "DEVELOPMENT FEES" shall mean any fees or other remuneration for the
packaging of a Partnership Property, including negotiating and approving plans,
assisting in obtaining zoning and necessary variances for a specific property,
and related matters.
3.18 "DISSENTING LIMITED PARTNER" shall mean any Limited Partner who casts
a vote against a Roll-Up; except that, for purposes of a transaction
constituting a Roll-Up which involves an exchange or a tender offer, Dissenting
Limited Partner shall mean any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or tenders to be
received in connection with the transaction during the period in which the offer
is outstanding.
3.19 "DISTRIBUTION REINVESTMENT PLAN" shall mean the plan established
pursuant to Section 8.15 hereof.
3.20 "EVENT OF WITHDRAWAL" shall mean, as to the General Partners (a) the
dissolution, death or permanent disability of a General Partner; (b) if such
General Partner (i) makes an assignment for the benefit of the creditors; (ii)
files a voluntary petition in bankruptcy; (iii) is adjudicated a bankrupt or
insolvent; (iv) files a petition or answer speaking for himself or itself in the
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation; (v) files an answer or
other pleading admitting or failing to contest the material allegations of the
petition filed against him or it in any proceeding of this nature; (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of such General Partner of all or a substantial part of his or its
property; or (c) upon (i) the filing of a certificate of dissolution of a
General Partner or the revocation of a General Partner's charter and lapse of 90
days after notice to the General Partner of revocation without reinstatement of
its charter; (ii) 120 days after the commencement of any proceeding against a
General Partner seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
if the proceeding has not been dismissed; or (iii) the expiration of 90 days
after the appointment without such General Partner's consent or acquiescence of
a trustee, receiver or liquidator of such General Partner or of all or any
substantial part of its properties, the appointment of which is not vacated or
stayed within 90 days after the expiration of any stay or, if within 90 days
after the expiration of any stay the appointment is not vacated. If there is at
least one remaining General Partner, an Event of Withdrawal of a General Partner
shall be effective as of the date of any such event; however, if an Event of
Withdrawal shall occur with respect to the last remaining General Partner, the
Event of Withdrawal shall not be effective until 120 days after the event giving
rise to the Event of Withdrawal has occurred.
3.21 "EXPIRATION DATE" shall mean the date on which the Offering terminates
as provided in the Prospectus.
3.22 "FRONT-END FEES" shall mean fees and expenses paid by any party for
any services rendered during the Partnership's organizational or acquisition
phase including Organization and Offering Expenses, Acquisition Fees (including
Acquisition and Advisory Fees), Acquisition Expenses, interest on deferred fees
and expenses, if applicable, and any other similar fees, however designated.
3.23 "GAIN ON SALE" shall mean the taxable income or gain for federal
income tax purposes (including gain exempt from tax) in the aggregate for each
fiscal year from the sale, exchange or other disposition of all or any portion
of a Partnership asset after netting losses from such sales, exchanges or other
dispositions against the gains from such transactions.
3.24 "GENERAL PARTNERS" shall refer collectively to Leo F. Wells, III and
Wells Partners, or any other Person or Persons who succeed any or all of them in
that capacity.
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3.25 "GROSS REVENUES" shall mean all amounts actually collected as rents or
other charges for the use and occupancy of Partnership Properties, but shall
exclude interest and other investment income of the Partnership and proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership.
3.26 "IRS" means Internal Revenue Service.
3.27 "INITIAL LIMITED PARTNER" shall mean Brian M. Conlon.
3.28 "INDEPENDENT EXPERT" shall mean a Person with no material current or
prior business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership and who is qualified to perform such
work.
3.29 "INVESTMENT IN PROPERTIES" shall mean the amount of Capital
Contributions actually paid or allocated to the purchase, development,
construction or improvement of properties acquired by the Partnership (including
the purchase of properties, working capital reserves allocable thereto [except
that working capital reserves in excess of 5% shall not be included] and other
cash payments such as interest and taxes, but excluding Front-End Fees).
3.30 "LIMITED PARTNERS" shall refer to the Initial Limited Partner, the
Additional Limited Partners and to all other Persons who are admitted to the
Partnership as additional or substituted Limited Partners.
3.31 "LIQUIDATING DISTRIBUTIONS" shall mean the net cash proceeds received
by the Partnership from (a) the sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of substantially all of the assets of the
Partnership or the last remaining assets of the Partnership or (b) a liquidation
of the Partnership's assets in connection with a dissolution of the Partnership,
after (i) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition or liquidation, including real
estate commissions, if applicable, (ii) the payment of any outstanding
indebtedness and other liabilities of the Partnership, (iii) any amounts used to
restore any such assets of the Partnership, and (iv) any amounts set aside as
reserves which the General Partners in their sole discretion may deem necessary
or desirable.
3.32 "MAJORITY VOTE" shall mean the affirmative vote or written consent of
Limited Partners then owning of record more than 50% of the outstanding Units of
the Partnership, without distinction as to the class of such Units; provided,
however, that any Units owned or otherwise controlled by the General Partners or
their Affiliates may not be voted and will not be included in the total number
of outstanding Units for purposes of this definition.
3.33 "MINIMUM GAIN" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(d).
3.34 "MINIMUM OFFERING" shall mean the receipt and acceptance by the
General Partners of subscriptions for Units aggregating at least $1,250,000 in
offering proceeds.
3.35 "MINIMUM OFFERING EXPIRATION DATE" shall mean six (6) months after the
commencement of the Offering of the Units.
3.36 "NASAA GUIDELINES" shall mean the Statement of Policy Regarding Real
Estate Programs of the North American Securities Administrators Association,
Inc. adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
3.37 "NET CAPITAL CONTRIBUTION" shall mean, with respect to any Partner,
the Partner's Capital Contribution as reduced from time to time by distributions
to such Partner constituting a return of unused capital pursuant to Section 8.10
hereof or by distributions to such Partner of Nonliquidating Net Sale Proceeds
and Liquidating Distributions pursuant to
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Sections 9.2 and 9.4 hereof, but excluding distributions made to Limited
Partners pursuant to Section 9.2(a) hereof, and without reduction for
distributions of Net Cash From Operations made pursuant to Section 9.1 hereof.
3.38 "NET CASH FROM OPERATIONS" shall mean Cash Flow, less adequate cash
reserves for other obligations of the Partnership for which there is no
provision and the Repurchase Reserve, if any.
3.39 "NET INCOME" or "NET LOSS" shall mean the net income or loss realized
or recognized by the Partnership for a fiscal year, as determined for federal
income tax purposes, including any income exempt from tax, but excluding all
deductions for depreciation, amortization and cost recovery and Gain on Sale.
3.40 "NONLIQUIDATING NET SALE PROCEEDS" shall mean the net cash proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership, which does
not constitute substantially all of the remaining assets of the Partnership,
after (a) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition, including real estate commissions,
if applicable, (b) the payment of any outstanding indebtedness and other
Partnership liabilities relating to such assets, (c) any amounts used to restore
any such assets of the Partnership, and (d) any amounts set aside as reserves
which the General Partners in their sole discretion may deem necessary or
desirable.
3.41 "OFFERING" shall mean the offering and sale of Units to the public
pursuant to the terms and conditions set forth in the Prospectus.
3.42 "ORGANIZATION AND OFFERING EXPENSES" shall mean those expenses
incurred in connection with organizing the Partnership, preparing the
Partnership for registration and subsequently offering and distributing the
Units to the public, including without limitation, legal and accounting fees,
sales commissions paid to broker-dealers in connection with the distribution of
the Units and all advertising expenses.
3.43 "PARTICIPATING PERCENTAGE" shall mean at any given time, as to each
holder of a Unit or Units, the percentage of that Person's Unit or Units to the
total Units being measured and shall be determined by dividing the total number
of Units held by such Person by the total number of outstanding Units in the
class or classes being measured and multiplying the quotient thereof by 100.
3.44 "PARTNERS" shall refer collectively to the General Partners and to the
Limited Partners, and reference to a "Partner" shall be to any one of the
Partners.
3.45 "PARTNERSHIP" shall refer to the limited partnership created under
this Agreement.
3.46 "PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" shall mean any and
all land and improvements purchased or constructed by the Partnership and all
repairs, replacements or renewals thereof, together with all personal property
acquired by the Partnership which is from time to time located thereon or
specifically used in connection therewith.
3.47 "PERSON" shall mean any natural person, partnership, corporation,
association, or other legal entity, including without limitation, qualified
pension and profit sharing trusts.
3.48 "PREFERENTIAL LIMITED PARTNER RETURN" shall mean with respect to each
Limited Partner Unit the sum of (a) a cumulative (but not compounded) 10% per
annum return on a Limited Partner's Net Capital Contribution with respect to
such Unit for all periods during which such Unit was treated as a Class A Status
Unit, and (b) a cumulative (but not compounded) 15% per annum return on such
Limited Partner's Net Capital Contribution with respect to such Unit for all
periods during which such Unit was treated as a Class B Status Unit. Each
Limited Partner's Preferential Limited Partner Return shall be calculated from
the date on which such Limited Partner's initial Capital Contribution was made
to the Partnership.
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3.49 "PRIOR WELLS PUBLIC PROGRAMS" shall mean public real estate limited
partnerships or other publicly registered programs or entities previously or
currently sponsored by the General Partners or their Affiliates having
substantially identical investment objectives as the Partnership.
3.50 "PROSPECTUS" shall mean the prospectus used by the Partnership in
connection with its offer and sale of Units pursuant to a Registration Statement
filed under the Securities Act of 1933, as amended.
3.51 "PURCHASE PRICE" shall mean the sum of the prices paid for all
properties by the Partnership (including all Acquisition Fees, liens and
mortgages on the properties, but excluding points and prepaid interest) plus all
costs of improvements, if any, reasonably and properly allocable to the
properties.
3.52 "REGISTRATION STATEMENT" shall mean the registration statement filed
by the Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
3.53 "REPURCHASE RESERVE" shall mean the cash reserve established under
Section 11.3(h) hereof, which may be used to repurchase Units from the Limited
Partners in accordance with Section 8.11 hereof.
3.54 "RETIREMENT PLANS" shall mean Individual Retirement Accounts
established under Section 408 of the Code and Keogh or corporate pension or
profit sharing plans established under Section 401(a) of the Code.
3.55 "ROLL-UP" shall mean any transaction or series of transactions that
through acquisition or otherwise involves the combination, reorganization,
merger, conversion or consolidation, either directly or indirectly, of the
Partnership and either the offer, sale or issuance of securities of a Roll-Up
Entity or the acquisition of the Roll-Up Entity's securities by the Partnership;
provided, however, that such term does not include a transaction that (a)
involves securities of the Partnership that have been listed for at least 12
months on a national securities exchange or traded through the National
Association of Securities Dealers Automated Quotation National Market System; or
(b) involves the conversion to corporate, trust or association form of only the
Partnership if, as a consequence of the transaction, there will be no
significant adverse change in any of the following: (i) Limited Partners' voting
rights, (ii) the term of existence of the Partnership, (iii) compensation to the
General Partners or their Affiliates, or (iv) the Partnership's investment
objectives.
3.56 "ROLL-UP ENTITY" shall mean a partnership, real estate investment
trust, corporation, trust or other entity that would be created or would survive
after the successful completion of a proposed Roll-Up.
3.57 "ROLL-UP TRANSACTION COSTS" shall mean the costs of printing and
mailing the proxy, prospectus, or other documents; legal fees; financial
advisory fees; investment banking fees; appraisal fees; accounting fees;
independent committee expenses; travel expenses; and all other fees relating to
the preparatory work of the transaction, but not including costs that would have
otherwise been incurred by the subject limited partnerships in the ordinary
course of business.
3.58 "SALE DATE" shall mean the day on which the Partnership realizes any
gain or loss from the sale, exchange or other disposition of Partnership assets
which it is required to allocate to the Partners under Section 10.4 hereof.
3.59 "SPONSOR" shall mean any individual, partnership, corporation or other
legal entity which (i) is directly or indirectly instrumental in organizing,
wholly or in part, the Partnership, (ii) will manage or participate in the
management of the Partnership, and any Affiliate of any such Person, other than
a Person whose only relationship with the Partnership is that of an independent
property manager, whose only compensation is as such, (iii) takes the
initiative, directly or indirectly, in founding or organizing the Partnership,
either alone or in conjunction with one or more other Persons, (iv) receives a
material participation in the Partnership in connection with the founding or
organizing of the business of the Partnership, in consideration of services or
property, or both services and property, (v) has a substantial number of
relationships and contacts with the Partnership, (vi) possesses significant
rights to control Partnership Properties, (vii)
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receives fees for providing services to the Partnership which are paid on a
basis that is not customary in the industry, or (viii) provides goods or
services to the Partnership on a basis which was not negotiated at arm's-length
with the Partnership.
3.60 "TREASURY REGULATIONS" shall mean the Income Tax Regulations
promulgated under the Code by the United States Treasury Department.
3.61 "UNIT" shall mean the limited partnership interest entitling the
holder thereof to all rights and benefits under this Agreement including, but
not limited to, an interest in the income, loss, distributions and capital of
the Partnership to be allocated to holders of Units, as set forth in Articles IX
and X hereof. Limited Partners holding Units shall have the right to elect to
have their Units treated as Class A Status Units or Class B Status Units
pursuant to the provisions of Section 8.16 hereof. All Units, whether they be
treated as Class A Status Units or Class B Status Units, shall represent a
Capital Contribution of $10.00 each (irrespective of the fact that because of
discounts in sales commissions and other fees under certain circumstances,
certain Units may be sold and issued for a gross consideration of less than
$10.00 per Unit), shall be issued as fully paid and nonassessable and shall have
the same rights, privileges and preferences except as expressly provided herein.
3.62 "WELLS CAPITAL" shall mean Wells Capital, Inc., a Georgia corporation.
3.63 "WELLS PARTNERS" shall mean Wells Partners, L.P., a Georgia limited
partnership.
ARTICLE IV
BUSINESS
4.1 PURPOSE. The principal purpose of the Partnership is to acquire,
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develop, construct, own, operate, improve, lease and otherwise manage for
investment purposes, either alone or in association with others, a diversified
portfolio of income-producing commercial or industrial properties as shall from
time to time be acquired by the Partnership and to engage in any or all general
business activities related to or incidental to such principal purpose.
4.2 OBJECTIVES. The business of the Partnership shall be conducted with
----------
the following objectives:
(a) To maximize Net Cash From Operations;
(b) To preserve, protect and return the Partners' investment in the
Partnership; and
(c) To realize appreciation in value of Partnership Properties.
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
The names of the General Partners are Wells Partners, L.P., a Georgia
limited partnership, and Leo F. Wells, III. The name of the Initial Limited
Partner is Brian M. Conlon. The business address of the General Partners and
the Initial Limited Partner is 3885 Holcomb Bridge Road, Norcross, Georgia
30092. The names and addresses of all the Additional Limited Partners shall be
set forth in the books and records of the Partnership.
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ARTICLE VI
TERM
The Partnership term commenced upon the filing of the Certificate and shall
continue until December 31, 2026, unless sooner terminated as hereinafter
provided.
ARTICLE VII
PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT
The principal and registered office of the Partnership shall be 3885
Holcomb Bridge Road, Norcross, Georgia 30092. The General Partners may from
time to time change the principal place of business and, in such event, shall
notify the Limited Partners in writing of the change and the effective date of
such change. The registered agent for the Partnership at such address shall be
Wells Capital, Inc.
ARTICLE VIII
CAPITAL CONTRIBUTIONS
8.1 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained for
----------------
each Partner. The Capital Accounts of the Partners shall be determined and
maintained throughout the term of the Partnership in accordance with the capital
accounting rules of Treasury Regulations Section 1.704-1(b), as it may be
amended or revised from time to time.
8.2 GENERAL PARTNERS. The General Partners shall make Capital
----------------
Contributions to the Partnership as follows:
<TABLE>
<CAPTION>
Name Dollar Amount
---- -------------
<S> <C>
Wells Partners, L.P. $400
Leo F. Wells, III 100
----
Total $500
</TABLE>
8.3 GENERAL PARTNER PURCHASE OF UNITS. The Capital Contributions of the
---------------------------------
General Partners, together with the Capital Contribution of the Initial Limited
Partner, shall constitute the initial capital of the Partnership and shall not
entitle the General Partners to any Units. The General Partners may, in their
discretion, make additional Capital Contributions to the capital of the
Partnership in exchange for the purchase of Units. Any General Partner who
purchases Units shall continue, in all respects, to be treated as a General
Partner but shall receive the income, losses and cash distributions with respect
to any Units purchased by such General Partner on the same basis as other
Partners may receive with respect to their Units. Units purchased by the
General Partners or their Affiliates shall not be entitled to vote on any
transaction requiring Limited Partner approval.
8.4 INITIAL LIMITED PARTNER. The Initial Limited Partner shall contribute
-----------------------
$100 in cash to the Partnership and agrees that his interest shall automatically
be redeemed for $100 upon the admission of any Additional Limited Partners to
the Partnership.
8.5 LIMITED PARTNER CONTRIBUTIONS. The General Partners are authorized
-----------------------------
and directed to raise capital for the Partnership as provided in the Prospectus
by offering and selling not more than an aggregate of 3,500,000 Units as
follows:
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(a) Each Unit shall be issued for a purchase price of $10.00 less any
discounts authorized in the Prospectus.
(b) Except as set forth below, the minimum purchase of either class
or combination of Units shall be 100 Units (or such greater minimum number of
Units as may be required under applicable state or federal laws). Except in
certain states, subscribers who have satisfied the minimum purchase requirements
and have purchased units in Prior Wells Public Programs may purchase less than
the minimum number of Units described above, but in no event less than 2.5
Units. In addition, after subscribers have satisfied the minimum purchase
requirements, the minimum additional investment in the Partnership shall not be
less than 2.5 Units. Fractional Units may be sold at the discretion of the
General Partners. Notwithstanding the foregoing, the provisions set forth above
relating to the minimum number of Units which may be purchased shall not apply
to purchases of Units pursuant to the Distribution Reinvestment Plan described
in Section 8.15 hereof or a qualified Distribution Reinvestment Plan authorized
by the partnership agreement of one of the Prior Wells Public Programs. The
suitability standards set forth in the Prospectus will not be decreased with
respect to any investment in Units of the Partnership.
(c) The General Partners may refuse to accept subscriptions for Units
and contributions tendered therewith for any reason whatsoever. Subscriptions
shall be so accepted or rejected by the General Partners within 30 days of their
receipt. If rejected, all funds will be returned to the subscriber within ten
business days. Once accepted, such subscription amounts shall be deposited in
escrow within 48 hours or deposited to the Partnership's account, as may then be
appropriate under this Agreement.
(d) Each Unit sold to a subscriber shall be fully paid and
nonassessable.
8.6 ADMISSION OF LIMITED PARTNERS. No action or consent by any Limited
-----------------------------
Partners shall be required for the admission of Additional Limited Partners to
the Partnership, provided that the Partnership may not issue more than 3,500,000
Units. Funds of subscribers for Units shall be held in the escrow account
described in Section 8.8 below. Such funds shall not be released from escrow,
and no subscribers for Units shall be admitted to the Partnership unless and
until the receipt and acceptance by the Partnership of the Minimum Offering. At
any time thereafter, the Capital Contributions of such subscribers may be
released directly to the Partnership, provided that such subscribers shall be
admitted to the Partnership within 15 days after such release. Subscriptions
from subsequent subscribers shall be accepted or rejected within 30 days of
receipt by the Partnership, and if rejected, all funds shall be returned to
subscribers within 10 business days. Subsequent subscribers shall be deemed
admitted as Limited Partners of the Partnership on the day on which the
subscriptions from such Persons are accepted by the Partnership.
No Person shall be admitted as a Limited Partner who has not executed and
delivered to the Partnership the Subscription Agreement specified in the
Prospectus, together with such other documents and instruments as the General
Partners may deem necessary or desirable to effect such admission, including,
but not limited to, the written acceptance and agreement by such Person to be
bound by the terms and conditions of this Agreement.
8.7 MINIMUM CAPITALIZATION. The Offering will terminate if the
----------------------
Partnership has not received and accepted subscriptions for the Minimum Offering
on or before the Minimum Offering Expiration Date.
8.8 ESCROW. Until subscriptions for the Minimum Offering are received and
------
accepted by the General Partners, or until the Minimum Offering Expiration Date,
whichever first occurs, all subscription proceeds shall be held in an escrow
account separate and apart from all other funds and invested in obligations of,
or obligations guaranteed by, the United States government, or bank money-market
accounts or certificates of deposit of national or state banks that have
deposits insured by the Federal Deposit Insurance Corporation (including
certificates of deposit of any bank acting as a depository or custodian for any
such funds), which mature on or before the Minimum Offering Expiration Date,
unless such instrument cannot be readily sold or otherwise disposed of for cash
by the Minimum Offering Expiration Date without any dissipation of the
subscription proceeds invested, all in the discretion of such escrow agent or
agents appointed by the General Partners. All moneys tendered by Persons whose
subscriptions are rejected shall be returned, without interest, to such Persons
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promptly after such rejection. If subscriptions for the Minimum Offering are
not received and accepted before the Minimum Offering Expiration Date, those
subscriptions and funds in escrow on such date shall be returned to the
subscribers, together with any interest earned thereon after deducting escrow
expenses (except for Maine, Missouri, Ohio and Pennsylvania residents).
Notwithstanding the above, subscriptions from residents of New York and
Pennsylvania may not be released from escrow to the Partnership until the
receipt and acceptance by the General Partners of subscriptions from all sources
for not less than 250,000 Units.
8.9 PUBLIC OFFERING. Except as otherwise provided in this Agreement, the
---------------
General Partners shall have sole and complete discretion in determining the
terms and conditions of the offer and sale of Units and are hereby authorized
and directed to do all things which they deem to be necessary, convenient,
appropriate and advisable in connection therewith, including, but not limited
to, the preparation and filing of the Registration Statement with the Securities
and Exchange Commission and the securities commissioners (or similar agencies or
officers) of such jurisdictions as the General Partners shall determine, and the
execution or performance of agreements with selling agents and others concerning
the marketing of the Units, all on such basis and upon such terms as the General
Partners shall determine.
8.10 RETURN AND WITHDRAWAL OF CAPITAL.
--------------------------------
(a) Any proceeds of the Offering of the Units not invested or
committed to the acquisition or development of specific real properties within
the later of two years from the effective date of the Registration Statement or
one year after the termination of the Offering (except for necessary operating
expenses and any reserves under Section 11.3(h) of this Agreement) shall be
distributed pro rata to the Limited Partners as a return of capital. In such
event, the amount paid to the Limited Partners shall include Front-End Fees but
only to the extent such fees exceed the adjusted allowable Front-End Fees based
on the obligation of the General Partners pursuant to Section 12.2(b) hereof to
commit at least 80% of the remaining Capital Contributions to Investment in
Properties. For purposes of the foregoing, funds will be deemed to have been
committed and will not be distributed to the extent such funds would be required
to acquire property with respect to which contracts, agreements in principle or
letters of understanding have been executed, regardless of whether such property
is actually acquired, and to the extent such funds have been reserved to make
contingent payments in connection with the acquisition, development or
improvement of any property, whether or not any such payments are made. No such
return shall be made until this Agreement has been amended to reflect such
reduction of capital. Any distribution pursuant to this Section 8.10(a) shall be
deemed to have been consented to by the Limited Partners.
(b) No Partner, including a withdrawing Partner, shall have any right
to withdraw or make a demand for withdrawal of any such Partner's Capital
Contribution (or the capital interest reflected in such Partner's Capital
Account) until the full and complete winding up and liquidation of the business
of the Partnership unless such withdrawal is provided for herein.
8.11 REPURCHASE OF UNITS. After one year following the termination of the
-------------------
Offering of Units, the Partnership shall have the right, in the sole discretion
of the General Partners, to use funds held in the Repurchase Reserve to purchase
Units upon written request of a Limited Partner. The establishment of a
Repurchase Reserve is in the sole discretion of the General Partners, and if
established, the Repurchase Reserve may be terminated and/or reestablished at
any time in the sole discretion of the General Partners.
(a) In no event shall the Repurchase Reserve exceed 5% of the Cash
Flow in any given year.
(b) A Limited Partner wishing to have his Units repurchased must mail
or deliver a written request to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans) indicating his desire to have
such Units repurchased. Such requests will be considered by the General
Partners in the order in which they are received.
(c) In the event that the General Partners decide to honor a request,
they will notify the requesting Limited Partner in writing of such fact, of the
purchase price for the repurchased Units and of the effective date of the
repurchase transaction (which shall be not less than 60 nor more than 75
calendar days following the receipt of the written
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request by the Partnership) and will forward to such Limited Partner the
documents necessary to effect such repurchase transaction.
(d) Fully executed documents to effect the repurchase transaction
must be returned to the Partnership at least 30 days prior to the effective date
of the repurchase transaction.
(e) The purchase price for the repurchased Units shall be established
by the Partnership no more often than on a quarterly basis.
(f) The purchase price for repurchased Units will be equal to 85% of
the fair market value of the Units until three years from the effective date of
the Registration Statement, and 90% of the fair market value of the Units
thereafter. Fair market value shall be determined by the General Partners based
upon an estimate of the amount the Limited Partners would receive if the
Partnership's real estate investments were sold for their estimated value and if
such proceeds were distributed in a liquidation of the Partnership.
(g) Only amounts then held in the Repurchase Reserve may be used to
repurchase Units.
(h) Upon receipt of the required documentation, the Partnership will,
on the effective date of the repurchase transaction, repurchase the Units of the
Limited Partner, provided that if sufficient amounts are not then available in
the Repurchase Reserve to repurchase all of such Units, only a portion of such
Units will be repurchased; and provided further, that the Partnership may not
repurchase any Units of such Limited Partner if, as a result thereof, the
Limited Partner would own less than the minimum investment. Units repurchased
by the Partnership pursuant to this Section 8.11 shall be promptly canceled.
(i) In the event that insufficient funds are available in the
Repurchase Reserve to repurchase all of such Units, the Limited Partner will be
deemed to have priority for subsequent Partnership repurchases over Limited
Partners who subsequently request repurchases.
(j) Repurchases of Units out of the Repurchase Reserve shall be
subject to the restrictions set forth in Section 17.3(g) hereof.
(k) In addition to the restrictions set forth in Section 17.3(g)
hereof, (i) repurchases out of the Repurchase Reserve may not exceed in the
aggregate more than 2% of total Capital Contributions throughout the life of the
Partnership excluding repurchases of Units relating to the death or legal
incapacity of the owner or a substantial reduction in the owner's net worth or
income (defined to mean an involuntary loss of not less than 50% of income or
net worth during the year in which such repurchase occurs); and (ii) not more
than 2% of the outstanding Units may be purchased in any year, provided in each
case that the Partnership has sufficient cash to make the purchase and that the
purchase will not be in violation of any other applicable legal requirements.
(l) In no event shall Units owned by the General Partners or their
Affiliates be repurchased by the Partnership.
8.12 INTEREST ON CAPITAL CONTRIBUTIONS. No interest shall be paid on any
---------------------------------
Capital Contributions.
8.13 OWNERSHIP BY LIMITED PARTNER OF INTEREST IN AFFILIATES OF GENERAL
-----------------------------------------------------------------
PARTNERS. No Limited Partner (other than a General Partner, in the event that
- --------
he or it is also a Limited Partner) shall at any time, either directly or
indirectly, own any stock or other interest in any Affiliate of any General
Partner if such ownership, by itself or in conjunction with the stock or other
interest owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partners shall be
entitled to make such reasonable inquiry of the Limited Partners and prospective
Limited Partners as is required to establish compliance by the Limited Partners
with the provisions of this Section 8.13.
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8.14 DEFICIT CAPITAL ACCOUNTS. The Limited Partners shall not be required
------------------------
to reimburse the Partnership or any other Partner for deficiencies in their
Capital Accounts. In addition, except as may be required under state law, the
General Partners shall not be required to reimburse the Partnership or the
Limited Partners for deficiencies in their Capital Accounts.
8.15 DISTRIBUTION REINVESTMENT PLAN.
------------------------------
(a) A Limited Partner who acquired his Units in the Offering may
elect to participate in a program for the reinvestment of his distributions (the
"Distribution Reinvestment Plan") and have his distributions of Net Cash From
Operations reinvested in Units of the Partnership during the offering period or
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. A Limited Partner who acquired his Units by
transfer from a former Limited Partner is not eligible to have his distributions
of Net Cash From Operations reinvested in Units of the Partnership, but may
participate in the Distribution Reinvestment Plan with respect to reinvestment
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. Limited Partners participating in the
Distribution Reinvestment Plan may purchase fractional Units and shall not be
subject to minimum investment requirements, although the General Partners may,
at their option, impose certain minimum investment requirements or restrictions
with respect to purchases of Units pursuant to the Distribution Reinvestment
Plan. Each Limited Partner electing to have such distributions of Net Cash From
Operations reinvested will receive, with each confirmation of distributions, a
notice advising such Limited Partner that he is entitled to change his election
with respect to subsequent distributions by return of a notice to the
Partnership by a date to be specified by the General Partners.
(b) If a Limited Partner withdraws from participation in the
Distribution Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt by the General
Partners of written notice of such withdrawal. In the event a Limited Partner
transfers his Units, such transfer shall terminate the Limited Partner's
participation in the plan as of the first day of the quarter in which such
transfer is effective.
(c) Distributions may be reinvested in a subsequent limited
partnership only if (i) prior to the time of such reinvestment, the Limited
Partner has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii) the offer or sale of
such interests is qualified for sale under the applicable state securities laws;
(iv) the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership; (v) the participant qualifies
under the applicable investor suitability standards as contained in the
prospectus for the subsequent limited partnership; and (vi) the subsequent
limited partnership has substantially identical investment objectives as the
Partnership. If (A) any of the foregoing conditions are not satisfied at the
time of a distribution or (B) no interests are available to be purchased, such
distributions will be paid in cash.
(d) Each Limited Partner electing to participate in the Distribution
Reinvestment Plan hereby agrees that his investment in this Partnership or any
subsequent limited partnership sponsored by the General Partners or their
Affiliates shall be deemed to constitute his agreement to be a limited partner
of the partnership in which such investment is made and to be bound by the terms
and conditions of the agreement of limited partnership of such partnership, and
if, at any time, he fails to meet the applicable limited partnership investor
suitability standards or cannot make the other investor representations or
warranties set forth in the then current limited partnership prospectus,
partnership agreement or subscription agreement relating thereto, he will
promptly notify the General Partners in writing.
(e) The General Partners may, at their option, elect not to provide
the Distribution Reinvestment Plan or terminate any such plan at any time
without notice to the Limited Partners.
8.16 CLASS A STATUS UNITS AND CLASS B STATUS UNITS. Upon subscription for
---------------------------------------------
Units, each Limited Partner shall elect to have his Units treated either as
Class A Status Units or Class B Status Units, or a combination thereof.
Notwithstanding the foregoing, each Limited Partner purchasing Units pursuant to
the Deferred Commission Option, as
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defined in the Prospectus, must elect upon subscription to have a sufficient
number of Units treated as Class A Status Units, in the discretion of the
General Partners, to generate at least the amount of Net Cash From Operations
distributable with respect to such Units needed to satisfy the deferred
commission obligations each year with respect to the total number of Units
purchased by such Limited Partner pursuant to the Deferred Commission Option.
Elections to be treated as Class A Status Units or Class B Status Units will be
in effect for each fiscal year of the Partnership, or such shorter applicable
accounting period as the General Partners, in their sole discretion, may
determine and use for accounting purposes. Units with respect to which the
Limited Partner owning such Units has elected to be treated as Class A Status
Units with respect to an accounting period shall be referred to as herein as
"Class A Status Units" for such accounting period, and Units with respect to
which the Limited Partner owning such Units has elected to have treated as Class
B Status Units with respect to an accounting period shall be referred to herein
as "Class B Status Units" for such accounting period. Limited Partners holding
Class A Status Units and Limited Partners holding Class B Status Units shall
have such interests in the income, distributions, allocations and capital of the
Partnership as are described in Articles IX and X below. Except as specifically
described in Articles IX and X below, all Limited Partners shall have the same
rights under this Agreement as all other Limited Partners regardless of whether
their Units are treated as Class A Status Units or Class B Status Units. Limited
Partners shall initially elect to have their Units treated as Class A Status
Units or Class B Status Units in their Subscription Agreement for Units.
Thereafter, except as set forth below or as may be otherwise limited or
prohibited by applicable state law, Limited Partners may change their election
by mailing or delivering written notice to the Partnership (executed by the
trustee or authorized agent in the case of Retirement Plans). Elections made in
Subscription Agreements shall be effective immediately upon acceptance.
Thereafter, Limited Partners shall have the right to change their prior election
with respect to the Class A Status or Class B Status treatment of their Units
(except where prohibited by applicable state law) one time during each
accounting period, and any such election shall be effective commencing as of the
first day of the next succeeding accounting period following the receipt by the
Partnership of written notice of such election. Any such election to be treated
as Class A Status Units or Class B Status Units shall remain in effect until the
first day of the next succeeding accounting period following receipt by the
Partnership of written notice to change such election, and all such elections
shall be binding upon the Limited Partner's successors and assigns.
Notwithstanding the foregoing, during the initial six years following
termination of the Offering, Limited Partners purchasing Units pursuant to the
Deferred Commission Option, as defined in the Prospectus, will be permitted to
elect to have their Class A Status Units treated as Class B Status Units only to
the extent that such Limited Partners at all times maintain a sufficient number
of Class A Status Units during such initial six year period, in the discretion
of the General Partners, to generate enough Net Cash From Operations to allow
the Partnership to satisfy the deferred commission obligations relating to the
total number of Units purchased by such Limited Partners pursuant to the
Deferred Commission Option. Notwithstanding anything to the contrary contained
herein, Units acquired and held by the General Partners or their Affiliates
shall at all times be treated as Class A Status Units, and neither the General
Partners nor their Affiliates shall have the right to make an election to have
Units beneficially owned by them treated as Class B Status Units.
ARTICLE IX
DISTRIBUTIONS
9.1 NET CASH FROM OPERATIONS. Except as otherwise provided for in a
------------------------
liquidation in Sections 9.3 and 9.4 hereof, Net Cash From Operations for each
applicable accounting period shall be distributed to the Partners as follows:
(a) First, to the Limited Partners holding Class A Status Units on a
per Unit basis until each of such Limited Partners has received distributions of
Net Cash From Operations with respect to such fiscal year, or applicable portion
thereof, equal to 10% per annum of his Net Capital Contribution;
(b) Then, to the General Partners until they have received
distributions of Net Cash From Operations with respect to such fiscal year equal
to 10% of the total distributions under Section 9.1(a) above and this Section
9.1(b) with respect to such fiscal year; and
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(c) Thereafter, 90% to the Limited Partners holding Class A Status
Units on a per Unit basis, and 10% to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Class A Status
Units who purchased Units pursuant to the Deferred Commission Option, as defined
in the Prospectus, shall for a period of six years following termination of the
Offering have deducted and withheld from distributions of Net Cash From
Operations otherwise payable to such Limited Partners an annual amount equal to
$0.10 per Unit purchased pursuant to said Deferred Commission Option, which
amounts shall be used by the Partnership to pay deferred commissions due with
respect to such Units. All such amounts withheld from Net Cash From Operations
shall be deemed to have been distributed to, and be deemed to have been received
by, such Limited Partners as Net Cash From Operations.
The General Partners shall be prohibited from making any distributions of
Net Cash From Operations out of Capital Contributions, and distributions of Net
Cash From Operations shall not reduce Partners' Net Capital Contributions. No
distributions of Net Cash From Operations will be made with respect to Class B
Status Units.
The General Partners shall not incur any liability as a result of their
determination to distribute Net Cash From Operations, even though such
distribution may result in the Partnership's retaining insufficient funds for
the operation of its business, provided their determination was made in good
faith and not as a result of their negligence or misconduct.
9.2 NONLIQUIDATING NET SALE PROCEEDS. Except as otherwise provided for in
--------------------------------
Sections 9.3 and 9.4 hereof and except for the potential reinvestment of
Nonliquidating Net Sale Proceeds as provided in Section 11.3(f) hereof,
Nonliquidating Net Sale Proceeds, after the payment of all Partnership debts and
liabilities and the establishment of any reserves which the General Partners in
their sole discretion may deem reasonably necessary or desirable, shall be
distributed to the Partners as follows:
(a) To Limited Partners holding Units which at any time have been
treated as Class B Status Units on a per Unit basis, such amounts as may be
necessary to give each such Limited Partner an amount of Nonliquidating Net Sale
Proceeds which, when added to distributions received or deemed received by such
Limited Partner with respect to any period during which his Units were treated
as Class A Status Units, would be equal on a per Unit basis to the Net Cash From
Operations allocated and distributed pursuant to Section 9.1 hereof received or
deemed received by Limited Partners holding Units which at all times have been
treated as Class A Status Units, assuming such Limited Partners purchased an
equivalent number of Units on the same date (it being the intent of the Partners
that the distribution preference provided by Section 9.1 hereof be only a timing
preference on distributions and that this provision have the effect of
equalizing distributions to Limited Partners on a per Unit basis so that, after
receipt of distributions under this Section 9.2(a), all Limited Partners, to the
extent possible, be in the receipt of the same aggregate amount of distributions
under this Article IX on a per Unit basis);
(b) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received distributions
under Section 8.10 hereof, this Section 9.2(b) and Section 9.4 hereof totalling
100% of his Net Capital Contribution;
(c) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions under Sections 9.1, 9.2(a) and this 9.2(c) equal to a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution;
(d) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions under Sections 9.1, 9.2(a), 9.2(c) and this 9.2(d) equal to his
Preferential Limited Partner Return, as defined in Section 3.48 hereof;
(e) Then, to the General Partners until the General Partners have
received distributions totalling 100% of their Capital Contributions;
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(f) Then, if and only in the event that Limited Partners have
received Excess Limited Partner Distributions, as hereinafter defined, to the
General Partners until they have received distributions of Nonliquidating Net
Sale Proceeds equal to 20% of the sum of any such Excess Limited Partner
Distributions and distributions to the General Partners pursuant to this Section
9.2(f) (the term "Excess Limited Partner Distributions" means any distributions
to Limited Partners over the life of their investment in the Partnership in
excess of the sum of their Net Capital Contributions plus their Preferential
Limited Partner Return); and
(g) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated or receive distributions in excess of the NASAA
Guidelines Resale Proceeds Maximum Amount, as defined herein. It is the intent
of the foregoing proviso that the General Partners receive no more of the net
proceeds from the sale or financing of Partnership Properties than is allowed
pursuant to Article IV, Section E.2.b. of the NASAA Guidelines, and in the event
the allocations pursuant to this Article IX would otherwise result in the
General Partners receiving any such excess distributions, such excess
distributions otherwise distributable to the General Partners will instead be
reallocated in favor of and distributed to the Limited Partners on a per Unit
basis. As used herein, the term "NASAA Guidelines Resale Proceeds Maximum
Amount" means an amount equal to 15% of aggregate Nonliquidating Net Sale
Proceeds and Liquidating Distributions remaining after payments to all Limited
Partners from such proceeds of amounts equal to 100% of their Net Capital
Contributions plus amounts equal to a 6% per annum return on their Net Capital
Contributions, calculated on a cumulative (noncompounded) basis.
Notwithstanding the foregoing, in the event that the Partnership sells any
Partnership Property at a sale price which is less than the Purchase Price
originally paid for such Partnership Property, then prior to the distribution of
Nonliquidating Net Sale Proceeds under Section 9.2(a) above, the Limited
Partners holding Class A Status Units shall first receive distributions of
Nonliquidating Net Sale Proceeds in an amount equal to the excess of the
original Purchase Price of such Partnership Property sold over the sale price of
such Partnership Property, but not in excess of the amount of the special
allocations of deductions for depreciation, amortization and cost recovery with
respect to such Partnership Property previously made to the Limited Partners
holding Class B Status Units made pursuant to Sections 10.2(a) and 10.2(b)
hereof.
9.3 DISSOLUTION. Upon dissolution, the Partnership shall proceed to
-----------
liquidate its assets as follows:
(a) Subject to any applicable limitations of law, upon dissolution of
the Partnership, the assets of the Partnership shall be converted to cash. The
Partnership shall be given adequate time to collect any notes received with
respect to the sale of such assets and collect any other debts outstanding. All
cash on hand, including all cash received after the happening of an event of
dissolution set forth in Section 20.1 hereof, shall be applied and distributed
as follows:
(i) All of the debts and liabilities of the Partnership, except
indebtedness to Partners, shall first be paid and satisfied or adequate
provision, including the setting up of any reserves which the General Partners
in their sole discretion deem reasonably necessary or desirable, shall be made
for the payment or satisfaction thereof;
(ii) All debts of the Partnership to Partners shall next be paid
on a pro rata basis without respect to the date on which such debts were
incurred;
(iii) Any fees due to the General Partners shall next be paid;
and
(iv) The balance of the assets of the Partnership shall be
distributed to each Partner in accordance with the positive balance in his
Capital Account as of the date of distribution, as provided in Section 9.4
below.
(b) Upon dissolution, each Limited Partner shall look solely to the
assets of the Partnership for the return of his investment, and if the
Partnership Property remaining after payment or discharge of the debts and
liabilities of the Partnership, including debts and liabilities owed to one or
more of the Partners, is insufficient to return the aggregate Capital
Contributions of each Limited Partner, such Limited Partners shall have no
recourse against the General Partners or any other Limited Partner.
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9.4 LIQUIDATING DISTRIBUTIONS. After the payment of all Partnership debts
-------------------------
and liabilities and the establishment of any reserves which the General Partners
in their sole discretion may deem reasonably necessary or desirable, Liquidating
Distributions shall be distributed to each Partner in accordance with the
positive balance in his Capital Account as of the date of distribution (after
allocation of the Gain on Sale as provided in Section 10.4 hereof).
9.5 DISTRIBUTION DATES. Partnership distributions under this Article IX
------------------
will be made at least quarterly, but no more often than monthly, in the
discretion of the General Partners (the "Distribution Period").
9.6 ALLOCATION AMONG GENERAL PARTNERS. All amounts distributed to the
---------------------------------
General Partners under this Article IX shall be apportioned among the General
Partners in such percentages as they may from time to time agree upon among
themselves.
9.7 ALLOCATION AMONG LIMITED PARTNERS. All allocations and distributions
---------------------------------
made to the Limited Partners pursuant to this Article IX shall be paid to those
Persons who were Limited Partners or Assignees as of the last day of the
Distribution Period preceding the time of the distribution (the "Allocation
Date") on a pro rata basis according to the number of Units held on the
Allocation Date; provided, however, with respect to any Unit issued by the
Partnership during such Distribution Period, allocations and distributions made
with respect to such Unit for such Distribution Period shall be equal to the pro
rata share for such Unit determined in accordance with the first clause of this
Section 9.7 multiplied by a fraction, the numerator of which is the number of
days contained in the Distribution Period during which the Unit in question was
issued, and the denominator of which is the total number of days contained in
such Distribution Period.
ARTICLE X
ALLOCATIONS
10.1 NET LOSS. Net Loss for each applicable accounting period shall be
--------
allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Class B Status Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to which the
Partnership incurs an aggregate Net Loss, interest income of the Partnership
shall be specially allocated to the Limited Partners holding Class A Status
Units with respect to such accounting period on a per Unit basis, and Net Loss
of the Partnership for such accounting period shall be determined without regard
to such interest income.
10.2 DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS. All
-------------------------------------------------------
deductions for depreciation, amortization and cost recovery for each applicable
accounting period shall be allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Class B Status Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
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(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
This Section 10.2 notwithstanding, all Net Loss and Net Income for each
fiscal year shall be allocated to the Partners in the manner provided in
Sections 10.1 and 10.3 hereof and shall be reflected in each Partner's Capital
Account as of the last day of such fiscal year before any allocation of
depreciation, amortization or cost recovery deductions is made to the Partners
under this Section 10.2.
10.3 NET INCOME. Subject to the Qualified Income Offset provisions of
----------
Section 10.5 hereof, Net Income for each applicable accounting period shall be
allocated to the Partners as follows:
(a) To the General Partners and the Limited Partners holding Class A
Status Units with respect to such accounting period on a per Unit basis, in the
same proportion as, and to the extent that, Net Cash From Operations is
distributed or deemed distributed to them under Section 9.1 hereof with respect
to such accounting period; and
(b) Then, to the extent Net Income exceeds the actual distribution of
Net Cash From Operations with respect to such accounting period, such excess Net
Income shall be allocated 99% to the Limited Partners holding Class A Status
Units with respect to such accounting period on a per Unit basis, and 1% to the
General Partners.
10.4 GAIN ON SALE. Gain on Sale for each applicable accounting period
------------
shall be allocated to the Partners as follows:
(a) First, to the extent applicable, pursuant to the Qualified Income
Offset provisions of Section 10.5 hereof;
(b) Then, to those Partners having negative Capital Accounts, if any,
in the ratio that the negative Capital Account of each Partner having a negative
Capital Account bears to the aggregate amount of negative Capital Accounts of
all such Partners until all negative Capital Accounts have been restored to
zero;
(c) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery specially allocated to such Limited
Partners pursuant to Section 10.2(a) hereof, with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder, but not in excess of the amount of
Gain on Sale recognized by the Partnership pursuant to the sale, exchange or
other disposition of said specific Partnership Property;
(d) Then, to the Limited Partners in amounts equal to the deductions
for depreciation, amortization and cost recovery allocated to such Limited
Partners pursuant to Section 10.2(b) hereof with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder;
(e) Then, to Limited Partners holding Units which at any time have
been treated as Class B Status Units on a per Unit basis, such amounts as may be
necessary to give each such Limited Partner, after the allocation of Gain on
Sale under this Section 10.4(e), distributions which, when added to
distributions received or deemed received by such Limited Partner with respect
to any period during which his Units were treated as Class A Status Units, would
be equal on a per Unit basis to the Net Cash From Operations allocated and
distributed pursuant to Section 9.1 hereof received or deemed received by
Limited Partners holding Units which at all times have been treated as Class A
Status Units, assuming said Limited Partners purchased an equivalent number of
Units on the same day (it being the intent of the Partners that the distribution
preference provided in Section 9.1 hereof be only a timing preference on
distributions and that Section 9.2(a) hereof and this provision have the effect
of equalizing distributions to Limited Partners on a per Unit basis so that,
after
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receipt of distributions under Section 9.2(a) hereof and distributions resulting
from the allocation of Gain on Sale pursuant to this Section 10.4(e), all
Limited Partners, to the extent possible, be in receipt of the same aggregate
amount of distributions under Article IX on a per Unit basis);
(f) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of each Limited
Partner's Net Capital Contribution over prior distributions received or deemed
received by such Limited Partner under Sections 8.10, 9.2(b) and 9.4 hereof;
(g) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution over
prior distributions received or deemed received by such Limited Partner under
Sections 9.1, 9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
(h) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return, as defined in Section 3.48 hereof, over
prior distributions received or deemed received by each such Limited Partner
under Sections 9.1, 9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
(i) Then, to the General Partners, until the General Partners have
been allocated amounts equal to the excess of 100% of their Capital
Contributions;
(j) Then, if and only in the event that Limited Partners have
received any Excess Limited Partner Distributions, as defined in Section 9.2(f)
hereof, to the General Partners, until the General Partners have been allocated
Gain on Sale under this Section 10.4(j) equal to 20% of the sum of any such
Excess Limited Partner Distributions plus any Gain on Sale allocated to the
General Partners pursuant to this Section 10.4(j); and
(k) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated Gain on Sale pursuant to this Section 10.4 which
would result in the General Partners receiving distributions in excess of the
NASAA Guidelines Resale Proceeds Maximum Amount, as defined in Section 9.2(g)
hereof. It is the intent of the foregoing proviso that the General Partners
receive no more of the net proceeds from the sale or financing of Partnership
Properties than is allowed pursuant to Article IV, Section E.2.b. of the NASAA
Guidelines, and in the event the allocations pursuant to this Article X would
otherwise result in the General Partners receiving any such excess
distributions, such excess allocations of Gain on Sale otherwise allocable to
the General Partners will instead be reallocated in favor of and to the Limited
Partners on a per Unit basis.
Notwithstanding the foregoing, in the event that the Partnership sells the
last remaining Partnership Property at a sale price which is less than the
Purchase Price originally paid for such Partnership Property, then, after the
allocation of Gain on Sale derived from any such sale pursuant to Sections
10.4(a) and 10.4(b) above, and prior to the allocation of Gain on Sale pursuant
to Section 10.4(c) above, Limited Partners holding Class A Status Units shall
first be allocated Gain on Sale derived from any such sale in an amount equal to
the excess of the original Purchase Price of such Partnership Property sold over
the sale price of such Partnership Property, but not in excess of the amount of
the special allocations of deductions for depreciation, amortization and cost
recovery with respect to such Partnership Property previously made to Limited
Partners holding Class B Status Units pursuant to Sections 10.2(a) and 10.2(b)
hereof.
10.5 QUALIFIED INCOME OFFSET. Notwithstanding any provision to the
-----------------------
contrary contained herein, in the event that any Partner receives an adjustment,
allocation or distribution described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in such Partner's
Capital Account, such Partner will be allocated items of income or gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income, and gain for such year) in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible, all in accordance with
Treasury Regulations Section 1.704-1(b)(2)(ii)(d). (It is the intent of the
Partners that the foregoing
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provision constitute a "Qualified Income Offset," as defined in Treasury
Regulations Section 1.704-1(b)(2)(ii)(d), and the foregoing provision shall in
all events be interpreted so as to constitute a valid "Qualified Income
Offset.")
10.6 ALLOCATION AMONG LIMITED PARTNERS. Except as otherwise provided in
---------------------------------
this Article X, all allocations made to the Limited Partners as a group under
this Article X shall be apportioned among the Limited Partners according to each
Limited Partner's Participating Percentage. Except as otherwise provided in
this Article X, all allocations made among Limited Partners holding Class A
Status Units shall be apportioned according to a percentage, the numerator of
which shall be the number of Class A Status Units held by each such Limited
Partner, and the denominator of which shall be the total number of Class A
Status Units held by all Limited Partners, and all allocations made among
Limited Partners holding Class B Status Units shall be apportioned among such
Limited Partners according to a percentage, the numerator of which shall be the
number of Class B Status Units held by each such Limited Partner, and the
denominator of which shall be the total number of Class B Status Units held by
all Limited Partners. If, however, Limited Partners are admitted to the
Partnership pursuant to Article VIII on different dates during any fiscal year,
such allocations under this Article X for such fiscal year (and, if necessary,
subsequent years) shall be divided among the Persons who own Units from time to
time during such year in accordance with Section 706 of the Code, using any
conventions permitted by law and selected by the General Partners, in their sole
discretion. In addition, if elections to be treated as Class A Status Units or
Class B Status Units are deemed to be effective during any fiscal year,
allocations under this Article X for such fiscal year (and, if necessary,
subsequent years) shall be divided among the Limited Partners in accordance with
Section 706 of the Code, using any conventions permitted by law and selected by
the General Partners, in their sole discretion.
10.7 ALLOCATION AMONG GENERAL PARTNERS. All allocations made under this
---------------------------------
Article X to the General Partners shall be apportioned among the General
Partners in such percentages as they may from time to time agree among
themselves.
10.8 ITEM PRORATIONS. Any fiscal year of the Partnership in which the
---------------
Partnership realizes any Gain on Sale shall be divided into multiple accounting
periods, the first of which shall begin on the first day of such fiscal year and
shall end on the Sale Date, and the second of which shall begin on the day
following such Sale Date and shall end on the following Sale Date, if any, and
if no further Sale Date occurs, then on the last day of such fiscal year. Any
Net Income realized by the Partnership in any of such accounting periods shall
be allocated to the Partners in the manner provided in Section 10.3 hereof as if
such accounting period were a complete fiscal year of the Partnership. Any Net
Loss, depreciation, amortization or cost recovery deductions incurred by the
Partnership in any of such accounting periods shall be allocated to the Partners
in the manner provided in Sections 10.1 and 10.2 hereof as if such accounting
period were a complete fiscal year of the Partnership. The Net Income, Net
Loss, depreciation, amortization and cost recovery deductions so allocated to
the Partners shall be reflected in their respective Capital Accounts before any
Gain on Sale realized by the Partnership during such accounting period is
allocated to the Partners under Section 10.4 hereof.
10.9 ALLOCATIONS IN RESPECT TO TRANSFERRED UNITS. If any Units are
-------------------------------------------
transferred during any fiscal year, all items attributable to such Units for
such year shall be allocated between the transferor and the transferee by taking
into account their varying interests during the year in accordance with Section
706(d) of the Code, utilizing any conventions permitted by law and selected by
the General Partners, in their sole and absolute discretion. Solely for
purposes of making such allocations, the Partnership shall recognize the
transfer of such Units as of the end of the calendar quarter during which it
receives written notice of such transfer, provided that if the Partnership does
not receive a written notice stating the date such Units were transferred and
such other information as may be required by this Agreement or as the General
Partners may reasonably require within 30 days after the end of the year during
which the transfer occurs, then all such items shall be allocated to the Person
who, according to the books and records of the Partnership, on the last day of
the year during which the transfer occurs, was the owner of the Units. The
General Partners and the Partnership shall incur no liability for making
allocations in accordance with the provisions of this Section 10.9, whether or
not the General Partners or the Partnership have knowledge of any transfer of
ownership of any Units.
10.10 ALLOCATIONS IN RESPECT TO REPURCHASED UNITS. If any Units are
-------------------------------------------
repurchased pursuant to Section 8.11 hereof during any fiscal year, all items
attributable to such Units for such year shall be determined by the General
Partners (a) pro rata with respect to the number of months such Units were
outstanding during such year, (b) on the basis of an
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interim closing of the Partnership books, or (c) in accordance with any other
method established by the General Partners in accordance with applicable
provisions of the Code and Treasury Regulations.
10.11 DISPUTES. Except with respect to matters as to which the General
--------
Partners are granted discretion hereunder, the opinion of the independent public
accountants retained by the Partnership from time to time shall be final and
binding with respect to all disputes and uncertainties as to all computations
and determinations required to be made under Articles IX and X hereof (including
but not limited to any computations and determinations in connection with any
distribution or allocation pursuant to a dissolution and liquidation).
ARTICLE XI
MANAGEMENT OF THE PARTNERSHIP
11.1 MANAGEMENT. The General Partners shall conduct the business of the
----------
Partnership, devoting such time thereto as they, in their sole discretion, shall
determine to be necessary to manage Partnership business and affairs in an
efficient manner. Any action required to be taken by the General Partners
pursuant to this Agreement shall be duly taken only if it is approved, in
writing or otherwise, by all the General Partners, unless the General Partners
agree among themselves to a different arrangement for said approval.
11.2 POWERS OF THE GENERAL PARTNERS. The General Partners shall have full
------------------------------
charge of overall management, conduct and operation of the Partnership, and
shall have the authority to act on behalf of the Partnership in all matters
respecting the Partnership, its business and its property, and, without limiting
in any manner the foregoing, authority:
(a) To do on behalf of the Partnership all things which, in their
sole judgment, are necessary, proper or desirable to carry out the Partnership's
business, including, but not limited to, the right, power and authority: (i) to
execute all agreements and other documents necessary to implement the purposes
of the Partnership, to take such action as may be necessary to consummate the
transactions contemplated hereby and by the Prospectus, and to make all
reasonably necessary arrangements to carry out the Partnership's obligations in
connection therewith; (ii) to employ, oversee and dismiss from employment any
and all employees, agents, independent contractors, real estate managers,
contractors, engineers, architects, developers, designers, brokers, attorneys
and accountants; (iii) to sell, exchange or grant an option for the sale of all
or substantially all (subject to the requirement to obtain a Majority Vote of
the Limited Partners pursuant to Section 16.1 hereof with respect to a sale of
all or substantially all of the real properties acquired by the Partnership) or
any portion of the real and personal property of the Partnership, at such price
or amount, for cash, securities or other property and upon such other terms as
the General Partners, in their sole discretion, deem proper; (iv) to let or
lease all or any portion of the Partnership Properties for any purpose and
without limit as to the term thereof, whether or not such term (including
renewal terms) shall extend beyond the date of the termination of the
Partnership and whether or not the portion so leased is to be occupied by the
lessee or, in turn, subleased in whole or in part to others; (v) to create, by
grant or otherwise, easements and servitudes; (vi) to borrow money and incur
indebtedness; provided, however, the Partnership shall not be permitted to incur
any indebtedness except as authorized in Section 11.3(e) hereof; (vii) to draw,
make, accept, endorse, sign and deliver any notes, drafts or other negotiable
instruments or commercial paper; (viii) to execute such agreements and
instruments as may be necessary, in their discretion, to operate, manage and
promote the Partnership assets and business; (ix) to construct, alter, improve,
repair, raze, replace or rebuild all or any portion of the Partnership
Properties; (x) to submit to arbitration any claim, liability or dispute
involving the Partnership (provided that such claims will be limited to actions
against the Partnership not involving securities claims by the Limited Partners
and provided further that no claim, liability or dispute of a Limited Partner
will be subject to mandatory arbitration); (xi) to compromise any claim or
liability due to the Partnership; (xii) to execute, acknowledge or verify and
file any notification, application, statement and other filing which the General
Partners consider either required or desirable to be filed with any state or
federal securities administrator or commission; (xiii) to make any tax elections
to be made by the Partnership; (xiv) to place record title to any of its assets
in the name of a nominee, agent or a trustee; (xv) to do any or all of the
foregoing, discretionary or otherwise, through agents selected by the General
Partners, whether compensated or uncompensated by the Partnership; (xvi) to
execute and
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file of record all instruments and documents which are deemed by the
General Partners to be necessary to enable the Partnership properly and legally
to do business in the State of Georgia or any other jurisdiction deemed
advisable; (xvii) to monitor the transfer of Partnership interests to determine
if such interests are being traded on "an established securities market or a
secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code, and take (and cause Affiliates to take) all steps
reasonably necessary or appropriate to prevent any such trading of interests,
including without limitation, voiding transfers if the General Partners
reasonably believe such transfers will cause the Partnership to be treated as a
"publicly traded partnership" under the Code or Treasury Regulations thereunder;
(xviii) at the appropriate time, to register the Units with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934; and (xix)
to do any or all of the foregoing for such consideration and upon such other
terms or conditions as the General Partners, in their discretion, determine to
be appropriate; provided, however, in no event shall the General Partners or
their Affiliates receive compensation from the Partnership unless specifically
authorized by Article XII hereof, by Articles IX and X hereof or by the
"Compensation of the General Partners and Affiliates" section of the Prospectus.
(b) Notwithstanding anything contained herein to the contrary,
subject to the provisions contained in Section 16.2 hereof, to amend this
Agreement without the consent or vote of any of the Limited Partners: (i) to
reflect the addition or substitution of Limited Partners or the reduction of
Capital Accounts upon the return of capital to Partners; (ii) to add to the
representations, duties or obligations of the General Partners or their
Affiliates or surrender any right or power granted herein to the General
Partners or their Affiliates for the benefit of the Limited Partners; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement; (iv) to delete or add any
provision from or to this Agreement requested to be so deleted or added by the
staff of the Securities and Exchange Commission or by the staff of any state
regulatory agency, the deletion or addition of which provision is deemed by the
staff of any such regulatory agency to be for the general benefit or protection
of the Limited Partners; and (v) to attempt to have the provisions of this
Agreement comply with federal income tax law and regulations thereunder.
(c) To possess and exercise, as may be required, all of the rights
and powers of general partners as more particularly provided by the Act, except
to the extent that any of such rights may be limited or restricted by the
express provisions of this Agreement.
(d) To execute, acknowledge and deliver any and all instruments and
take such other steps as are necessary to effectuate the foregoing. Any such
instruments may be executed on behalf of the Partnership by either of the
General Partners, except that any instrument pursuant to which the Partnership
acquires or disposes of any interest in real property shall require the
signature, personally or by attorney-in-fact, of each of the General Partners.
11.3 LIMITATIONS ON POWERS OF THE GENERAL PARTNERS. The General Partners
---------------------------------------------
shall observe the following policies in connection with Partnership operations:
(a) Pending initial investment of its funds, or to provide a source
from which to meet contingencies, including, without limitation, the working
capital reserve and Repurchase Reserve, the Partnership may temporarily invest
its funds in short-term, highly liquid investments where there is appropriate
safety of principal, such as government obligations, bank or savings and loan
association certificates of deposit, short-term debt obligations and interest-
bearing accounts; provided that, following one year after the commencement of
the operations of the Partnership, no more than 45% of the value (as defined in
Section 2(a)(41) of the Investment Company Act of 1940, as amended) of the
Partnership's total assets (exclusive of government securities and cash items)
will consist of, and no more than 45% of the Partnership's net income after
taxes (for any four consecutive fiscal quarters combined) will be derived from,
securities other than (i) government securities; (ii) securities issued by
majority owned subsidiaries of the Partnership which are not investment
companies; and (iii) securities issued by companies, which are controlled
primarily by the Partnership, through which the Partnership engages in a
business other than that of investing, reinvesting, owning, holding or trading
in securities, and which are not investment companies.
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<PAGE>
(b) The Partnership shall not acquire unimproved or non-income
producing property, except in amounts and upon terms which can be financed by
the Offering proceeds or from Cash Flow and provided investment in such
properties shall not exceed 15% of net Offering proceeds available for
Investment in Properties. Properties shall not be considered non-income
producing if they are expected to produce income within two years after their
acquisition.
(c) All real property acquisitions must be supported by an appraisal
which shall be prepared by a competent, independent appraiser. The appraisal
shall be maintained in the Partnership's records for at least five years and
shall be available for inspection and duplication by any Limited Partner. The
Purchase Price paid by the Partnership for each property shall not exceed the
appraised value of such property.
(d) The General Partners shall not have the authority to incur
indebtedness which is secured by the Partnership Properties or assets, except as
specifically authorized pursuant to Section 11.3(e) below.
(e) The General Partners shall have the authority to borrow funds (i)
for Partnership operating purposes in the event of unforeseen or unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership are deemed insufficient for the
maintenance and repair of Partnership Properties or for the protection or
replacement of the Partnership's assets, and (ii) in order to finance
improvement of and improvements to Partnership Properties at such time as the
General Partners may deem such improvements to be necessary or appropriate to
protect capital previously invested in such Partnership Properties, to protect
the value of the Partnership's investment in a particular Partnership Property,
or to make a particular Partnership Property more attractive for sale or lease;
provided, however, that the aggregate amount of Partnership borrowings shall at
no time exceed 25% of the total purchase price of Partnership Properties. The
Partnership may borrow such funds from the General Partners, their Affiliates or
others, provided that if any such borrowing is from the General Partners or
their Affiliates, (i) such borrowing may not constitute a "financing" as that
term is defined under the NASAA Guidelines (i.e., all indebtedness encumbering
Partnership Properties or incurred by the Partnership, "the principal amount of
which is scheduled to be paid over a period of not less than 48 months, and not
more than 50 percent of the principal amount of which is scheduled to be paid
during the first 24 months"); (ii) interest and other financing charges or fees
charged on any such borrowing may not exceed amounts which would be charged by
unrelated lending institutions on comparable financing for the same purpose in
the same locality as the Partnership's principal place of business; and (iii) no
prepayment charge or penalty shall be required with respect to any such
borrowing.
(f) The Partnership shall not reinvest Cash Flow or any proceeds from
the sale of a Partnership Property in new properties except that if the
Partnership requires funds to exercise an option to acquire property under lease
or to purchase from any co-venturer an interest in a property that the
Partnership owns jointly with such Person, the Partnership may either distribute
the net proceeds of any sale of Partnership Property to the Partners or may
reinvest such proceeds for the aforementioned purposes; provided, however, that
in any event, a portion of such proceeds sufficient to cover any increase in
Limited Partners' federal and state income taxes attributable to the sale
(assuming a 35% combined federal and state tax bracket) shall be distributed in
time to pay such increase.
(g) The General Partners shall exercise their fiduciary duty for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in their immediate possession or control, and shall not employ, or permit
another to employ, such funds or assets in any manner except for the exclusive
benefit of the Partnership. In addition, the Partnership shall not permit the
Partners to contract away the fiduciary duty owed to the Partners by the General
Partners under common law.
(h) The Partnership may maintain reasonable reserves for normal
repairs, replacements and contingencies in such amounts as the General Partners
in their sole and absolute discretion determine from time to time to be
adequate, appropriate or advisable in connection with the operations of the
Partnership. In the event expenditures are made from any such reserves, future
operating revenues may be allocated to such reserve to the extent deemed
necessary by the General Partners for the maintenance of reasonable reserves.
In addition, one year after the termination of the Offering, the Partnership may
at the sole discretion of the General Partners maintain a Repurchase Reserve of
up to 5% of Cash Flow in any year. Such funds may be used to repurchase Units
as described in Section 8.11 hereof.
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<PAGE>
(i) The Partnership shall not own or lease property jointly or in
partnership with unrelated entities except in general partnerships or joint
ventures which own and operate one or more particular properties, unless (i)
such unrelated entity has substantially identical investment objectives as those
of the Partnership; (ii) the management of such partnership or joint ownership
is under the control of the Partnership in that the Partnership or an Affiliate
of the Partnership possesses the power to direct or to cause the direction of
the management and policies of any such partnership or joint venture; (iii) the
Partnership, as a result of such joint ownership or partnership ownership of a
property, is not charged, directly or indirectly, more than once for the same
services; (iv) the joint ownership or partnership does not authorize or require
the Partnership to do anything as a partner or joint venturer with respect to
the property which the Partnership or the General Partners could not do directly
because of this Agreement; and (v) the General Partners and their Affiliates are
prohibited from receiving any compensation, fees or expenses which are not
permitted to be paid under this Agreement.
The Partnership may not own or lease property jointly or in a
partnership or joint venture with an Affiliate of the General Partners unless
such property is owned or leased by a joint venture or general partnership with
a publicly registered Affiliate, and unless (i) such Affiliate has substantially
identical investment objectives as those of the Partnership; (ii) the
Partnership, as a result of such joint ownership or partnership ownership of a
property, is not charged, directly or indirectly, more than once for the same
services; (iii) the compensation payable to the General Partners and their
Affiliates is substantially identical in each program; (iv) the Partnership will
have a right of first refusal to buy the property held by such joint venture in
the event that such Affiliate elects to sell its interest in the joint venture;
and (v) the investment by the Partnership and such Affiliate are on
substantially the same terms and conditions.
The ownership of the common areas located on property through a
condominium association or other similar form of real property ownership shall
not be considered a joint ownership of property for purposes of this paragraph.
(j) Investments by the Partnership in limited partnership interests
of other partnerships shall be prohibited.
(k) The completion of improvements which are to be constructed or are
under construction on Partnership Property shall be guaranteed at the price
contracted either by an adequate completion bond or by other satisfactory
assurances; provided, however, that such other satisfactory assurances shall
include at least one of the following: (i) a written personal guarantee of one
or more of the general contractor's principals accompanied by the financial
statements of such guarantor indicating a substantial net worth; (ii) a written
fixed price contract with a general contractor that has a substantial net worth;
(iii) a retention of a reasonable portion of the Purchase Price as a potential
offset to such Purchase Price in the event the seller does not perform in
accordance with the purchase and sale agreement; or (iv) a program of
disbursements control which provides for direct payments to subcontractors and
suppliers.
(l) The Partnership shall make no construction loans to builders of
Partnership Properties and shall make no periodic progress or other advance
payments to such builders unless the Partnership has first received an
architect's certification as to the percentage of the project which has been
completed and as to the dollar amount of the construction then completed.
(m) The Partnership shall not acquire property in exchange for Units.
(n) The Partnership shall not obtain nonrecourse financing from a
Limited Partner or any party affiliated with a Limited Partner.
(o) The Partnership shall not purchase a Partnership Property if (i)
the acquisition price of such Partnership Property is not a fixed amount
determined as of the date of acquisition; or (ii) any amount payable in
connection with such acquisition or the time for making payments thereunder is
dependent, in whole or in part, upon revenues, income or profits derived from
the Partnership Property.
(p) The Partnership shall not take back an "all-inclusive" or
"wraparound" note in connection with the sale or other disposition of a
Partnership Property.
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(q) The Partnership's business purposes and objectives, as set forth
in Article IV, shall not be changed unless approved by a Majority Vote of the
Limited Partners.
(r) The Partnership shall not invest in junior trust deeds and other
similar obligations.
(s) The General Partners shall not have the authority on behalf of
the Partnership to:
(i) list, recognize or facilitate the trading of Units (or any
interest therein) on any "established securities market (or the equivalent
thereof)" within the meaning of Section 7704 of the Code, or permit any of their
Affiliates to take such actions, if as a result thereof, the Partnership would
be treated for federal income tax purposes as an association taxable as a
corporation or taxed as a "publicly traded partnership;" or
(ii) create for the Units (or any interest therein) a "secondary
market (or the equivalent thereof)" within the meaning of Section 7704 of the
Code or otherwise permit, recognize or facilitate the trading of any such Units
(or any interest therein) on any such market or permit any of their Affiliates
to take such actions, if as a result thereof, the Partnership would be treated
for federal income tax purposes as an association taxable as a corporation or
taxed as a "publicly traded partnership."
(t) The funds of the Partnership shall not be commingled with the
funds of any other Person, except in the case of making capital contributions to
a joint venture or partnership permitted pursuant to the provisions of Section
11.3(i) above.
(u) The General Partners hereby agree that they shall not initiate a
transaction wherein the Partnership is merged or consolidated with another
partnership or corporation, and the General Partners shall not be authorized to
merge or consolidate the Partnership with any other partnership or corporation
or to convert the Partnership to a real estate investment trust unless first
obtaining a Majority Vote of the Limited Partners to any such transaction. In
addition, the General Partners shall not be authorized to enter into or effect
any Roll-Up unless such Roll-Up complies with the following terms and
conditions:
(i) An appraisal of all assets of the Partnership shall be
obtained from a competent Independent Expert. If the appraisal will be included
in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal
shall be filed with the Securities and Exchange Commission and the states as an
exhibit to the registration statement for the offering. The assets of the
Partnership shall be appraised on a consistent basis. The appraisal shall be
based on an evaluation of all relevant information and shall indicate the
current value of the Partnership's assets as of a date immediately prior to the
announcement of the proposed Roll-Up. The appraisal shall assume an orderly
liquidation of the Partnership's assets over a 12 month period, shall consider
other balance sheet items, and shall be net of the assumed cost of sale. The
terms of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and its Limited Partners. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Limited Partners
in connection with the proposed Roll-Up.
(ii) In connection with the proposed Roll-Up, the person
sponsoring the Roll-Up shall provide each Limited Partner with a document which
instructs the Limited Partner on the proper procedure for voting against or
dissenting from the Roll-Up and shall offer to Dissenting Limited Partners the
choice of: (A) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up which have substantially the same terms and conditions as the
security originally held, provided that the receipt or retention of that
security is not a step in a series of subsequent transactions that directly or
indirectly through acquisition or otherwise involves future contributions or
reorganizations involving the Roll-Up Entity; or (B) one of the following: (I)
remaining as Limited Partners in the Partnership and preserving their interests
therein on the same terms and conditions as existed previously, or (II)
receiving cash in an amount equal to the Limited Partners' pro rata share of the
appraised value of the net assets of the Partnership.
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(iii) Securities of the Roll-Up Entity received in the Roll-
Up will be considered to have the same terms and conditions as the security
originally held if: (A) there is no material adverse change to Dissenting
Limited Partners' rights, including but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation and liquidation policies of the Roll-Up Entity; and (B) the
Dissenting Limited Partners receive the same preferences, privileges and
priorities as they had pursuant to the security originally held.
(iv) The Partnership may not participate in any proposed
Roll-Up in which any General Partner converts an equity interest in the
Partnership for which consideration was not paid and which was not otherwise
provided for in this Agreement and disclosed to the Limited Partners, into a
voting interest in the Roll-Up Entity, provided, however, an interest originally
obtained in order to comply with the provisions of IRS Revenue Procedure 89-12
may be converted into a voting interest in the Roll-Up Entity not to exceed a
one percent (1%) interest in the assets and income of such entity.
(v) The Partnership may not participate in any proposed
Roll-Up in which a General Partner does not utilize an independent third party
to receive and tabulate all votes and dissents, and require that the third party
make the tabulation available to the General Partners and any Limited Partner
upon request at any time during and after voting occurs.
(vi) The Partnership may not participate in any proposed
Roll-Up which would result in the Limited Partners having (A) voting rights
which do not generally follow the voting rights of the Limited Partners pursuant
to this Agreement or (B) democracy rights in the Roll-Up Entity which are less
than those provided for under Sections VII.A. and VII.B. of the NASAA
Guidelines. If the Roll-Up Entity is a corporation, the voting rights shall
correspond to the voting rights provided for in the NASAA Guidelines to the
greatest extent possible.
(vii) The Partnership may not participate in any proposed
Roll-Up which includes provisions which would otherwise materially impede or
frustrate the accumulation of shares by any purchaser of the securities of the
Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-Up Entity). The Partnership may not participate in any
proposed Roll-Up which would limit the ability of a Limited Partner to exercise
the voting rights of his securities in the Roll-Up Entity on the basis of the
limited partnership interests or other indicia of ownership held by that Limited
Partner.
(viii) The Partnership may not participate in any proposed
Roll-Up in which the Limited Partners' rights of access to the records of the
Roll-Up Entity will be less than those provided for under Section VII.D. of the
NASAA Guidelines.
(ix) The Partnership may not participate in any proposed
Roll-Up in which any of the costs of the transaction would be borne by the
Partnership if the proposed Roll-Up is not approved by a Majority Vote of the
Limited Partners.
(x) The Partnership may not participate in any proposed
Roll-Up in which the rights of Limited Partners are not protected as to fees of
General Partners. The rights of Limited Partners shall be presumed not to be
protected as to fees of General Partners if: (A) General Partners are not
prevented from receiving both unearned management fees discounted to a present
value, if those fees were not previously provided for in this Agreement and
disclosed to Limited Partners, and new asset-based fees; (B) property management
fees and other management fees are not appropriate, not reasonable and greater
than what would be paid to third parties for performing similar services; or (C)
changes in fees which are substantial and adverse to Limited Partners are not
approved by an independent committee according to the facts and circumstances of
each transaction. For purposes of this provision, "management fee" means a fee
paid to the General Partners, their Affiliates, or other persons for management
and administration of the limited partnership Roll-Up Entity.
(xi) The Person proposing a Roll-Up shall pay all
solicitation expenses related to the transaction, including all preparatory work
related thereto, in the event the Roll-Up is not approved. For purposes of this
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<PAGE>
provision, "solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees related to the
solicitation, as well as direct solicitation compensation to brokers and
dealers.
(xii) The Partnership may not participate in any proposed
Roll-Up in which a broker or dealer receives compensation for soliciting votes
or tenders from Limited Partners in connection with the Roll-Up unless that
compensation: (A) is payable and equal in amount regardless of whether the
Limited Partner votes affirmatively or negatively in the proposed Roll-Up; (B)
in the aggregate, does not exceed 2% of the exchange value of the newly created
securities; and (C) is paid regardless of whether the Limited Partners reject
the proposed Roll-Up.
11.4 EXPENSES OF THE PARTNERSHIP.
---------------------------
(a) Subject to Sections 11.4(b) and 11.4(c) below, the Partnership
shall reimburse the General Partners for (i) all Organization and Offering
Expenses incurred by them, and (ii) the actual cost to them of goods and
materials used for or by the Partnership and obtained from entities unaffiliated
with the General Partners.
(b) Except as provided below and in Sections 11.4(a) and 11.4(c), all
of the Partnership's expenses shall be billed directly to and paid by the
Partnership. The General Partners may be reimbursed for the administrative
services necessary to the prudent operation of the Partnership provided that the
reimbursement shall be at the lower of the General Partners' actual cost or the
amount the Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic location. No payment
or reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursements shall be: (i) rent or depreciation, utilities, capital
equipment, other administrative items; and (ii) salaries, fringe benefits,
travel expenses and other administrative items incurred by or allocated to any
controlling Persons of the General Partners or their Affiliates. A controlling
Person, for purposes of this Section 11.4(b), shall be deemed to include, but
not be limited to, any Person, whatever his title, who performs functions for
the General Partners similar to those of: (A) chairman or member of the Board
of Directors; (B) executive management, including the President, Vice President
or Senior Vice President, Corporate Secretary and Treasurer; (C) senior
management, such as the Vice President of an operating division who reports
directly to executive management; or (D) those holding a 5% or more equity
interest in Wells Partners, L.P. or Wells Capital, Inc. or a Person having the
power to direct or cause the direction of the General Partners, whether through
the ownership of voting securities, by contract or otherwise. It is not
intended that every person who carries a title such as vice president, secretary
or treasurer be considered a controlling Person. The General Partners believe
that their employees and those of their Affiliates who will perform services for
the Partnership for which reimbursement is allowed pursuant to this Section
11.4(b) have the experience and educational background, in their respective
fields of expertise, appropriate for the performance of such services.
The annual report to investors shall include a breakdown of the costs
reimbursed to the General Partners pursuant to this subsection. Within the
scope of the annual audit of the General Partners' financial statements, the
independent certified public accountant must verify the allocation of such costs
to the Partnership. The method of verification shall at a minimum provide:
(I) A review of the time records of individual
employees, the cost of whose services were reimbursed; and
(II) A review of the specific nature of the work
performed by each such employee. The methods of verification shall be in
accordance with generally accepted auditing standards and shall, accordingly,
include such tests of the accounting records and such other auditing procedures
which the GeneralPartners' independent certified public accountant considers
appropriate under the circumstances. The additional cost of such verification
will be itemized by said accountants on a program-by-program basis and may be
reimbursed to the General Partners by the Partnership in accordance with this
subsection only to the extent that such reimbursement when added to the cost for
services rendered does not exceed the allowable rate for such services as
determined above.
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(c) The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership (i) overhead expenses of the General Partners
and their Affiliates; (ii) expenses and salaries related to the performance of
those services for which the General Partners and their Affiliates are entitled
to compensation by way of Acquisition and Advisory Fees, Partnership and
property management fees or real estate brokerage commissions related to the
resale of Partnership Properties (provided, however, that the foregoing shall in
no way limit the payment or reimbursement of legal, travel, employee-related
expenses and other out-of-pocket expenses which are directly related to a
particular Partnership Property and not prohibited by Section 11.4(b) above);
and (iii) all other administrative expenses which are unrelated to the business
of the Partnership. The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership, Partnership Organization and Offering
Expenses (other than commissions paid to broker-dealers and other underwriting
compensation) to the extent they exceed 3% of the gross proceeds of the Offering
of Units.
(d) Subject to the provisions of paragraphs (b) and (c) of this
Section 11.4, the Partnership shall pay the following expenses of the
Partnership:
(i) Partnership Organization and Offering Expenses (other
than commissions paid to broker-dealers and other underwriting compensation)
which do not exceed 3% of the gross proceeds of the Offering of Units;
(ii) underwriting compensation, including broker-dealer
selling commissions and the dealer manager fee, payable in an amount not to
exceed 10% of the gross proceeds of the Offering of Units, plus a maximum of .5%
of the gross proceeds of the Offering of Units for reimbursement of bona fide
due diligence expenses to be paid out of Organization and Offering Expenses
subject to the limitation of Section 11.4(d)(i) above.
(iii) All operational expenses of the Partnership, which may
include, but are not limited to: (A) all costs of personnel employed by the
Partnership or directly involved in the business of the Partnership, including
Persons who may also be employees of the General Partners or their Affiliates,
including but not limited to, salaries and other employee-related expenses,
travel and other out-of-pocket expenses of such personnel which are directly
related to a particular Partnership Property; (B) all costs of borrowed money,
taxes and assessments on Partnership Properties and other taxes applicable to
the Partnership; (C) legal, accounting, audit, brokerage and other fees; (D)
fees and expenses paid to independent contractors, brokers and servicers,
leasing agents, consultants, on-site managers, real estate brokers, mortgage
brokers, insurance brokers and other agents; and (E) expenses in connection with
the disposition, replacement, alteration, repair, remodeling, refurbishment,
leasing and operation of Partnership Properties (including the costs and
expenses of foreclosures, legal and accounting fees, insurance premiums, real
estate brokerage and leasing commissions and maintenance connected with such
Property); and
(iv) All accounting, documentation, professional and
reporting expenses of the Partnership, which may include, but are not limited
to: (A) preparation and documentation of Partnership bookkeeping, accounting and
audits; (B) preparation and documentation of budgets, economic surveys, Cash
Flow projections and Repurchase Reserve and working capital requirements; (C)
preparation and documentation of Partnership federal and state tax returns; (D)
printing, engraving and other expenses and documents evidencing ownership of an
interest in the Partnership or in connection with the business of the
Partnership; (E) expenses of insurance as required in connection with the
business of the Partnership, including, without limitation, life and disability
insurance with respect to any individual General Partner; (F) expenses in
connection with distributions made by the Partnership to, and communications,
bookkeeping and clerical work necessary in maintaining relations with, Limited
Partners, including the costs of printing and mailing to such Persons
certificates for the Units and reports of the Partnership, and of preparing
proxy statements and soliciting proxies in connection therewith; (G) expenses in
connection with preparing and mailing reports required to be furnished to
Limited Partners for investing, tax reporting or other purposes, including
reports required to be filed with the Securities and Exchange Commission and
other federal or state regulatory agencies, or expenses associated with
furnishing reports to Limited Partners which the General Partners deem to be in
the best interests of the Partnership; (H) expenses of revising, amending,
converting, modifying or terminating the Partnership; (I) costs incurred in
connection with any litigation in which the Partnership is involved as well as
any examination, investigation or other proceedings conducted of the Partnership
by any regulatory agency, including legal and accounting fees incurred in
connection therewith; (J) costs of any computer equipment or services used for
or by the
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Partnership; (K) costs of any accounting, statistical or bookkeeping equipment
necessary for the maintenance of the books and records of the Partnership; (L)
costs of preparation and dissemination of information and documentation relating
to potential sale, financing or other disposition of Partnership Properties; and
(M) supervision and expenses of professionals employed by the Partnership in
connection with any of the foregoing, including attorneys, accountants and
appraisers.
11.5 LIMITATION ON LIABILITY OF THE GENERAL PARTNERS; INDEMNIFICATION OF
-------------------------------------------------------------------
THE GENERAL PARTNERS.
- --------------------
(a) Neither the General Partners nor any of their Affiliates
(hereinafter, an "Indemnified Party") shall be liable, responsible or
accountable in damages or otherwise to any other Partner, the Partnership, its
receiver or trustee (the Partnership, its receiver or trustee are hereinafter
referred to as "Indemnitors") for, and the Indemnitors agree to indemnify, pay,
protect and hold harmless each Indemnified Party (on the demand of such
Indemnified Party) from and against any and all liabilities, obligations,
losses, damages, actions, judgments, suits, proceedings, reasonable costs,
reasonable expenses and disbursements (including, without limitation, all
reasonable costs and expenses of defense, appeal and settlement of any and all
suits, actions or proceedings instituted against such Indemnified Party or the
Partnership and all reasonable costs of investigation in connection therewith)
(collectively referred to as "Liabilities" for the remainder of this Section)
which may be imposed on, incurred by, or asserted against such Indemnified Party
or the Partnership in any way relating to or arising out of any action or
inaction on the part of the Partnership or on the part of such Indemnified Party
in connection with services to or on behalf of the Partnership (and with respect
to an Indemnified Party which is an Affiliate of the General Partners for an act
which the General Partners would be entitled to indemnification if such act were
performed by them) which such Indemnified Party in good faith determined was in
the best interest of the Partnership. Notwithstanding the foregoing, each
Indemnified Party shall be liable, responsible and accountable, and neither the
Partnership nor any Indemnitor shall be liable to an Indemnified Party, for any
portion of such Liabilities which resulted from such Indemnified Party's (i) own
fraud, negligence, misconduct or knowing violation of law, (ii) breach of
fiduciary duty to the Partnership or any Partner, or (iii) breach of this
Agreement, regardless of whether or not any such act was first determined by the
Indemnified Party, in good faith, to be in the best interest of the Partnership.
If any action, suit or proceeding shall be pending against the Partnership or
any Indemnified Party relating to or arising out of any such action or inaction,
such Indemnified Party shall have the right to employ, at the reasonable expense
of the Partnership (subject to the provisions of Section 11.5(b) below),
separate counsel of such Indemnified Party's choice in such action, suit or
proceeding. The satisfaction of the obligations of the Partnership under this
Section shall be from and limited to the assets of the Partnership and no
Limited Partner shall have any personal liability on account thereof.
(b) Cash advances from Partnership funds to an Indemnified Party
for legal expenses and other costs incurred as a result of any legal action
initiated against an Indemnified Party by a Limited Partner are prohibited. Cash
advances from Partnership funds to an Indemnified Party for reasonable legal
expenses and other costs incurred as a result of any legal action or proceeding
are permissible if (i) such suit, action or proceeding relates to or arises out
of any action or inaction on the part of the Indemnified Party in the
performance of its duties or provision of its services on behalf of the
Partnership; (ii) such suit, action or proceeding is initiated by a third party
who is not a Limited Partner; and (iii) the Indemnified Party undertakes to
repay any funds advanced pursuant to this Section in the cases in which such
Indemnified Party would not be entitled to indemnification under Section 11.5(a)
above. If advances are permissible under this Section, the Indemnified Party
shall have the right to bill the Partnership for, or otherwise request the
Partnership to pay, at any time and from time to time after such Indemnified
Party shall become obligated to make payment therefor, any and all amounts for
which such Indemnified Party believes in good faith that such Indemnified Party
is entitled to indemnification under Section 11.5(a) above. The Partnership
shall pay any and all such bills and honor any and all such requests for payment
within 60 days after such bill or request is received. In the event that a final
determination is made that the Partnership is not so obligated for any amount
paid by it to a particular Indemnified Party, such Indemnified Party will refund
such amount within 60 days of such final determination, and in the event that a
final determination is made that the Partnership is so obligated for any amount
not paid by the Partnership to a particular Indemnified Party, the Partnership
will pay such amount to such Indemnified Party within 60 days of such final
determination.
(c) Notwithstanding anything to the contrary contained in Section
11.5(a) above, neither the General Partners nor any of their Affiliates nor any
Person acting as a broker-dealer with respect to the Units shall be indemnified
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from any liability, loss or damage incurred by them arising due to an alleged
violation of federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Party, or (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Party, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular
Indemnified Party and finds that indemnification of the settlement and related
costs should be made. Prior to seeking a court approval for indemnification,
the General Partners shall undertake to cause the party seeking indemnification
to apprise the court of the position of the Securities and Exchange Commission,
the California Commissioner of the Department of Corporations, the Massachusetts
Securities Division, the Missouri Securities Division, the Nebraska Bureau of
Securities, the Oklahoma Department of Securities, the Pennsylvania Securities
Commission, the Tennessee Securities Division and the Texas State Securities
Board with respect to indemnification for securities violations.
(d) The Partnership shall not incur the cost of the portion of any
insurance which insures any party against any liability as to which such party
is prohibited from being indemnified as set forth above.
(e) For purposes of this Section 11.5, an Affiliate of the General
Partner shall be indemnified by the Partnership only in circumstances where the
Affiliate has performed an act on behalf of the Partnership or the General
Partners within the scope of the authority of the General Partners and for which
the General Partners would have been entitled to indemnification had such act
been performed by them.
ARTICLE XII
SERVICES TO PARTNERSHIP BY GENERAL PARTNERS
12.1 ACQUISITION AND ADVISORY SERVICES. The General Partners and their
---------------------------------
Affiliates shall perform acquisition and advisory services in connection with
the review and evaluation of potential real property acquisitions for the
Partnership, which services shall include, but shall not be limited to, an
analysis of: (a) the geographic market in which any such property is located,
including market demand analyses; (b) the physical condition of any existing
structures, appurtenances and service systems; (c) the availability of
contractors and engineers; (d) zoning and other governmental restrictions
applicable to the use or development of the property; and (e) income and expense
forecasts. In consideration for such services, including services rendered with
respect to properties which are considered for acquisition by the Partnership
but are not acquired, the General Partners and their Affiliates shall be paid
Acquisition and Advisory Fees in an amount of up to 3% of Capital Contributions,
provided that such amount does not exceed the limitations set forth in Section
12.2 hereof. The Acquisition and Advisory Fee shall be accrued as Units are
sold by the Partnership and shall be payable upon receipt by the Partnership of
such Capital Contributions, whether such fees relate to properties which are
acquired which are income-producing properties or raw land to be developed or to
properties which are not acquired. The General Partners shall refund to the
Partnership any such fees which are received in advance of the services to be
rendered and for which services are not subsequently rendered. In addition to
such fees, the Partnership shall bear any expenses of independent appraisers,
market analysts or other such Persons not affiliated with the General Partners
who may be engaged to evaluate potential real estate acquisitions and
developments by or on behalf of the Partnership.
12.2 LIMITATIONS ON ACQUISITION FEES.
-------------------------------
(a) Acquisition and Advisory Fees paid in connection with the
organization of the Partnership and the purchase and development of Partnership
Properties and with respect to each particular Partnership Property shall be
paid only for services actually rendered, and in no event will the total of all
Acquisition Fees, including the Acquisition and Advisory Fees paid to the
General Partners or their Affiliates, exceed the lesser of the compensation
customarily charged in arm's-length transactions by others rendering similar
services as an ongoing public activity in the same geographic location and for
comparable property or an amount equal to 18% of Capital Contributions. The
limitation imposed hereby will be complied with at any given time on an ongoing
basis. Within 30 days after completion of the last acquisition, the General
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<PAGE>
Partners shall forward to the California Commissioner of the Department of
Corporations a schedule, verified under penalties of perjury, reflecting:
(i) each acquisition made;
(ii) the purchase price paid;
(iii) the aggregate of all Acquisition Fees paid on each
transaction; and
(iv) a computation showing compliance with Rule 260.140.113.3
adopted pursuant to the California Corporate Securities Law of 1968.
(b) The General Partners intend to acquire Partnership Properties
on an all cash basis and shall commit a percentage of Capital Contributions to
Investment in Properties acquired by the Partnership in an amount which is equal
to at least 80% of Capital Contributions. For such purposes, working capital
reserves in an aggregate amount not in excess of 5% of Capital Contributions
shall be deemed to be committed to the purchase, development, construction or
improvement of properties acquired by the Partnership. Anything contained in
this Agreement to the contrary notwithstanding, at a minimum the General
Partners shall commit a percentage of the Capital Contributions to Investment in
Properties which is equal to at least 80% of the Capital Contributions.
12.3 PROPERTY MANAGEMENT SERVICES. The General Partners shall cause the
----------------------------
Partnership to employ a property management company (which may be an Affiliate
of the General Partners) to perform professional property management services
for the Partnership. In the event the property management company is an
Affiliate of the General Partners, the compensation payable to such Affiliate
shall be equal to the lesser of (a) fees which would be charged by Persons who
are not affiliated with the General Partners rendering comparable services in
the same geographic area, or (b) 4.5% of Gross Revenues of the properties
managed. The foregoing limitation will include all leasing, re-leasing and
leasing related services. In the case of industrial and commercial properties
which are leased on a long-term (ten or more years) net lease basis, the maximum
property management fee from such leases shall be 1% of Gross Revenues, except
for a one time initial leasing fee of 3% of Gross Revenues on each lease payable
over the first five full years of the original term of the lease. Included
within such fees should be bookkeeping services and fees paid to non-related
Persons for property management services. In addition, in connection with the
initial lease-up of newly constructed properties, the Partnership may also pay a
separate competitive fee for the one time initial rent-up or leasing-up of a
newly constructed property, provided such services are not included in the
Purchase Price of the property.
12.4 INSURANCE SERVICES PROHIBITED. Neither the General Partners nor any
-----------------------------
of their Affiliates may receive an insurance brokerage fee or write any
insurance policy covering the Partnership or any Partnership Properties.
12.5 DEVELOPMENT AND CONSTRUCTION SERVICES PROHIBITED. Neither the General
------------------------------------------------
Partners nor any of their Affiliates (except any Persons affiliated with the
General Partners only through their employment by the Partnership) may receive
any development or construction fees or any other fees or other compensation
from the Partnership in connection with the development or construction of
Partnership Properties, except with respect to expense reimbursements
specifically authorized under Section 11.4 hereof.
12.6 REAL ESTATE COMMISSIONS ON RESALE OF PROPERTIES. The General Partners
-----------------------------------------------
and their Affiliates may perform real estate brokerage services for the
Partnership in connection with the resale of property by the Partnership;
provided that the compensation therefor to the General Partners or their
Affiliates in connection with the sale of a particular property shall not exceed
the lesser of (a) 50% of the reasonable, customary and competitive real estate
brokerage commission normally and customarily paid for the sale of a comparable
property in light of the size, type and location of the property, or (b) 3% of
the gross sales price of the property; and provided, further, that payments of
said compensation shall be made only after the Partnership has distributed to
each Limited Partner or his Assignee from Nonliquidating Distributions or
Liquidating Distributions, as the case may be, an aggregate amount in cash which
is equal to 100% of his Capital Contribution (less all
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<PAGE>
amounts, if any, theretofore distributed as a return of unused capital pursuant
to Section 8.10), and has distributed to each Limited Partner or Assignee from
all sources an additional amount equal to a 6% per annum cumulative (but not
compounded) return on his Net Capital Contribution, calculated from the date of
his admission into the Partnership; and provided, further, that the General
Partners and their Affiliates may receive such real estate commission only if
they provide substantial services in connection with the sales effort. The
aggregate real estate commission paid to all parties involved in the sale of a
Partnership Property shall not exceed the lesser of: (a) the reasonable,
customary and competitive real estate brokerage commission normally and
customarily paid for the sale of a comparable property in light of the size,
type and location of the property, or (b) 6% of the gross sales price of such
property.
Notwithstanding the foregoing, neither the General Partners nor any of
their Affiliates shall be granted an exclusive right to sell or exclusive
employment to sell any property on behalf of the Partnership.
12.7 REBATES, GIVE-UPS AND RECIPROCAL ARRANGEMENTS.
---------------------------------------------
(a) No rebates or give-ups may be received by any of the General
Partners or their Affiliates nor may the General Partners or their Affiliates
participate in any reciprocal business arrangements which would circumvent the
provisions of this Agreement.
(b) None of the General Partners nor any of their Affiliates shall,
or shall knowingly permit any underwriter, dealer or salesman to, directly or
indirectly, pay or award any finder's fees, commissions or other compensation to
any Person engaged by a potential investor for investment advice as an
inducement to such advisor to recommend the purchase of interests in the
Partnership; provided, however, that this clause shall not prohibit the normal
sales commissions payable to a registered broker-dealer or other properly
licensed Person (including the General Partners and their Affiliates) for
selling Partnership Units.
12.8 OTHER SERVICES. Other than as specifically provided in this Agreement
--------------
or in the Prospectus, neither the General Partners nor their Affiliates shall be
compensated for services rendered to the Partnership. The General Partners and
their Affiliates cannot receive any fees or other compensation from the
Partnership except as specifically provided for in this Article XII, in Articles
IX, X or XI hereof or in the "Compensation of the General Partners and
Affiliates" section of the Prospectus.
ARTICLE XIII
TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP
13.1 SALES AND LEASES TO THE PARTNERSHIP. The Partnership shall not
-----------------------------------
purchase or lease investment properties, other than as provided in Section
11.3(i) hereof, in which any of the General Partners or their Affiliates have an
interest or from any entity in which the General Partners or their Affiliates
have an interest. The provisions of this Section 13.1 notwithstanding, the
General Partners or their Affiliates may temporarily enter into contracts
relating to investment properties to be assigned to the Partnership prior to
closing or may purchase property in their own names and temporarily hold title
thereto for the purpose of facilitating the acquisition of such property for the
Partnership, provided that such property is purchased by the Partnership for a
price no greater than the cost of such property to the General Partners or their
Affiliates (including closing and carrying costs), that in no event shall the
Partnership purchase property from the General Partners or their Affiliates if
such entity has held title to such property for more than 12 months prior to the
commencement of the Offering, that the General Partners or their Affiliates
shall not sell property to the Partnership if the cost of the property exceeds
the funds reasonably anticipated to be available to the Partnership to purchase
such property, and that all profits and losses during the period any such
property is held by the General Partners or their Affiliates will accrue to the
Partnership; and provided further, that there is no other benefit to the General
Partners or any Affiliate of the General Partners apart from compensation
otherwise permitted by this Agreement.
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13.2 SALES AND LEASES TO THE GENERAL PARTNERS. The Partnership shall not
----------------------------------------
sell or lease any Partnership Property to the General Partners or their
Affiliates.
13.3 LOANS. No loans may be made by the Partnership to any of the General
-----
Partners or their Affiliates.
13.4 DEALINGS WITH RELATED PROGRAMS. Except as permitted by Sections
------------------------------
11.3(i) and 13.1 hereof, the Partnership shall not acquire property from or sell
property to any Person in whom any of the General Partners or any of their
Affiliates have an interest.
13.5 COMMISSIONS ON REINVESTMENT OR DISTRIBUTION. The Partnership shall
-------------------------------------------
not pay, directly or indirectly, a commission or fee (except as permitted under
Article XII hereof) to a General Partner in connection with the reinvestment or
distribution of the proceeds of the sale, exchange or financing of Partnership
Properties.
ARTICLE XIV
INDEPENDENT ACTIVITIES OF PARTNERS
Any of the Partners may engage in or possess an interest in other business
ventures of every nature and description, independently or with others,
including, but not limited to, the ownership, financing, leasing, management,
syndication, brokerage and development of real property of any kind whatsoever
(including properties which may be similar to those owned by the Partnership),
and neither the Partnership nor any of the Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom, provided that the General Partners shall in no way be
relieved of their fiduciary duty owed to the Partnership. In the event that the
Partnership, the General Partners or any Affiliate or any entity formed or
managed by the General Partners or their Affiliates is in the market for similar
properties, the General Partners will review the investment portfolio of each
partnership and each such affiliated entity and will decide which entity will
acquire a particular property on the basis of such factors as, among others,
anticipated cash flow, the effect of the purchase price on diversification of
the portfolio of each such entity, the estimated income tax effects of the
purchase on each such entity, the amount of funds which each such entity has
available for investment, and the length of time funds of each such entity have
been available for investment.
ARTICLE XV
BOOKS, REPORTS, FISCAL AND TAX MATTERS
15.1 BOOKS. The General Partners shall maintain full and complete books
-----
and records for the Partnership at its principal office, and all Limited
Partners and their designated representatives shall have the right to inspect,
examine and copy at their reasonable cost such books at reasonable times. The
books of account for financial accounting purposes shall be kept in accordance
with generally accepted accounting principles. The books of account for income
tax purposes shall be kept on a cash or an accrual basis, as determined in the
discretion of the General Partners. Limited Partner suitability records shall
be maintained for at least six years. In addition, the General Partners shall
maintain an alphabetical list of the names, addresses and business telephone
numbers of the Limited Partners of the Partnership along with the number of
Units held by each of them (the "Participant List") as a part of the books and
records of the Partnership which shall be available for inspection by any
Limited Partner or his designated representative at the home office of the
Partnership upon the request of the Limited Partner. The Participant List shall
be updated at least quarterly to reflect changes in the information contained
therein. A copy of the Participant List shall be mailed to any Limited Partner
requesting the Participant List within ten (10) days of the request. The copy
of the Participant List to be mailed to a Limited Partner shall be printed in
alphabetical order, on white paper, and in readily readable type size (in no
event smaller than 10-point type). A reasonable charge for copy work may be
charged by the Partnership. The purposes for which a Limited Partner may
request a copy of the Participant
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List include, without limitation, matters relating to the Limited Partners'
voting rights under this Agreement and the exercise of the Limited Partners'
rights under federal proxy laws. If the General Partners of the Partnership
neglect or refuse to exhibit, produce or mail a copy of the Participant List as
requested, they shall be liable to the Limited Partner requesting the list for
the costs, including attorneys' fees, incurred by that Limited Partner for
compelling the production of the Participant List and for actual damages
suffered by the Limited Partner by reason of such refusal or neglect. It shall
be a defense that the actual purpose and reason for a request for inspection of
or a request for a copy of the Participant List is to secure such list of
Limited Partners or other information for the purpose of selling such list or
copies thereof or for the purpose of using the same for a commercial purpose
other than in the interest of the applicant as a Limited Partner relative to the
affairs of the Partnership. The General Partners may require any Limited Partner
requesting the Participant List to represent that the list is not requested for
a commercial purpose unrelated to such Limited Partner's interest in the
Partnership. The remedies provided hereunder to Limited Partners requesting
copies of the Participant List are in addition to, and shall not in any way
limit, other remedies available to Limited Partners under federal law or under
the laws of any state.
15.2 REPORTS. The General Partners shall prepare or cause to be prepared
-------
the following reports:
(a) ACQUISITION REPORTS. At least quarterly within 60 days after the
-------------------
end of each quarter during which the Partnership has acquired real property, an
"Acquisition Report" of any real property acquisitions within the prior quarter
shall be sent to all Limited Partners. Such report shall describe the real
properties and all improvements contemplated to be developed thereon and include
a description of the geographic locale and of the market upon which the General
Partners are relying in projecting successful development and operation of the
properties. All facts which reasonably appear to the General Partners to
influence materially the value of the property shall be disclosed, including the
present or proposed use of the property and its suitability or adequacy for such
use and the terms of any material lease affecting the property. The Acquisition
Report shall also include, by way of illustration and not of limitation, a
statement of the date and amount of the appraised value, a statement of the
actual Purchase Price including terms of the purchase and an estimate of all
proposed subsequent expenditures for development or other improvement of the
property, a statement that title insurance and any required performance bonds or
other assurances in accordance with Section 11.3(k) hereof with respect to
builders have been or will be obtained on the property, a statement of the total
amount of cash expended by the Partnership to acquire each Partnership Property,
and a statement regarding the amount of proceeds of the Offering of Units (in
both dollar amount and as a percentage of the net proceeds of the Offering of
Units available for investment) which remain unexpended or uncommitted. In
addition, the Acquisition Report shall identify any real properties, by location
and a description of their general character, which the General Partners
presently intend to be acquired by or leased to the Partnership.
(b) ANNUAL REPORT. Within 120 days after the end of each fiscal year
-------------
an annual report shall be sent to all the Limited Partners and Assignees which
shall include (i) a balance sheet as of the end of such fiscal year, together
with a profit and loss statement, a statement of cash flows and a statement of
Partners' capital for such year, which financial statements shall be prepared in
accordance with generally accepted accounting principles and shall be
accompanied by an auditor's report containing an opinion of the independent
certified public accountant for the Partnership; (ii) a Cash Flow statement
(which need not be audited); (iii) a report of the activities of the Partnership
for such year; (iv) a report on the distributions from (A) Cash Flow during such
period, (B) Cash Flow from prior periods, (C) proceeds from the disposition of
Partnership Property and investments, (D) reserves from the proceeds of the
Offering of Units, and (E) lease payments on net leases with builders and
sellers; and (v) a report setting forth the compensation paid to the General
Partners and their Affiliates during such year and a statement of the services
performed in consideration therefor. In addition, commencing eight years after
termination of the Offering, such annual report shall include a notification to
the Limited Partners of their right pursuant to Section 20.2 hereof to request
that the General Partners formally proxy the Limited Partners to determine
whether the assets of the Partnership should be liquidated. Such annual report
shall also include such other information as is deemed reasonably necessary by
the General Partners to advise the Limited Partners of the affairs of the
Partnership.
(c) QUARTERLY REPORTS. If and for as long as the Partnership is
-----------------
required to file quarterly reports on Form 10-Q with the Securities and Exchange
Commission, financial information substantially similar to the financial
information contained in each such report for a quarter shall be sent to the
Limited Partners within 60 days after the end of
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<PAGE>
such quarter. Whether or not such reports are required to be filed, each Limited
Partner will be furnished within 60 days after the end of each of the first
three quarters of each Partnership fiscal year an unaudited financial report for
that quarter including a profit and loss statement, a balance sheet and a cash
flow statement. Such reports shall also include such other information as is
deemed reasonably necessary by the General Partners to advise the Limited
Partners of the affairs of the Partnership.
(d) REPORT OF FEES. The Partnership's annual and quarterly reports
--------------
on Form 10-K and 10-Q for any period during which the General Partners or any of
their Affiliates receive fees for services from the Partnership shall set forth
(i) a statement of the services rendered, and (ii) the amount of fees received.
(e) TAX INFORMATION. Within 75 days after the end of each fiscal
---------------
year (in the event that the fiscal year of the Partnership remains on a calendar
year basis, and within 120 days after the end of each fiscal year in the event
that the Partnership's fiscal year is changed to some annual period other than a
calendar year pursuant to Section 15.3 hereof), there shall be sent to all the
Limited Partners and Assignees all information necessary for the preparation of
each Limited Partner's federal income tax return and state income and other tax
returns in regard to jurisdictions where Partnership Properties are located.
(f) ERISA REPORT. The General Partners shall furnish each Limited
------------
Partner an annual statement of estimated Unit value. Such annual statement
shall report the value of each Unit based upon the General Partners' estimate of
the amount a holder thereof would receive if Partnership Properties were sold as
of the close of the Partnership's fiscal year and if the proceeds therefrom
(without reduction for selling expenses), together with any other funds of the
Partnership, were distributed in a liquidation of the Partnership (provided
that, with respect to the first three full fiscal years following termination of
the Offering the value of a Unit shall be deemed to be $10.00). In addition, the
General Partners shall obtain the opinion of an independent third party that
their estimate of Unit value is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. The estimated Unit value shall be
reported to the Limited Partners in the next annual or quarterly report on Form
10-K or 10-Q sent to the Limited Partners following the completion of the
valuation process.
(g) PERFORMANCE REPORTING. The Partnership's annual and quarterly
---------------------
reports on Form 10-K and 10-Q shall set forth the year-to-date amount of cash
flow available for distribution, as such term is generally defined in existing
Guidelines for Partnership Agreement Provisions issued by the International
Association for Financial Planning, and shall contain a detailed reconciliation
of the Partnership's net income for financial reporting purposes to the
Partnership's cash flow available for distribution for the periods covered by
the report. In addition, the notes to the Partnership's financial statements
included in its annual reports on Form 10-K shall contain a detailed
reconciliation of the Partnership's net income for financial reporting purposes
to net income for tax purposes for the periods covered by the report.
(h) EXPENSE REPORTING. The notes to the Partnership's financial
-----------------
statements included in its annual reports on Form 10-K shall contain a category-
by-category breakdown of the general and administrative expenses incurred by the
Partnership for the periods covered by the report. This breakdown shall reflect
each type of general and administrative expense incurred by the Partnership
(e.g. investor relations, independent accountants, salaries, rent, utilities,
insurance, filing fees, legal fees, etc.) and the amount charged to the
Partnership for each category of expense incurred.
(i) OTHER REPORTS. The General Partners shall cause to be prepared
-------------
and timely filed with appropriate federal and state regulatory and
administrative bodies all reports to be filed with such entities under then
currently applicable laws, rules and regulations. Such reports shall be
prepared on the accounting or reporting basis required by such regulatory
bodies. Any Limited Partner shall be provided with a copy of any such report
upon request without expense to him.
(j) CESSATION OF REPORTS. In the event the Securities and Exchange
--------------------
Commission promulgates rules that allow a reduction in reporting requirements,
the Partnership may cease preparing and filing certain of the above reports if
the General Partners determine such action to be in the best interests of the
Partnership; provided, however, that the Partnership will continue to file any
reports mandated under state law.
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<PAGE>
15.3 FISCAL YEAR. The Partnership shall adopt a fiscal year beginning on
-----------
the first day of January and ending on the last day of December of each year;
provided, however, that the General Partners in their sole discretion may,
subject to approval by the IRS, at any time without the approval of the Limited
Partners, change the Partnership's fiscal year to a period to be determined by
the General Partners.
15.4 TAX ELECTIONS.
-------------
(a) No election shall be made by the Partnership or any Partner to be
excluded from the application of the provisions of Subchapter K of the Code or
from any similar provisions of state or local income tax laws.
(b) Upon the transfer of all or part of a Partner's or Assignee's
interest in the Partnership or upon the death of an individual Limited Partner
or Assignee, or upon the distribution of any property to any Partner or
Assignee, the Partnership, at the General Partners' option and in their sole
discretion, may file an election, in accordance with applicable Treasury
Regulations, to cause the basis of Partnership Property to be adjusted for
federal income tax purposes, as provided by Sections 734, 743 and 754 of the
Code; and similar elections under provisions of state and local income tax laws
may, at the General Partners' option, also be made.
15.5 BANK ACCOUNTS. The cash funds of the Partnership shall be deposited
-------------
in commercial bank account(s) at such banks or other institutions insured by the
Federal Deposit Insurance Corporation as the General Partners shall determine.
Disbursements therefrom shall be made by the General Partners in conformity with
this Agreement. The funds of the Partnership shall not be commingled with the
funds of any other Person, except in the case of funds held by a joint venture
or partnership permitted pursuant to the provisions of Section 11.3(i) above.
15.6 INSURANCE. The Partnership shall at all times maintain comprehensive
---------
insurance, including fire, liability and extended coverage insurance in amounts
determined by the General Partners to be adequate for the protection of the
Partnership. In addition, the Partnership shall carry appropriate worker's
compensation insurance and such other insurance with respect to the real
property owned by it as shall be customary for similar property, similarly
located, from time to time.
15.7 TAXATION AS PARTNERSHIP. The General Partners, while serving as such,
-----------------------
agree to use their best efforts to cause compliance at all times with the
conditions to the continued effectiveness of any opinion of counsel obtained by
the Partnership to the effect that the Partnership will be classified as a
partnership for federal income tax purposes.
15.8 TAX MATTERS.
-----------
(a) The General Partners may or may not, in their sole and absolute
discretion, make any or all elections which they are entitled to make on behalf
of the Partnership and the Partners for federal, state and local tax purposes,
including, without limitation, any election, if permitted by applicable law: (i)
to extend the statute of limitations for assessment of tax deficiencies against
Partners with respect to adjustments to the Partnership's federal, state or
local tax returns; and (ii) to represent the Partnership and the Partners before
taxing authorities or courts of competent jurisdiction in tax matters affecting
the Partnership and the Partners in their capacity as Partners and to execute
any agreements or other documents relating to or settling such tax matters,
including agreements or other documents that bind the Partners with respect to
such tax matters or otherwise affect the rights of the Partnership or the
Partners.
(b) Wells Partners is designated as the "Tax Matters Partner" in
accordance with Section 6231(a)(7) of the Code and, in connection therewith and
in addition to all other powers given thereunder, shall have all other powers
needed to perform fully hereunder including, without limitation, the power to
retain all attorneys and accountants of its choice and the right to manage
administrative tax proceedings conducted at the partnership level by the IRS
with respect to Partnership matters. Any Partner has the right to participate
in such administrative proceedings relating to the determination of partnership
items at the Partnership level. Expenses of such administrative proceedings
undertaken by the Tax Matters Partner will be paid for out of the assets of the
Partnership. Each Limited Partner who elects to participate in such proceedings
will be responsible for any expense incurred by such Limited Partner in
connection with such participation.
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<PAGE>
Further, the cost to a Limited Partner of any adjustment and the cost of any
resulting audit or adjustment of a Limited Partner's return will be borne solely
by the affected Limited Partner. The designation made in this Section 15.8(b) is
expressly consented to by each Partner as an express condition to becoming a
Partner. The Partnership hereby indemnifies Wells Partners from and against any
damage or loss (including attorneys' fees) arising out of or incurred in
connection with any action taken or omitted to be taken by it in carrying out
its responsibilities as Tax Matters Partner, provided such action taken or
omitted to be taken does not constitute fraud, negligence, breach of fiduciary
duty or misconduct. In the event the Partnership should become required to
register with the IRS as a tax shelter, Wells Partners shall be the "designated
organizer" of the Partnership and the "designated person" for maintaining lists
of investors in the Partnership, and shall take such actions as shall be
required to register the Partnership and to maintain lists of investors in the
Partnership as may be required pursuant to Sections 6111 and 6112 of the Code.
ARTICLE XVI
RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS
16.1 POWERS OF THE LIMITED PARTNERS. The Limited Partners shall take no
------------------------------
part in the management of the business or transact any business for the
Partnership and shall have no power to sign for or bind the Partnership;
provided, however, that the Limited Partners, by a Majority Vote, without the
concurrence of the General Partners, shall have the right to:
(a) Amend this Agreement, but not as to the matters specified in
Section 11.2(b) hereof, which matters the General Partners alone may amend
without vote of the Limited Partners;
(b) Dissolve the Partnership;
(c) Remove a General Partner or any successor General Partner;
(d) Elect a new General Partner or General Partners upon the removal
of a General Partner or any successor General Partner, or upon the occurrence of
an Event of Withdrawal or death of a General Partner or any successor General
Partner;
(e) Approve or disapprove a transaction entailing the sale of all or
substantially all of the real properties acquired by the Partnership, except in
connection with the orderly liquidation and winding up of the business of the
Partnership upon its termination and dissolution; and
(f) Change the business purpose or investment objectives of the
Partnership.
16.2 RESTRICTIONS ON POWER TO AMEND. Notwithstanding Section 16.1 hereof,
------------------------------
this Agreement shall in no event be amended to change the limited liability of
the Limited Partners without the vote or consent of all of the Limited Partners,
nor shall this Agreement be amended to diminish the rights or benefits to which
any of the General Partners or Limited Partners are entitled under the
provisions of this Agreement, without the consent of a majority of the Units
held by the Partners who would be adversely affected thereby, and in the case of
the General Partners being singularly affected, then by a majority vote of the
General Partners.
16.3 LIMITED LIABILITY. No Limited Partner shall be liable for any debts
-----------------
or obligations of the Partnership in excess of his or its Capital Contribution.
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<PAGE>
16.4 MEETINGS OF, OR ACTIONS BY, THE LIMITED PARTNERS.
------------------------------------------------
(a) Meetings of the Limited Partners to vote upon any matters as to
which the Limited Partners are authorized to take action under this Agreement
may be called at any time by any of the General Partners and shall be called by
the General Partners upon the written request of Limited Partners holding 10% or
more of the outstanding Units by delivering written notice within ten days after
receipt of such written request, either in person or by certified mail, to the
Limited Partners entitled to vote at such meeting to the effect that a meeting
will be held at a reasonable time and place convenient to the Limited Partners
and which is not less than 15 days nor more than 60 days after the receipt of
such request; provided, however, that such maximum periods for the giving of
notice and the holding of meetings may be extended for an additional 60 days if
such extension is necessary to obtain qualification or clearance under any
applicable securities laws of the matters to be acted upon at such meeting or
clearance by the appropriate governing agency of the solicitation materials to
be forwarded to the Limited Partners in connection with such meeting. The
General Partners agree to use their best efforts to obtain such qualifications
and clearances. Included with the notice of a meeting shall be a detailed
statement of the action proposed, including a verbatim statement of the wording
on any resolution proposed for adoption by the Limited Partners and of any
proposed amendment to this Agreement. All expenses of the meeting and
notification shall be borne by the Partnership.
(b) A Limited Partner shall be entitled to cast one vote for each
Unit that he owns. Attendance by a Limited Partner at any meeting and voting in
person shall revoke any written proxy submitted with respect to action proposed
to be taken at such meeting. Any matter as to which the Limited Partners are
authorized to take action under this Agreement or under law may be acted upon by
the Limited Partners without a meeting and any such action shall be as valid and
effective as action taken by the Limited Partners at a meeting assembled, if
written consents to such action by the Limited Partners are signed by the
Limited Partners entitled to vote upon such action at a meeting who hold the
number of Units required to authorize such action and are delivered to a General
Partner.
(c) The General Partners shall be responsible for enacting all needed
rules of order for conducting all meetings and shall keep, or cause to be kept,
at the expense of the Partnership, an accurate record of all matters discussed
and action taken at all meetings or by written consent. The records of all said
meetings and written consents shall be maintained at the principal place of
business of the Partnership and shall be available for inspection by any Partner
at reasonable times.
ARTICLE XVII
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS
17.1 WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS; ADMISSION OF SUCCESSOR OR
--------------------------------------------------------------------
ADDITIONAL GENERAL PARTNERS.
- ---------------------------
(a) Except as provided in this Article XVII, until the dissolution of
the Partnership, neither General Partner shall take any voluntary step to
dissolve itself or to withdraw from the Partnership. In addition, Leo F. Wells,
III hereby agrees with the Partnership and its Partners that he will not sell or
otherwise voluntarily transfer or convey a majority or controlling interest in
the outstanding stock of Wells Real Estate Funds, Inc. to any non-affiliated
person or entity without first obtaining a Majority Vote of the Limited Partners
consenting to any such sale, transfer or conveyance.
(b) With the consent of all the other General Partners and a Majority
Vote of the Limited Partners after being given 90 days written notice, any
General Partner may at any time designate one or more Persons to be additional
General Partners, with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may agree
upon, provided that the interests of the Limited Partners shall not be affected
thereby.
B-37
<PAGE>
(c) Except in connection with the admission of an additional General
Partner pursuant to paragraph (b) of this Section 17.1, no General Partner shall
have any right to retire or withdraw voluntarily from the Partnership, to
dissolve itself or to sell, transfer or assign the General Partner's interest
without the concurrence of the Limited Partners by a Majority Vote; provided,
however, that any General Partner may, without the consent of any other General
Partner or the Limited Partners to the extent permitted by law and consistent
with Section 17.1(a) hereof (i) substitute in its stead as General Partner any
entity which has, by merger, consolidation or otherwise, acquired substantially
all of such General Partner's assets, stock or other evidence of equity interest
and continued its business, and (ii) cause to be admitted to the Partnership an
additional General Partner or Partners if it deems such admission to be
necessary or desirable to enable the General Partner to use its best efforts to
maintain its net worth at a level sufficient to assure that the Partnership will
be classified as a partnership for federal income tax purposes; provided,
however, that such additional General Partner or Partners shall have no
authority to manage or control the Partnership under this Agreement, there is no
change in the identity of the persons who have authority to manage or control
the Partnership, and the admission of such additional General Partner or
Partners does not materially adversely affect the Limited Partners.
(d) A General Partner may be removed from the Partnership upon the
Majority Vote of the Limited Partners; provided, however, that if such General
Partner is the last remaining General Partner, such removal shall not be
effective until 90 days after the notice of removal has been sent to such
General Partner. In the event of the removal of the last remaining General
Partner, the Limited Partners may by Majority Vote elect a new General Partner
at any time prior to the effective date of the removal of said last remaining
General Partner.
(e) Any voluntary withdrawal by any General Partner from the
Partnership or any sale, transfer or assignment by such General Partner of his
interest in the Partnership shall be effective only upon the admission in
accordance with paragraph (b) of this Section 17.1 of an additional General
Partner.
(f) A General Partner shall cease to be such upon the occurrence of
an Event of Withdrawal of such General Partner; provided, however, the last
remaining General Partner shall not cease to be a General Partner until 120 days
after the occurrence of an Event of Withdrawal.
17.2 LIMITED PARTNERS' INTEREST. Except as specifically provided in this
----------------------------
Article XVII, none of the Limited Partners shall sell, transfer, encumber or
otherwise dispose of, by operation of law or otherwise, all or any part of his
or its interest in the Partnership. No assignment shall be valid or effective
unless in compliance with the conditions contained in this Agreement, and any
unauthorized transfer or assignment shall be void ab initio.
17.3 RESTRICTIONS ON TRANSFERS.
-------------------------
(a) No Unit may be transferred, sold, assigned or exchanged if the
transfer or sale of such Unit, when added to the total of all other transfers or
sales of Units within the period of 12 consecutive months prior to the proposed
date of sale or exchange, would, in the opinion of counsel for the Partnership,
result in the termination of the Partnership under Section 708 of the Code
unless the Partnership and the transferring holder shall have received a ruling
from the IRS that the proposed sale or exchange will not cause such termination.
(b) No transfer or assignment may be made if, as a result of such
transfer, a Limited Partner (other than one transferring all of his Units) will
own fewer than the minimum number of Units required to be purchased under
Section 8.5(b) hereof, unless such transfer is made on behalf of a Retirement
Plan, or such transfer is made by gift, inheritance, intra-family transfer,
family dissolution or to an Affiliate.
(c) No transfer or assignment of any Unit may be made if counsel for
the Partnership is of the opinion that such transfer or assignment would be in
violation of any state securities or "Blue Sky" laws (including investment
suitability standards) applicable to the Partnership.
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<PAGE>
(d) All Units originally issued pursuant to qualification under the
California Corporate Securities Law of 1968 shall be subject to, and all
documents of assignment and transfer evidencing such Units shall bear, the
following legend condition:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS
SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY
CONSIDERATION THEREFOR, WITHOUT THE PRIOR WRITTEN CONSENT OF THE
COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT
AS PERMITTED IN THE COMMISSIONER'S RULES."
(e) No transfer or assignment of any interest in the Partnership
shall be made (i) in the case of Units subject to Section 17.3(d) hereof, unless
the transferor shall have obtained, if necessary, the consent of the California
Commissioner of the Department of Corporations to such transfer, (ii) unless the
transferee shall have paid or, at the election of the General Partners,
obligated himself to pay, all reasonable expenses connected with such transfer,
substitution and admission, including, but not limited to, the cost of preparing
an appropriate amendment to this Agreement to effectuate the transferee's
admission as a substituted Limited Partner pursuant to Section 17.4 hereof, or
(iii) where the assignor and Assignee agree in connection therewith that the
assignor shall exercise any residual powers remaining in him as a Limited
Partner in favor of or in the interest or at the direction of the Assignee.
(f) With the exception of intra-family transfers or transfers made by
gift, inheritance or family dissolution, no transfer or assignment of any
interest in the Partnership shall be made unless the transferee has either (i) a
net worth of at least $45,000 and an annual gross income of at least $45,000 or
(ii) a net worth of at least $150,000 or (iii) satisfied any higher suitability
standards that may apply in the transferee's state of primary residence. For
purposes of the foregoing standards, net worth is computed exclusive of home,
furnishings and automobiles. Each transferee will be required to represent that
he complies with the applicable standards, that he is purchasing in a fiduciary
capacity for a Person meeting such standards, or that he is purchasing with
funds directly or indirectly supplied by a donor who meets such standards. No
transfer may be made to any Person who does not make such representation.
(g) No Limited Partner may transfer or assign any Units or beneficial
ownership interests therein (whether by sale, exchange, repurchase, redemption,
pledge, hypothecation or liquidation), and any such purported transfer shall be
void ab initio and shall not be recognized by the Partnership or be effective
for any purpose unless (i) the General Partners determine, in their sole
discretion, that the Partnership would be able to satisfy any of the secondary
market safe harbors contained in Treasury Regulations Section 1.7704-1 (or any
other applicable safe harbor from publicly traded partnership status which may
be adopted by the IRS) for the Partnership's taxable year in which such transfer
otherwise would be effective, or (ii) the Partnership has received an opinion of
counsel satisfactory to the General Partners or a favorable IRS ruling that any
such transfer will not result in the Partnership's being classified as a
publicly traded partnership for federal income tax purposes. The Limited
Partners agree to provide all information with respect to a proposed transfer
that the General Partners deem necessary or desirable in order to make such
determination, including but not limited to, information as to whether the
transfer occurred on a secondary market (or the substantial equivalent thereof).
(h) Any purported transfer or assignment not satisfying all of the
foregoing conditions shall be void ab initio, and no purported transfer or
assignment shall be of any effect unless all of the foregoing conditions have
been satisfied.
17.4 SUBSTITUTED LIMITED PARTNERS. Except as otherwise provided in this
----------------------------
Agreement, an Assignee of the whole or any portion of a Limited Partner's
interest in the Partnership shall not have the right to become a substituted
Limited Partner in place of his assignor unless (a) the assignment instrument
shall have been in form and substance satisfactory to the General Partners; (b)
the assignor and Assignee named therein shall have executed and acknowledged
such other instrument or instruments as the General Partners may deem necessary
or desirable to effectuate such admission, including but not limited to, the
Assignee's agreement in writing that he will not, directly or indirectly, create
for the Partnership, or facilitate the trading of such interest on, a secondary
market (or the substantial equivalent thereof) within the meaning of Section
7704 of the Code; and (c) the Assignee shall have accepted, adopted and approved
in writing all of the terms and
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<PAGE>
provisions of this Agreement, as the same may have been amended. Assignees of
Units will be recognized by the Partnership as substituted Limited Partners as
of the commencement of the first fiscal quarter of the Partnership following the
fiscal quarter which includes the effective date of the assignment and in which
the foregoing conditions are satisfied, notwithstanding the time consumed in
preparing the documents necessary to effectuate the substitution.
17.5 ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST WITHOUT SUBSTITUTION.
---------------------------------------------------------------
Subject to the transfer restrictions of Section 17.3, a Limited Partner shall
have the right to assign all or part of such Limited Partner's interest in Units
by a written instrument of assignment. The assigning Limited Partner shall
deliver to the General Partners a written instrument of assignment in form and
substance satisfactory to the General Partners, duly executed by the assigning
Limited Partner or his personal representative or authorized agent, including an
executed acceptance by the Assignee of all the terms and provisions of this
Agreement and the representations of the assignor and Assignee that the
assignment was made in accordance with all applicable laws and regulations
(including investment suitability requirements). Said assignment shall be
accompanied by such assurance of genuineness and effectiveness and by such
consents or authorizations of any governmental or other authorities as may be
reasonably required by the General Partners. The Partnership shall recognize
any such assignment not later than the last day of the calendar month following
receipt of notice of the assignment and all required documentation, and an
Assignee shall be entitled to receive distributions and allocations from the
Partnership attributable to the Partnership interest acquired by reason of any
such assignment from and after the first day of the fiscal quarter following the
fiscal quarter in which the assignment of such interest takes place. The
Partnership and the General Partners shall be entitled to treat the assignor of
such Partnership interest as the absolute owner thereof in all respects, and
shall incur no liability for distributions made in good faith to such assignor,
until such time as the written instrument of assignment has been received by the
Partnership and recorded on its books.
17.6 WITHDRAWAL OF LIMITED PARTNER. Except as otherwise specifically
-----------------------------
permitted by this Agreement, no Limited Partner shall be entitled to withdraw or
retire from the Partnership.
17.7 DEATH, LEGAL INCOMPETENCY OR DISSOLUTION OF LIMITED PARTNER. Upon the
-----------------------------------------------------------
death, legal incompetency or dissolution of a Limited Partner, the estate,
personal representative, guardian or other successor in interest of such Limited
Partner shall have all of the rights and be liable for all the obligations of
the Limited Partner in the Partnership to the extent of such Limited Partner's
interest therein, subject to the terms and conditions of this Agreement, and,
with the prior written consent of the General Partners, which may be withheld at
their sole discretion, may be substituted for such Limited Partner.
17.8 ELIMINATION OR MODIFICATION OF RESTRICTIONS. Notwithstanding any of
-------------------------------------------
the foregoing provisions of this Article XVII, the General Partners may amend
this Agreement to eliminate or modify any restriction on substitution or
assignment at such time as the restriction is no longer necessary.
ARTICLE XVIII
LOANS TO PARTNERSHIP
18.1 AUTHORITY TO BORROW. The General Partners shall cause the Partnership
-------------------
to purchase and own all Partnership Properties on an unleveraged basis, and the
Partnership shall not incur any indebtedness except for loans which are
authorized pursuant to Section 11.3(e) hereof.
18.2 LOANS FROM PARTNERS. If any Partner shall make any loan or loans to
-------------------
the Partnership or advance money on its behalf pursuant to Section 11.3(e)
hereof, the amount of any such loan or advance shall not be deemed to be an
additional Capital Contribution by the lending Partner or entitle such lending
Partner to an increase in his share of the distributions of the Partnership, or
subject such Partner to any greater proportion of the losses which the
Partnership may sustain. The amount of any such loan or advance shall be a debt
due from the Partnership to such lending Partner repayable upon such terms and
conditions and bearing interest at such rates as shall be mutually agreed upon
by the lending Partner and the General Partners; provided, however, that a
General Partner as a lending Partner may not receive interest and other
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<PAGE>
financing charges or fees in excess of the amount which would be charged by
unrelated banks on comparable loans for the same purpose in the same area. No
prepayment charge or penalty shall be required by a General Partner on a loan to
the Partnership. Notwithstanding the foregoing, (a) no Partner
shall be under any obligation whatsoever to make any such loan or advance to the
Partnership, and (b) neither the General Partners nor any of their Affiliates
shall provide permanent financing to the Partnership.
ARTICLE XIX
POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS
19.1 POWER OF ATTORNEY. Each Limited Partner, by becoming a Limited
-----------------
Partner and adopting this Agreement, constitutes and appoints the General
Partners and each of them and any successor to the General Partners as his true
and lawful attorney-in-fact, in his name, place and stead, from time to time:
(a) To execute, acknowledge, swear to, file and/or record all
agreements amending this Agreement that may be appropriate:
(i) To reflect a change of the name or the location of the
principal place of business of the Partnership;
(ii) To reflect the disposal by any Limited Partner of his
interest in the Partnership, or any Units constituting a part thereof, in any
manner permitted by this Agreement, and any return of the Capital Contribution
of a Limited Partner (or any part thereof) provided for by this Agreement;
(iii) To reflect a Person's becoming a Limited Partner of the
Partnership as permitted by this Agreement;
(iv) To reflect a change in any provision of this Agreement or
the exercise by any Person of any right or rights hereunder not requiring the
consent of said Limited Partner;
(v) To reflect the addition or substitution of Limited
Partners or the reduction of Capital Accounts upon the return of capital to
Partners;
(vi) To add to the representations, duties or obligations of
the General Partners or their Affiliates or surrender any right or power granted
to the General Partners or their Affiliates herein for the benefit of the
Limited Partners;
(vii) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with law or with any other provision
herein, or to make any other provision with respect to matters or questions
arising under this Agreement which will not be inconsistent with law or with the
provisions of this Agreement;
(viii) To delete, add or modify any provision to this Agreement
required to be so deleted, added or modified by the staff of the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. or by
a State Securities Commissioner or similar such official, which addition,
deletion or modification is deemed by such Commission or official to be for the
benefit or protection of the Limited Partners;
(ix) To make all filings as may be necessary or proper to
provide that this Agreement shall constitute, for all purposes, an agreement of
limited partnership under the laws of the State of Georgia as they may be
amended from time to time;
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(x) Upon notice to all Limited Partners, to amend the provisions
of Article X of this Agreement, or any other related provision of this Agreement
(provided, however, the General Partners shall first have received an opinion of
counsel to the Partnership that such amendment will not materially adversely
diminish the interests of the Limited Partners) to ensure that (A) the
allocations and distributions contained in Article X comply with Treasury
Regulations relating to Section 704 of the Code or any other statute, regulation
or judicial interpretation relating to such allocations, or (B) the periodic
allocations set forth in Article X will be respected under Section 706 of the
Code or any other statute, regulation or judicial interpretation relating to
such periodic allocations, or (C) the provisions of this Agreement will comply
with any applicable federal or state legislation enacted after the date of this
Agreement; to take such steps as the General Partners determine are advisable or
necessary in order to preserve the tax status of the Partnership as an entity
which is not taxable as a corporation for federal income tax purposes including,
without limitation, to compel a dissolution and termination of the Partnership;
to terminate the Offering of Units; to compel a dissolution and termination of
the Partnership or to restructure the Partnership's activities to the extent the
General Partners deem necessary (after consulting with counsel) to comply with
any exemption in the "plan asset" regulations adopted by the Department of Labor
in the event that either (I) the assets of the Partnership would constitute
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or (II) the transactions contemplated hereunder
would constitute "prohibited transactions" under ERISA or the Code and an
exemption for such transactions is not obtainable or not sought by the General
Partners from the United States Department of Labor; provided, the General
Partners are empowered to amend such provisions only to the minimum extent
necessary (in accordance with the advice of accountants and counsel) to comply
with any applicable federal or state legislation, rules, regulations or
administrative interpretations thereof after the date of this Agreement, and
that any such amendment(s) made by the General Partners shall be deemed to be
made pursuant to the fiduciary obligations of the General Partners to the
Partnership; and
(xi) To eliminate or modify any restriction on substitution or
assignment contained in Article XVII at such time as the restriction is no
longer necessary.
(b) To execute, acknowledge, swear to, file or record such
certificates, instruments and documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction, or as may be
appropriate for the Limited Partners to execute, acknowledge, swear to, file or
record to reflect:
(i) Any changes or amendments of this Agreement, or pertaining to
the Partnership, of any kind referred to in paragraph (a) of this Section 19.1;
or
(ii) Any other changes in, or amendments of, this Agreement, but
only if and when the consent of a Majority Vote or other required percentage of
the Limited Partners has been obtained.
Each of such agreements, certificates, instruments and documents shall be
in such form as the General Partners and legal counsel for the Partnership shall
deem appropriate. Each Limited Partner hereby authorizes the General Partners
to take any further action which the General Partners shall consider necessary
or convenient in connection with any of the foregoing, hereby giving said
attorney-in-fact full power and authority to do and perform each and every act
and thing whatsoever requisite, necessary or convenient to be done in and about
the foregoing as fully as said Limited Partner might or could do if personally
present and hereby ratifies and confirms all that said attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. The power hereby conferred
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Partners under this Agreement will be relying upon the
power of the General Partners to act as contemplated by this Agreement in any
filing and other action by them on behalf of the Partnership, and shall survive
the bankruptcy, death, adjudication of incompetence or insanity, or dissolution
of any Person hereby giving such power and the transfer or assignment of all or
any part of the Units of such Person; provided, however, that in the event of
the transfer by a Limited Partner of all of his Units, the foregoing power of
attorney of a transferor Limited Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
substituted Limited Partner and all required documents and instruments shall
have been duly executed, sworn to, filed and recorded to effect such
substitution.
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<PAGE>
19.2 REQUIRED SIGNATURES. Any writing to amend this Agreement to reflect
-------------------
the addition of a Limited Partner need be signed only by a General Partner, by
the Limited Partner who is disposing of his interest in the Partnership, if any,
and by the Person to be substituted or added as a Limited Partner. The General
Partners, or either of them, may sign for either or both of said Limited
Partners as their attorney-in-fact pursuant to paragraph (a) of Section 19.1
hereof. Any writing to amend this Agreement to reflect the removal or
withdrawal of a General Partner in the event the business of the Partnership is
continued pursuant to the terms of this Agreement need be signed only by a
remaining or a new General Partner.
19.3 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the others,
--------------------
agrees to perform any further acts and execute and deliver any further documents
which may be reasonably necessary to carry out the provisions of this Agreement.
ARTICLE XX
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
20.1 DISSOLUTION. Except as otherwise provided in this Section 20.1, no
-----------
Partner shall have the right to cause dissolution of the Partnership before the
expiration of the term for which it is formed. The Partnership shall be
dissolved and terminated upon the happening of any of the following events:
(a) The expiration of the term of the Partnership as specified in
Article VI hereof;
(b) The decision by Majority Vote of the Limited Partners to dissolve
and terminate the Partnership;
(c) The entry of a decree of judicial dissolution by a court of
competent jurisdiction, provided that the foregoing shall not apply if the
Partnership files a voluntary petition seeking reorganization under the
bankruptcy laws;
(d) The retirement or withdrawal of a General Partner unless (i) the
remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, the Limited Partners, within 120 days from the date
of such event, elect by Majority Vote to continue the business of the
Partnership and elect a new General Partner pursuant to Section 20.3 below;
(e) The effective date of the removal of a General Partner unless (i)
the remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, Limited Partners, prior to the effective date of such
removal, elect by Majority Vote to continue the business of the Partnership and
elect a new General Partner pursuant to Section 20.3 below;
(f) The effective date of an Event of Withdrawal of a General Partner
unless (i) the remaining General Partner, if any, elects to continue the
business of the Partnership within 90 days from the date of such Event of
Withdrawal, or (ii) if there is no remaining General Partner, the Limited
Partners, within 120 days from the date of such Event of Withdrawal, elect by
Majority Vote to continue the business of the Partnership and elect a new
General Partner pursuant to Section 20.3 below;
(g) The sale or other disposition of all of the interests in real
estate (including, without limitation, purchase money security interests and
interests in joint ventures or other entities owning interests in real estate)
of the Partnership; or
(h) The election by the General Partners to terminate the
Partnership, without the consent of any Limited Partner, in the event that
either (i) the Partnership's assets constitute "plan assets," as such term is
defined for purposes of ERISA, or (ii) any of the transactions contemplated by
this Agreement constitute a "prohibited transaction" under
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<PAGE>
ERISA or the Code and no exemption for such transaction is obtainable from the
United States Department of Labor or the General Partners determine in their
discretion not to seek such an exemption.
In the Event of Withdrawal of a General Partner resulting in only one
General Partner remaining, such remaining General Partner shall be obligated to
elect to continue the business of the Partnership within 90 days from the date
of such Event of Withdrawal.
The Partnership shall not be dissolved or terminated by the admission of
any new Limited Partner or by the withdrawal, expulsion, death, insolvency,
bankruptcy or disability of a Limited Partner.
20.2 PROXY TO LIQUIDATE. At any time commencing eight years after the
------------------
termination of the Offering, upon receipt by the General Partners of written
requests from Limited Partners holding 10% or more of the outstanding Units (the
"Proxy Request") directing that the General Partners formally proxy the Limited
Partners to determine whether the assets of the Partnership should be liquidated
(the "Proxy to Liquidate"), the General Partners shall send a Proxy to Liquidate
to each Limited Partner within 60 days of receipt of the Proxy Request, or as
soon as reasonably practicable thereafter following the receipt of independent
appraisals of Partnership Properties which the Partnership shall obtain as part
of this proxy process, and the filing and review of such Proxy to Liquidate by
the Securities and Exchange Commission. The General Partners shall not be
required to send Proxies to Liquidate to Limited Partners more frequently than
once during every two (2) year period. To insure that Limited Partners are
adequately informed when casting their votes, the Proxy to Liquidate furnished
to each Limited Partner shall include financial information setting forth per
Unit pro forma tax and financial projections which assume that all Partnership
Properties will be sold immediately at prices consistent with their appraised
values, or such other information as the General Partners deem appropriate and
informative, provided in all such cases that the furnishing of such information
to Limited Partners shall not contravene applicable law or applicable rules and
regulations of the Securities and Exchange Commission regarding the solicitation
of proxies. The Proxy to Liquidate shall contain a 45 day voting deadline, and
the actual voting results shall be tabulated by the Partnership's independent
accountants who will receive the votes directly from the Limited Partners. The
General Partners shall disclose the complete voting results for the Proxy to
Liquidate in the Partnership's next annual or quarterly report on Form 10-K or
10-Q sent to the Limited Partners for the period following the date on which
voting was completed. If a Majority Vote of the Limited Partners is cast in
favor of a liquidation of the Partnership, the assets of the Partnership shall
be fully liquidated within 30 months from the close of the voting deadline
applicable to the Proxy to Liquidate. Under no circumstances, however, shall
the General Partners direct the Partnership to make distributions "in kind" of
any Partnership Properties to the Limited Partners.
20.3 LIMITED PARTNERS' RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP.
-------------------------------------------------------------------
Upon the occurrence of an event specified in paragraphs (d), (e) or (f) of
Section 20.1 above with respect to the last remaining General Partner, the
Limited Partners shall have a right prior to the effective date of the
occurrence of any such event to elect to continue the business of the
Partnership pursuant to the provisions of this Section 20.3. The effective date
of the events specified in paragraphs (d), (e) and (f) of Section 20.1 above
with respect to the last remaining General Partner shall be 120 days after the
date of any such event. In the case of the occurrence of an event specified in
paragraphs (d), (e) or (f) of Section 20.1 above, the Limited Partners may
elect, by Majority Vote within 120 days from the date of such event, to continue
the business of the Partnership and elect one or more new General Partners. The
new General Partner or General Partners so elected shall execute, deliver,
acknowledge and record an amendment to the Certificate and such other documents
and instruments as may be necessary or appropriate to effect such change.
20.4 PAYMENT TO WITHDRAWN OR REMOVED GENERAL PARTNER. Upon the retirement,
-----------------------------------------------
removal or Event of Withdrawal of a General Partner, the Partnership shall be
required to pay such General Partner any amounts then accrued and owing to such
General Partner under this Agreement. The method of payment to any such General
Partner must be fair and must protect the solvency and liquidity of the
Partnership. In addition, the Partnership shall have the right, but not the
obligation, to terminate any such General Partner's interest in Partnership
income, losses, distributions and capital upon payment to him of an amount equal
to the value of his interest in Partnership income, losses, distributions and
capital on the date of such retirement, removal or Event of Withdrawal. Such
interest shall be computed taking into account the General Partner's economic
interest in the Partnership under Articles IX and X hereof, and shall be based
upon the market
B-44
<PAGE>
value of the assets of the Partnership determined as if such assets were sold on
the date of such retirement, removal or Event of Withdrawal. In the event such
General Partner (or his representative) and the Partnership cannot mutually
agree upon such value within 90 days following such removal or withdrawal, such
value shall be determined by arbitration before a panel of three appraisers, one
of whom shall be selected by such General Partner (or his representative) and
one by the Partnership, and the third of whom shall be selected by the two
appraisers so selected by the parties. Such arbitration shall take place in
Atlanta, Georgia and shall be in accordance with the rules and regulations of
the American Arbitration Association then in force and effect. The expense of
arbitration shall be borne equally by such General Partner and the Partnership.
Payment to such General Partner of the value of his interest in Partnership
income, losses, distributions and capital shall be made by the delivery of a
promissory note (i) if the termination was voluntary, being unsecured, bearing
no interest and having principal payable, if at all, from distributions which
the General Partner would have otherwise received under this Agreement had the
General Partner not terminated; or (ii) if the termination was involuntary,
coming due in not less than five years and bearing interest at the rate of 9%
per annum, with principal and interest payable annually in equal installments.
In addition, within 120 days after the determination of the fair market value of
the former General Partner's interest, upon the vote of a majority of the
Limited Partners, the Partnership may sell such interest to one or more Persons
who may be Affiliates of the remaining General Partner or General Partners and
admit such Person or Persons to the Partnership as substitute General Partner or
Partners; provided, however, that the purchase price to be paid to the
Partnership for the Partnership interest of the former General Partner shall not
be less than its fair market value as determined by the appraisal described
above. Such substitute General Partner or Partners may pay said purchase price
in installments in the manner set forth above. In the event that such General
Partner's interest is not terminated by the Partnership pursuant to the
provisions set forth above, such interest shall convert automatically to a
special limited partnership interest having the same interest in the
Partnership's income, losses, distributions and capital as was attributable to
such interest as a General Partner. In either event, any such General Partner
who has retired, has been removed or with respect to which an Event of
Withdrawal has occurred shall have no further right to participate in the
management of the Partnership.
20.5 TERMINATION OF EXECUTORY CONTRACTS. Upon the removal or occurrence of
----------------------------------
an Event of Withdrawal of a General Partner, all executory contracts between the
Partnership and such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may be terminated and canceled by the Partnership without prior notice
or penalty. Such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may also terminate and cancel any such executory contract effective
upon 60 days prior written notice of such termination and cancellation to the
remaining or new General Partner or General Partners, if any, or to the
Partnership.
ARTICLE XXI
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
21.1 LIQUIDATION DISTRIBUTION. Upon a dissolution and final termination of
------------------------
the Partnership, the General Partners (or in the event of a General Partner's
removal or termination and, if there is no remaining General Partner, any other
Person selected by the Limited Partners) shall take account of the Partnership
assets and liabilities, and the assets shall be liquidated as promptly as is
consistent with obtaining the fair market value thereof, and the proceeds
therefrom, to the extent sufficient therefor, shall be applied and distributed
in accordance with Section 9.4 hereof.
21.2 TIME OF LIQUIDATION. A reasonable time shall be allowed for the
-------------------
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the General Partners to minimize the
losses upon a liquidation.
21.3 LIQUIDATION STATEMENT. Each of the Partners shall be furnished with a
---------------------
statement prepared or caused to be prepared by the General Partners, which shall
set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon compliance with the foregoing distribution plan, the
Limited Partners shall cease to be such,
B-45
<PAGE>
and the General Partners, as the sole remaining Partners of the Partnership,
shall execute, acknowledge and cause to be filed a Certificate of Cancellation
of the Partnership.
21.4 NO LIABILITY FOR RETURN OF CAPITAL. The General Partners shall not be
----------------------------------
personally liable for the return of all or any part of the Capital Contributions
of the Limited Partners. Any such return shall be made solely from Partnership
assets.
21.5 NO RIGHT OF PARTITION. The Partners and Assignees shall have no right
---------------------
to receive Partnership Property in kind, nor shall such Partners or Assignees
have the right to partition the Partnership Property, whether or not upon the
dissolution and termination of the Partnership.
21.6 PRIORITY; RETURN OF CAPITAL. Except as provided in this Agreement, no
---------------------------
Limited Partner shall have priority over any other Limited Partner either as to
the return of Capital Contributions or as to allocations of income and losses or
payments of distributions. Other than upon the dissolution and termination of
the Partnership as provided by this Agreement, there has been no time agreed
upon when the Capital Contribution of each Limited Partner is to be returned.
21.7 ESCHEAT OF DISTRIBUTIONS. If, upon termination and dissolution of the
------------------------
Partnership, there remains outstanding on the books of the Partnership (after a
reasonable period of time determined in the sole discretion of the General
Partners) a material amount of distribution checks which have not been
negotiated for payment by the Limited Partners, the General Partners may, if
deemed to be in the best interest of the Partnership, cause such amounts to be
redistributed pro rata to Limited Partners of record on such final distribution
date who have previously cashed all of their distribution checks; provided,
however, that neither the General Partners nor the Partnership shall be liable
for any subsequent claims for payment of such redistributed distributions. The
General Partners are not required to make such a redistribution, in which case
such amounts may eventually escheat to the appropriate state. Notwithstanding
the foregoing, the proceeds of distribution checks payable to Ohio residents
which have not been negotiated for payment within one year of the distribution
date shall be submitted to the Ohio Division of Unclaimed Funds in accordance
with the Ohio Unclaimed Funds statute, Chapter 169 of the Ohio Revised Code.
ARTICLE XXII
GENERAL PROVISIONS
22.1 NOTICES. Except as otherwise provided herein, any notice, payment,
-------
distribution or other communication which shall be required to be given to any
Partner in connection with the business of the Partnership shall be in writing
and any such notice shall become effective (a) upon personal delivery thereof,
including by overnight mail and courier service, or (b) four days after it shall
have been mailed by United States mail, first class with postage prepaid; in
each case, if to a Limited Partner, addressed to the last address furnished for
such purpose by the Limited Partner to whom it is authorized to be given as of
the time sent for delivery or as of the time of such mailing; and if to a
General Partner or the Partnership, at the principal office of the Partnership,
or at such other address as such General Partner may hereafter specify in a
notice duly given as provided herein.
22.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon and inure to
------------------
benefit of the Partners and their respective heirs, legatees, legal
representatives, successors and assigns.
22.3 AMENDMENT. Except as specifically provided herein, following the
---------
admission of Additional Limited Partners to the Partnership, this Agreement may
be amended, modified and changed only after obtaining a Majority Vote of the
Limited Partners. When voting on whether to approve or reject proposed changes
to this Agreement, Limited Partners shall be permitted to vote separately on
each significant proposed change.
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<PAGE>
22.4 HEADINGS. The captions of the articles and sections of this Agreement
--------
are for convenience only and shall not be deemed part of the text of this
Agreement.
22.5 AGREEMENT IN COUNTERPARTS. This Agreement, or any amendment hereto,
-------------------------
may be executed in counterparts each of which shall be deemed an original
Agreement, and all of which shall constitute one agreement, by each of the
Partners hereto on the dates respectively indicated in the acknowledgements of
said Partners, notwithstanding that all of the Partners are not signatories to
the original or the same counterpart, to be effective as of the day and year
first above written.
22.6 GOVERNING LAW. This Agreement shall be governed and construed
-------------
according to the laws of the State of Georgia governing partnerships; provided,
however, that causes of action for violations of federal or state securities
laws shall not be governed by this Section 22.6.
22.7 TIME. Time is of the essence in this Agreement.
----
22.8 PRONOUNS. All pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the Person or Persons may require.
22.9 SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall be
--------------------------
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation, or affect those portions, of this
Agreement which are valid.
22.10 NO MANDATORY ARBITRATION OF DISPUTES. Except as may be permitted or
------------------------------------
required pursuant to Section 20.4 hereof, nothing in this Agreement or the
Subscription Agreement to be executed by each Limited Partner shall be deemed to
require the mandatory arbitration of disputes between a Limited Partner and the
Partnership or any Sponsor. Nothing contained in this Section 22.10 is intended
to apply to preexisting contracts between broker-dealers and Limited Partners.
[THE REMAINDER OF THIS PAGE WAS INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned hereby execute this Amended and
Restated Agreement of Limited Partnership under seal as of the date and year
first above written.
INITIAL LIMITED PARTNER:
_________________________________________(SEAL)
Brian M. Conlon
GENERAL PARTNERS:
WELLS PARTNERS, L.P.
A Georgia Limited Partnership
By: WELLS CAPITAL, INC.
A Georgia Corporation
Attest: (As General Partner)
By:______________________ By:______________________
By:______________________ Leo F. Wells, III
Name:_______________ President
Title:______________
_________________________________________(SEAL)
LEO F. WELLS, III
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<PAGE>
EXHIBIT C
FORM OF SUBSCRIPTION AGREEMENT AND
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<PAGE>
EXHIBIT "C"
SUBSCRIPTION AGREEMENT
To: WELLS REAL ESTATE FUND XI, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of units of limited partnership interest
("Units") in Wells Real Estate Fund XI, L.P., a Georgia limited partnership
(the "Partnership"), set forth on such Subscription Agreement Signature Page.
Payment for the Units is hereby made by check payable to "The Bank of New York,
as Agent."
Payments for Units will be held in escrow until the Partnership has
received and accepted subscriptions for 125,000 Units ($1,250,000), except with
respect to residents of the States of New York and Pennsylvania, whose payments
for Units will be held in escrow until the Partnership has received and accepted
subscriptions for 250,000 Units ($2,500,000) from all investors.
I hereby acknowledge receipt of the Prospectus of the Partnership dated
December 31, 1997 (the "Prospectus"), which includes the Agreement of Limited
Partnership of the Partnership (the "Partnership Agreement") in the form
attached as Exhibit B to the Prospectus.
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus and
that, if admitted to the Partnership, I shall be bound by the terms and
conditions of the Partnership Agreement, including the power of attorney granted
to the General Partners in Section 19.1 thereof. Subscriptions may be rejected
in whole or in part by the General Partners in their sole and absolute
discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Units is restricted and
will be governed by the Partnership Agreement and all applicable laws as
described in the Prospectus.
(b) Prospective investors should not invest in Units unless they have an
adequate means of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
(c) There will be no public market for the Units, and accordingly, it may
not be possible to readily liquidate an investment in the Partnership.
I hereby constitute and appoint Wells Partners, L.P. and Leo F. Wells, III,
and each of them acting singly, with full power of substitution, my true and
lawful attorney-in-fact in my name, place and stead and for my use and benefit
(a) to sign, execute, deliver, certify, acknowledge, file and record a
Partnership Agreement in substantially the form attached as Exhibit B to the
Prospectus; and (b) to sign, execute, certify, acknowledge, swear to, file,
record and publish any other certificates, instruments and documents which may
be required of the Partnership under the laws of the State of Georgia or the
laws of any state or any governmental agency, or which such attorney-in-fact
deems necessary or advisable to file, record, publish, or deliver. The
foregoing grant of authority (a) is a special power of attorney coupled with an
interest, (b) is irrevocable and shall survive my death or disability, and (c)
may be exercised by such attorney-in-fact by listing my name along with the
names of all other persons for whom such attorney-in-fact is acting and
executing the Partnership Agreement and such other certificates, instruments and
documents with the single signature of a duly-authorized officer or agent of
such attorney-in-fact for all of the persons whose names are so listed.
C-1
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF
LIMITED PARTNERSHIP UNITS
260.141.11 RESTRICTIONS ON TRANSFER.
------------------------
(a) The issuer of any security upon which a restriction on transfer
has been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the
Rules (the "Rules") adopted under the California Corporate Securities Law (the
"Code") shall cause a copy of this section to be delivered to each issuee or
transferee of such security at the time the certificate evidencing the security
is delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102
of the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities laws of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113
or 25121 of the Code, of the securities to be transferred, provided that no
order under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries
who are neither domiciled or actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state;
C-2
<PAGE>
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does
not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE PRIOR
WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
SPECIAL NOTICE FOR MASSACHUSETTS, MAINE AND NEBRASKA RESIDENTS ONLY
In no event may a subscription for Units be accepted until at least
five business days after the date the subscriber receives the Prospectus.
Residents of the States of Massachusetts, Maine and Nebraska who first received
the Prospectus only at the time of subscription may receive a refund of the
subscription amount upon request to the General Partners within five days of the
date of subscription.
C-3
<PAGE>
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the trust,
the name of the trustee and the name of the beneficiary.
7. PARTNERSHIP: Identify whether the entity is a general or limited
partnership. The general partners must be identified and their signatures
obtained on the Signature Page. In the case of an investment by a general
partnership, all partners must sign (unless a "managing partner" has been
designated for the partnership, in which case he may sign on behalf of the
partnership if a certified copy of the document granting him authority to
invest on behalf of the partnership is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating the
officer(s) of the corporation authorized to sign on behalf of the corporation
and (2) a certified copy of the Board's resolution authorizing the
investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of the
trustee must be provided in order for the trustee to receive checks and other
pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT (UTMA):
The required signature is that of the custodian, not of the parent (unless
the parent has been designated as the custodian). Only one child is
permitted in each investment under UGMA or UTMA. In addition, designate the
state under which the gift is being made.
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<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE FUND XI, L.P. SUBSCRIPTION AGREEMENT
<TABLE>
<CAPTION>
________________________________________________________________________________________________________
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INVESTOR PLEASE FOLLOW THESE INSTRUCTIONS CAREFULLY. FAILURE TO DO SO MAY RESULT IN THE
INSTRUCTIONS REJECTION OF YOUR SUBSCRIPTION. ALL INFORMATION ON THE SUBSCRIPTION
AGREEMENT SIGNATURE PAGE SHOULD BE COMPLETED AS FOLLOWS:
________________________________________________________________________________________________________
1. INVESTMENT A minimum investment of $1,000 (100 Units) is required, except for certain states
which require a higher minimum investment. A CHECK FOR THE FULL
PURCHASE PRICE OF THE UNITS SUBSCRIBED FOR SHOULD BE
MADE PAYABLE TO THE ORDER OF "THE BANK OF NEW YORK, AS
AGENT." Investors who have satisfied the minimum purchase requirements in
Wells Real Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-
OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells
Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate
Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX,
L.P. or Wells Real Estate Fund X, L.P. may invest as little as $25 (2.5 Units)
except for residents of Maine, Minnesota, Nebraska or Washington. Units may be
purchased only by persons meeting the standards set forth under the Section of
the Prospectus entitled "SUITABILITY STANDARDS." Please indicate the state in
which the sale was made.
________________________________________________________________________________________________________
2. CLASS STATUS OF Please check the appropriate box to identify the status of Units (Class A or
UNITS Class B) desired. These classes of Units entitle holders to different rights under
the Partnership Agreement. For a more complete description of the differences
between the two classes of Units, see "DESCRIPTION OF THE UNITS" in the
Prospectus. If electing Class A Status for some Units and Class B Status for the
remaining Units being purchased, please complete a separate Subscription
Agreement Signature Page for each class of Units.
________________________________________________________________________________________________________
3. TYPE OF OWNERSHIP Please check the appropriate box to indicate the type of entity or type of
individuals subscribing.
________________________________________________________________________________________________________
4. REGISTRATION NAME Please enter the exact name in which the Units are to be held. For joint tenants
AND ADDRESS with right of survivorship or tenants in common, include the names of both
investors. In the case of partnerships or corporations, include the name of an
individual to whom correspondence will be addressed. Trusts should include the
name of the trustee. All investors must complete the space provided for taxpayer
identification number or social security number. By signing in Section 6, the
investor is certifying that this number is correct. Enter the mailing address and
telephone numbers of the registered owner of this investment. In the case of a
Qualified Plan or trust, this will be the address of the trustee. Indicate the
birthdate and occupation of the registered owner unless the registered owner is a
partnership, corporation or trust.
________________________________________________________________________________________________________
5. INVESTOR NAME AND Complete this Section only if the investor's name and address is different from the
ADDRESS registration name and address provided in Section 4. If the Units are registered in
the name of a trust, enter the name, address, telephone number, social security
number, birthdate and occupation of the beneficial owner of the trust.
________________________________________________________________________________________________________
6. SUBSCRIBER Please separately initial each representation made by the investor where indicated.
SIGNATURES Except in the case of fiduciary accounts, the investor may not grant any person a
power of attorney to make such representations on his or her behalf. Each
investor must sign and date this Section. If title is to be held jointly, all parties
must sign. If the registered owner is a partnership, corporation or trust, a general
partner, officer or trustee of the entity must sign. PLEASE NOTE THAT
THESE SIGNATURES DO NOT HAVE TO BE NOTARIZED.
________________________________________________________________________________________________________
</TABLE>
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7. ADDITIONAL Please check if you plan to make one or more additional investments in the
INVESTMENTS Partnership. All additional investments must be in increments of at least $25 and,
unless otherwise indicated on a new Subscription Agreement Signature Page, you
will be deemed to have elected the same status of Units (Class A or Class B) you
check in Section 2. Additional investments by residents of Maine must be for the
minimum amounts stated under "SUITABILITY STANDARDS" in the Prospectus, and
residents of Maine must execute a new Subscription Agreement Signature Page to
make additional investments in the Partnership. If additional investments in the
Partnership are made, the investor agrees to notify the General Partners and the
Broker-Dealer named on the Subscription Agreement Signature Page in writing if at
any time he fails to meet the applicable suitability standards or he is unable to
make any other representations or warranties set forth in the Prospectus or the
Subscription Agreement. The investor acknowledges that the Broker-Dealer named in
the Subscription Agreement Signature Page may receive a commission not to exceed
7% of any such additional investments in the Partnership.
________________________________________________________________________________________________________
8. DISTRIBUTIONS a. DISTRIBUTION REINVESTMENT PLAN: By electing the
Distribution Reinvestment Plan, the investor elects to reinvest all
distributions of Net Cash From Operations in the Partnership and to have
the option in the future to invest Net Cash From Operations in limited
partnerships sponsored by the General Partners or their Affiliates which
have substantially identical investment objectives as the Partnership.
Unless the General Partners are otherwise notified in writing, Units
purchased pursuant to the Distribution Reinvestment Plan will initially be
treated as Class A Status Units. The investor agrees to notify the
General Partners and the Broker-Dealer named on the Subscription
Agreement Signature Page in writing if at any time he fails to meet the
applicable suitability standards or he is unable to make any other
representations and warranties as set forth in the Prospectus or
Subscription Agreement or in the prospectus and subscription agreement
of any future limited partnerships sponsored by the General Partners or
their Affiliates. The investor acknowledges that the Broker-Dealer named
in the Subscription Agreement Signature Page may receive a commission
not to exceed 7% of any reinvested distributions.
b. DISTRIBUTION ADDRESS: If cash distributions are to be sent to an
address other than that provided in Section 5 (i.e., a bank, brokerage
firm or savings and loan, etc.), please provide the name, account number
and address.
________________________________________________________________________________________________________
9. BROKER-DEALER This Section is to be completed by the Registered Representative. Please insert
the Broker-Dealer number, the Registered Representative number and the Account
number on the first page of the Subscription Agreement Signature Page and
complete all BROKER-DEALER information contained in Section 9 including
suitability certification. SIGNATURE PAGE MUST BE SIGNED BY AN
AUTHORIZED REPRESENTATIVE.
- ---------------------------------------------------------------------------------------------------------
</TABLE>
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Partnership.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
C-6
<PAGE>
Special Instructions:
SEE PRECEDING PAGE
FOR INSTRUCTIONS
WELLS REAL ESTATE FUND XI, L.P.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
1. -------INVESTMENT-----------------------------------------------------------
MAKE INVESTMENT CHECK PAYABLE TO:
- ---------- ------------------ THE BANK OF NEW YORK,
# of Units Total $ Invested AS AGENT
(# Units x $10 = $ Invested) [ ] Initial Investment (Minimum $1,000)
[ ] Additional Investment (Minimum $25)
Minimum purchase $1,000 or 100 Units State in which sale was made
2. ------CLASS STATUS OF UNITS-------------------------------------------------
Check appropriate box.
If electing both Class A Status and Class B Status, please complete a separate
Signature page for each type of investment.
[ ] CLASS A [ ] CLASS B
(Entitled to first priority on distributions of cash flow from operations)
(Allocated certain tax deductions but no distributions of cash flow from
operations)
3. ------TYPE OF OWNERSHIP-----------------------------------------------------
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[ ] IRA (06) [ ] Individual (01)
[ ] Keogh (10) [ ] Joint Tenants With Right of Survivorship (02)
[ ] Qualified Pension Plan (11) [ ] Community Property (03)
[ ] Qualified Profit Sharing Plan (12) [ ] Tenants in Common (04)
[ ] Other Trust______________________ [ ] Custodian: A Custodian for
For the Benefit of_______________ the Uniform Gift to Minors Act or the Uniform Transfers to Minors Act
[ ] Partnership (15) of the State of ________________(08)
[ ] Other
4. ------REGISTRATION NAME AND ADDRESS-------------------------------------------
Please print name(s) in which Units are to be registered. Include trust name if applicable.
[ ] Mr [ ] Mrs [ ] Ms [ ] MD [ ] PhD [ ] DDS [ ] Other_________________
________________________________________________ Taxpayer Identification Number Social Security Number
________________________________________________ [ ][ ]-[ ][ ][ ][ ][ ][ ][ ] [ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
________________________________________________
Street Address ____________________________________________________________________________________________________
or P.O. Box ____________________________________________________________________________________________________
City __________________________________________ State_________________________________ Zip Code __________________
Home ( ) Business ( )
Telephone No.________________________________________ Telephone No._______________________________________________
Birthdate____________________________________________ Occupation __________________________________________________
5. ------INVESTOR NAME AND ADDRESS--------------------------------------------------------------------------------
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[ ] Mr [ ] Mrs [ ] Ms [ ] MD [ ] PhD [ ] DDS [ ] Other_________________
________________________________________________ Social Security Number
________________________________________________ [ ][ ][ ]-[ ][ ]-[ ][ ][ ][ ]
________________________________________________
Street Address ____________________________________________________________________________________________________
or P.O. Box ____________________________________________________________________________________________________
City __________________________________________ State_________________________________ Zip Code __________________
Home ( ) Business ( )
Telephone No.________________________________________ Telephone No._______________________________________________
Birthdate____________________________________________ Occupation __________________________________________________
___________________________________________________________________________________________________________________
(REVERSE SIDE MUST BE COMPLETED)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
6. ------SUBSCRIBER SIGNATURES------------------------------------------------------------------
Please separately initial each of the representations below. Except in the
case of fiduciary accounts, you may not grant any person a power of attorney
to make such representations on your behalf. In order to induce the General
Partners to accept this subscription, I hereby represent and warrant to you as
follows:
(REVERSE SIDE MUST BE COMPLETED)
(a) I have received the Prospectus and the Partnership Agreement. ________ ________
Initials Initials
(b) I accept and agree to be bound by the terms and conditions of
the Partnership Agreement. ________ ________
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings
and automobiles) of $150,000 or more; or (ii) a net worth
(as described above) of at least $45,000 and had during the
last tax year or estimate that I will have during the current
tax year a minimum of $45,000 annual gross income, or that I
meet the higher suitability requirements imposed by my state of
primary residence as set forth in the Prospectus under
"SUITABILITY STANDARDS." ________ ________
Initials Initials
(d) If I am a California resident or if the Person to
whom I subsequently propose to assign or transfer any
Units is a California resident, I may not consummate a
sale or transfer of my Units, or any interest therein,
or receive any consideration therefor, without the
prior written consent of the Commissioner of the
Department of Corporations of the State of California,
except as permitted in the Commissioner's Rules, and I
understand that my Units, or any document evidencing
my Units, will bear a legend reflecting the substance of
the foregoing understanding. ________ ________
Initials Initials
(e) ARKANSAS AND TEXAS RESIDENTS ONLY: I am purchasing
the Units for my own account and
acknowledge that the investment is not liquid. ________ ________
Initials Initials
I declare that the information supplied above is true and correct and may be
relied upon by the General Partners in connection with my investment as a
Limited Partner in the Partnership. Under penalties of perjury, by signing
this Signature Page, I hereby certify that (a) I have provided herein my
correct Taxpayer Identification Number, and (b) I am not subject to back-up
withholding as a result of a failure to report all interest or dividends, or
the Internal Revenue Service has notified me that I am no longer subject to
back-up withholding.
_______________________________________ _______________________________________ ____________________
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7. ------ADDITIONAL INVESTMENTS-----------------------------------------------------
Please check if you plan to make additional investments in the Partnership: [ ]
[If additional investments are made, please include social security number or
other taxpayer identification number on your check.]
[All additional investments must be made in increments of at least $25.]
8. ------DISTRIBUTIONS--------------------------------------------------------------
8a. Check the following box to participate in the Distribution Reinvestment Plan: [ ]
8b. Complete the following section only to direct distributions to a party
other than registered owner:
Name ______________________________________________________________
Account Number ______________________________________________________________
Street Address or P.O. Box ______________________________________________________________
City _________________________ State__________ Zip Code____________
9. ------BROKER-DEALER----------------------------------------------------------------
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete
order. Broker-Dealer warrants that it is a duly licensed Broker-Dealer and
may lawfully offer Units in the state designated as the investor's address or
the state in which the sale was made, if different. The Broker-Dealer or
authorized representative warrants that he has reasonable grounds to believe
this investment is suitable for the subscriber as defined in Section 3(b) of
Appendix F and that he has informed subscriber of all aspects of liquidity and
marketability of this investment as required by Section 4 of Appendix F
(Attachment No. 1 to Dealer Agreement).
Broker-Dealer Name ________________________________ Telephone No.________________________
Broker-Dealer Street ______________________________________________________________________
Address or P.O. Box ______________________________________________________________________
City _________________________________ State____________Zip Code___________
Registered
Representative Name __________________________________Telephone No._______________________
Reg. Rep. Street
Address or P.O. Box ______________________________________________________________________
City _________________________________ State____________Zip Code___________
___________________________________________ _________________________________________
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s) made payable to
The Bank of New York, as Agent to:
WELLS INVESTMENT SECURITIES, INC.
800-448-1010 or 770-449-7800
Overnight address: Mailing Address:
3885 Holcomb Bridge Road P.O. Box 926040
Norcross, Georgia 30092 Norcross, Georgia 30092-9209
FOR GENERAL PARTNER USE ONLY:
ACCEPTANCE BY GENERAL PARTNERS Amount___________________________ Date___________________
Received and Subscription Accepted: Check No.________________________ Certificate No.________
By:______________________________ Wells Real Estate Fund XI, L.P.
_____________________ ___________________________ _________________________
Broker-Dealer # Registered Representative # Account #
- ---------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
================================================================================
ALPHABETICAL INDEX
Page
----
Additional Information.................................................. 100
Compensation of the General Partners and Affiliates..................... 30
Conflicts of Interest................................................... 32
Custodial Agency Agreement.............................................. 55
Description of the Units................................................ 24
Distributions and Allocations........................................... 88
Estimated Use of Proceeds............................................... 28
Experts................................................................. 99
Federal Income Tax Consequences......................................... 62
Fiduciary Duty of the General Partners.................................. 36
Glossary................................................................ 100
Investment by Tax-Exempt Entities and ERISA
Considerations..................................................... 57
Investment Objectives and Criteria...................................... 46
Legal Opinions.......................................................... 99
Management.............................................................. 42
Management's Discussion and Analysis of Financial
Condition and Results of Operations................................ 57
Plan of Distribution.................................................... 94
Prior Performance Summary............................................... 37
Real Property Investments............................................... 56
Reports to Investors.................................................... 93
Risk Factors............................................................ 7
Suitability Standards................................................... 20
Summary of the Offering................................................. 1
Summary of Partnership Agreement........................................ 79
Supplemental Sales Material............................................. 99
===========================================================================
============================================================================
UNTIL MARCH 31, 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS SOLICITING DEALERS.
-------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS UNLESS
PRECEDED OR ACCOMPANIED BY THIS PROSPECTUS, NOR HAS ANY PERSON BEEN AUTHORIZED
TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE
CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY JURISDICTION TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR
SOLICITATION IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE PARTNERSHIP OR THE GENERAL
PARTNERS SINCE THE DATE HEREOF. HOWEVER, IF ANY MATERIAL CHANGE OCCURS WHILE
THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED, THIS PROSPECTUS WILL BE
AMENDED OR SUPPLEMENTED ACCORDINGLY.
-------------------------
WELLS REAL ESTATE FUND XI, L.P.
MINIMUM OFFERING OF $1,250,000
--------------------------
PROSPECTUS
--------------------------
WELLS INVESTMENT
SECURITIES, INC.
DECEMBER 31, 1997
================================================================================
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
SUPPLEMENT NO. 1 DATED APRIL 1, 1998 TO THE PROSPECTUS
DATED DECEMBER 31, 1997
This document supplements, and should be read in conjunction with, the
Prospectus of Wells Real Estate Fund XI, L.P. dated December 31, 1997 (the
"Prospectus"). Unless otherwise defined herein, capitalized terms used in this
Supplement shall have the same meanings as set forth in the Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of units of limited partnership interest
(the "Units") in Wells Real Estate Fund XI, L.P. (the "Partnership");
(ii) Updated Financial Statements contained in Appendix I to the
Prospectus and Prior Performance Tables included as Exhibit A to the Prospectus;
and
(iii) Revisions to the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" and "EXPERTS" sections of the
Prospectus.
STATUS OF THE OFFERING
Pursuant to the Prospectus, the offering of Units in the Partnership
commenced December 31, 1997. The Partnership commenced operations on March 3,
1998, upon the acceptance of subscriptions for the minimum offering of
$1,250,000 (125,000 Units). As of March 10, 1998, the Partnership had raised a
total of $1,742,818 in offering proceeds (174,282 Units), comprised of
$1,391,634 raised from the sale of Class A Status Units (139,164 Class A Status
Units) and $351,184 raised from the sale of Class B Status Units (35,118 Class B
Status Units).
FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
Balance Sheets of Wells Real Estate Fund XI, L.P. as of December 31, 1997
and 1996 and the financial statements of Wells Partners, L.P. and Wells Capital,
Inc. and Subsidiaries as of December 31, 1997 and 1996, and for each of the
years in the two year period ended December 31, 1997, are included in Appendix I
to this Supplement.
Prior Performance Tables dated as of December 31, 1997 are included as
Exhibit A to this Supplement.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The information contained on page 57 in the "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" section of the
Prospectus is revised as of the date of this Supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraph in
lieu thereof:
Wells Real Estate Fund XI, L.P. (the "Partnership") commenced
operations on March 3, 1998, upon the acceptance of subscriptions for the
minimum offering of $1,250,000 (125,000 Units). As of March 10, 1998, the
Partnership had raised a total of $1,742,818 in offering proceeds (174,282
Units), comprised of $1,391,634 raised from the sale of Class A Status
Units (139,164 Class A Status Units) and $351,184 raised from the sale of
Class B Status Units (35,118 Class B Status Units). After the payment of
$60,999 in Acquisition and Advisory Fees, and the payment of $217,852
selling commissions and organizational and offering expenses, as of March
10, 1998, the Partnership was holding net offering proceeds of $1,463,967
available for investment in properties.
<PAGE>
EXPERTS
The information contained on pages 99 and 100 in the "EXPERTS" section of
the Prospectus is revised as of the date of this Supplement by the insertion of
the following sentence at the end of the first paragraph under the subheading
"Audited Financial Statements":
The balance sheets of Wells Real Estate Fund XI, L.P. as of December
31, 1997 and 1996 and the financial statements of Wells Partners, L.P. and
Wells Capital, Inc. and Subsidiaries as of December 31, 1997 and 1996, and
for each of the years in the two year period ended December 31, 1997,
included in Appendix I to Supplement No. 1 to this Prospectus and elsewhere
in the Registration Statement, have been audited by Arthur Andersen LLP,
independent public accountants, as indicated in their reports with respect
thereto, and are included herein in reliance upon the authority of said
firm as experts in giving said reports.
2
<PAGE>
APPENDIX I
INDEX TO FINANCIAL STATEMENTS
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Page
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WELLS PARTNERS, L.P.
Audited Financial Statements
Report of Independent Public Accountants I-1
Balance Sheets as of December 31, 1997 and 1996 I-2
Statements of Loss for the years ended December 31, 1997 and 1996 I-3
Statements of Partners' Capital for the years ended December 31, 1997 and 1996 I-4
Statements of Cash Flows for the years ended December 31, 1997 and 1996 I-5
Notes to Financial Statements I-6
Schedule I - Market Value of Investment in Partnerships (Unaudited) I-8
WELLS CAPITAL, INC. AND SUBSIDIARIES
Audited Financial Statements
Report of Independent Public Accountants I-9
Consolidated Balance Sheets as of December 31, 1997 and 1996 I-10
Consolidated Statements of (Loss) Income for the years ended December
31, 1997 and 1996 I-11
Consolidated Statements of Stockholder's Equity for the years ended
December 31, 1997 and 1996 I-12
Consolidated Statements of Cash Flows for the years ended December 31,
1997 and 1996 I-13
Notes to Consolidated Financial Statements I-14
WELLS REAL ESTATE FUND XI, L.P.
Audited Balance Sheets
Report of Independent Public Accountants I-19
Balance Sheets as of December 31, 1997 and 1996 I-20
Notes to Balance Sheets I-21
</TABLE>
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Partners, L.P.:
We have audited the accompanying balance sheets of WELLS PARTNERS, L.P. (a
Georgia limited partnership) as of December 31, 1997 and 1996 and the related
statements of loss, partners' capital, and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Partners, L.P. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I, market value of investment
in partnerships, is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has not been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, accordingly, we express no opinion on it.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
I-1
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
CASH $ 70 $ 70
INVESTMENT IN PARTNERSHIPS 127,665 128,618
--------- ---------
Total assets $ 127,735 $ 128,688
========= =========
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
GENERAL PARTNER $ 6,761 $ 6,771
LIMITED PARTNERS 120,974 121,917
--------- ---------
Total partners' capital $ 127,735 $ 128,688
========= =========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-2
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF LOSS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
EQUITY IN LOSS OF PARTNERSHIPS $ 953 $ 1,126
======= ========
</TABLE>
The accompanying notes are an integral part of these statements.
I-3
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- --------- ---------
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $ 5,982 $ 123,032 $ 129,014
Capital contribution 800 0 800
Net loss (11) (1,115) (1,126)
------- --------- ---------
BALANCE AT DECEMBER 31, 1996 6,771 121,917 128,688
Net loss (10) (943) (953)
------- --------- ---------
BALANCE AT DECEMBER 31, 1997 $ 6,761 $ 120,974 $ 127,735
======= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
I-4
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (953) $ (1,126)
Adjustment to reconcile net loss to net cash used by operating activities:
Equity in loss of partnerships 953 1,126
------ --------
Net cash used by operating activities 0 0
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in limited partnership 0 (800)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
General partner contributions 0 800
------ --------
NET CHANGE IN CASH 0 0
CASH AT BEGINNING OF YEAR 70 70
------ --------
CASH AT END OF YEAR $ 70 $ 70
====== ========
</TABLE>
The accompanying notes are an integral part of these statements.
I-5
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Partners, L.P. (the "Partnership") is a limited partnership under the
laws of the state of Georgia. The general partner is Wells Capital, Inc.
("Wells Capital"), a Georgia corporation. The Partnership serves as the
general partner in several affiliated limited partnerships. The Partnership
is currently a general partner in Wells Real Estate Fund IV, L.P., Wells
Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate
Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund
IX, L.P. ("Fund IX"), Wells Real Estate Fund X, L.P. ("Fund X"), and Wells
Real Estate Fund XI, L.P. ("Fund XI"), collectively referred to as the
"Funds". The Partnership also owns limited partnership interests in Beaver
Ruin--Arc Way, Ltd. ("Beaver Ruin") and Carter Boulevard, Ltd. ("Carter
Boulevard").
Although, as set forth above, the Partnership is a general partner in the
Funds, Wells Capital performs certain administrative services for the Funds
on behalf of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share of
profits and losses in their individual income tax returns.
2. INVESTMENT IN PARTNERSHIPS
The Partnership does not control the Funds, Beaver Ruin, or Carter
Boulevard; however, it does exercise significant influence. Accordingly,
investment in partnerships is recorded using the equity method of
accounting. Each of the partnerships in which the Partnership invests,
except for Beaver Ruin and Carter Boulevard, has been formed with the
purpose to acquire and operate commercial real properties, including both
properties which are to be developed or are under development and properties
which are newly constructed or have operating histories. Beaver Ruin and
Carter Boulevard were formed to acquire and eventually sell the Beaver Ruin
and Carter Boulevard
I-6
<PAGE>
properties. The Partnership's investment in partnerships at December 31,
1997 and 1996 includes the following:
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
18.8% ownership interest in Beaver Ruin $ 81,529 $ 81,781
51.27% ownership interest in Carter Boulevard
45,535 45,873
Fund IX 0 164
Fund X 201 400
Fund XI 400 400
--------- ---------
$ 127,665 $ 128,618
========= =========
</TABLE>
The assets of Beaver Ruin consist primarily of a parcel of undeveloped land.
The assets of Carter Boulevard are comprised primarily of an investment in
Beaver Ruin. Carter Boulevard's ownership interest in Beaver Ruin is 12.3%.
Wells Capital is also one of the general partners of Beaver Ruin.
Fund IX owns all of its properties through an investment in two joint
ventures which, as of December 31, 1997, owned an interest in five office
buildings.
Fund X owns an office building through an investment in a joint venture as
of December 31, 1997.
Fund XI had no operations during the year ended December 31, 1997.
The Partnership is entitled to share in the allocation of cash distributions
and net income (loss) of the Funds based on the ownership percentages
outlined in the partnership agreements.
3. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an
association taxable as a corporation for federal income tax purposes. The
Partnership has requested an opinion of legal counsel as to its tax status
but such an opinion is not binding upon the Internal Revenue Service.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Partnership. In the normal course of
business, the Partnership may be subject to litigation or claims.
I-7
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
MARKET VALUE OF INVESTMENT IN PARTNERSHIPS
AS OF DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<S> <C> <C>
* 18.8% OWNERSHIP INTEREST IN BEAVER RUIN ARC WAY, LTD. $ 752,000
* 51.27% OWNERSHIP INTEREST IN CARTER BOULEVARD, LTD. 252,000
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND X, L.P. 201
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND XI, L.P. 400
-----------
$ 1,004,601
===========
</TABLE>
*The market value of the undeveloped land owned by Beaver Ruin and Carter
Boulevard is based on an appraisal by an outside party.
The accompanying notes are an integral part of this schedule.
I-8
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Wells Capital, Inc.:
We have audited the accompanying consolidated balance sheets of WELLS CAPITAL,
INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1997 and 1996
and the related consolidated statements of (loss) income, stockholder's equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
I-9
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 313,093 $ 148,873
Due from affiliates 360,023 872,843
Other receivables 0 31,300
----------- -----------
Total current assets 673,116 1,053,016
DEFERRED OFFERING COSTS 328,333 0
INVESTMENT IN PARTNERSHIPS 16,898 16,995
----------- -----------
Total assets $ 1,018,347 $ 1,070,011
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable $ 34,621 $ 204,340
Due to affiliates 579,638 0
----------- -----------
Total liabilities 614,259 204,340
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000 shares authorized, 600 shares
issued and outstanding 600 600
Contributed capital 306,541 306,541
Retained earnings 96,947 558,530
----------- -----------
Total stockholder's equity 404,088 865,671
----------- -----------
Total liabilities and stockholder's equity $ 1,018,347 $ 1,070,011
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
I-10
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
REVENUES:
Acquisition and advisory fees $ 1,085,157 $ 1,608,952
Equity in loss of limited partnerships (10) 0
----------- -----------
1,085,147 1,608,952
EXPENSES:
Salaries and wages 1,086,698 811,754
Occupancy 24,277 26,484
General and administrative 435,755 281,852
----------- -----------
1,546,730 1,120,090
----------- -----------
NET (LOSS) INCOME $ (461,583) $ 488,862
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-11
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
-------------------- CONTRIBUTED RETAINED STOCKHOLDER'S
SHARES AMOUNT CAPITAL EARNINGS EQUITY
-------------------- ----------- ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 600 $ 600 $ 306,541 $ 69,668 $ 376,809
Net income 0 0 0 488,862 488,862
----- ----- --------- ---------- ----------
BALANCE, DECEMBER 31, 1996 600 600 306,541 558,530 865,671
Net loss 0 0 0 (461,583) (461,583)
----- ----- --------- ---------- ----------
BALANCE, DECEMBER 31, 1997 600 $ 600 $ 306,541 $ 96,947 $ 404,088
===== ===== ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-12
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (461,583) $ 488,862
---------- ----------
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Equity in loss of limited partnerships 10 0
Changes in assets and liabilities:
Due from affiliates 512,820 (566,614)
Deferred offering costs (328,333) 0
Other receivables 31,300 (22,767)
Accounts payable (169,719) 119,447
Due to affiliates 579,638 0
---------- ----------
Total adjustments 625,716 (469,934)
---------- ----------
Net cash provided by operating activities 164,133 18,928
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships 87 288
Additional investment in limited partnerships 0 (800)
---------- ----------
Net cash provided by (used in) investing activities 87 (512)
---------- ----------
NET INCREASE IN CASH 164,220 18,416
CASH AT BEGINNING OF YEAR 148,873 130,457
---------- ----------
CASH AT END OF YEAR $ 313,093 $ 148,873
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
I-13
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Capital, Inc. (the "Company") was organized on April 18, 1984 as a
corporation under the Georgia Business Corporation Code. The Company is
primarily in the business of serving as a general partner in public limited
partnerships. As a general partner, the Company performs certain
administrative services for the Wells Real Estate Funds, such as accounting
and other administration, and incurs the related expenses. Such expenses are
allocated among the various Wells Real Estate Funds based on time spent on
each fund by individual administrative personnel. The sole stockholder of
the Company is Leo F. Wells, III.
The Company is a general partner in Wells Real Estate Fund I ("Fund I"),
Wells Real Estate Fund II ("Fund II"), Wells Real Estate Fund II-OW ("Fund
II-OW"), and Wells Real Estate Fund III, L.P. ("Fund III"), all of which are
Georgia public limited partnerships, and Wells Partners, L.P. ("Wells
Partners"), a Georgia limited partnership. The Company is also a limited
partner in Fund I and Fund II. The Company does not have control over the
operations of these partnerships; however, it does exercise significant
influence. Accordingly, investment in partnerships is recorded using the
equity method of accounting. Each of the partnerships, except for Wells
Partners, has been formed to acquire and operate commercial real properties,
including both properties which are to be developed or are under development
and properties which are newly constructed or have operating histories.
Wells Partners was formed during 1990 to act as a general partner for all
other Wells Real Estate Funds. Wells Partners serves as a general partner
for Wells Real Estate Fund IV, L.P. ("Fund IV"), Wells Real Estate Fund V,
L.P. ("Fund V"), Wells Real Estate Fund VI, L.P. ("Fund VI"), Wells Real
Estate Fund VII, L.P. ("Fund VII"), Wells Real Estate Fund VIII, L.P. ("Fund
VIII"), Wells Real Estate Fund IX, L.P. ("Fund IX"), Wells Real Estate Fund
X, L.P. ("Fund X"), and Wells Real Estate Fund XI, L.P. ("Fund XI"). Funds
IV, V, VI, VII, VIII, IX, X and XI have the same investment objectives as
Funds I, II, II-OW, and III.
During 1997, the Company became the sole shareholder in Wells Real Estate
Investment Trust, Inc. ("Wells REIT"), a Maryland corporation, that intends
to qualify as a real estate investment trust, as well as the sole
shareholder in Wells S&P REIT Index Fund ("Mutual Fund"). The Mutual Fund's
objective is to provide investment results corresponding to the performance
of the S&P Real Estate Investment Trust Composite Price Index (the "Index").
Wells REIT and Mutual Fund are in the initial stages of formation; neither
entity had operations during 1997. Since the Company owns 100% of Wells REIT
and Mutual Fund, these entities have been consolidated in the Company's
financial statements, and the accompanying balance sheet includes all assets
and liabilities of Wells REIT and Mutual Fund. All intercompany transactions
and balances have been eliminated.
I-14
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company elected to be treated as an S corporation effective January 1,
1987. No provision for income taxes is recorded, as any income tax liability
is the responsibility of the stockholder.
RECLASSIFICATIONS
Certain prior year items have been reclassified to conform with current year
financial statement presentation.
2. RELATED-PARTY TRANSACTIONS
The Company is entitled to share in the allocation of cash distributions and
net income (loss) from the Wells Real Estate Funds based on the percentages
outlined in the partnership agreements. The Company, as general partner,
paid all the organization and offering expenses for Fund I, Fund II, Fund
II-OW, and Fund III and was reimbursed pursuant to the partnership
agreements, which provided that the partnerships could reimburse the Company
up to 5% of total limited partners' contributions in organization and
offering expenses. The Company also paid, or is currently paying, on behalf
of Wells Partners, the organization and offering expenses for Fund IV, Fund
V, Fund VI, Fund VII, Fund VIII, Fund IX, Fund X, and Fund XI. Pursuant to
the partnership agreements of Fund IV, Fund V, and Fund XI, these three
partnerships can only pay up to 3% of total limited partners' contributions
in organization and offering expenses. The remaining partnerships can
reimburse the Company up to 5% of total limited partners' contributions in
organization and offering costs pursuant to the partnership agreements.
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund VIII of $0 and $64,620,
respectively. As of December 31, 1996, the Company had a receivable for
unreimbursed acquisition and advisory fees (Note 4) related to Fund VIII
totaling $152,501, which is included in due from affiliates; the entire
receivable was collected during 1997. During 1997 and 1996, the Company
expensed $0 and $66,684, respectively, of organization and offering costs
related to Fund VIII, which exceeded the 5% reimbursement limitation.
I-15
<PAGE>
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund IX of $24,486 and
$1,785,104, respectively, of which $5,938 and $84,800, respectively, was
paid to related parties. As of December 31, 1996, the Company had a
receivable for unreimbursed organization and offering costs and acquisition
and advisory fees (Note 4) related to Fund IX totaling $422,996, which is
included in due from affiliates; the entire receivable was collected during
1997. During 1997 and 1996, the Company expensed $24,486 and $73,296,
respectively, of organization and offering costs related to Fund IX, which
exceeded the 5% reimbursement limitation.
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund X of $1,516,779 and $97,691,
respectively, of which $23,961 and $0, respectively, was paid to related
parties. As of December 31, 1997 and 1996, the Company had a receivable for
unreimbursed organization and offering costs and acquisition and advisory
fees (Note 4) related to Fund X totaling $105,008 and $97,691, respectively,
which is included in due from affiliates. During 1997 and 1996, the Company
expensed $258,023 and $0, respectively, of organization and offering costs
related to Fund X which exceeded the 5% reimbursement limitation.
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund XI of $109,442 and $84,578,
respectively, none of which was paid to related parties. As of December 31,
1997 and 1996, the Company had a receivable for unreimbursed organization
and offering costs related to Fund XI of $194,020 and $84,578, respectively,
which is included in due from affiliates. Fund X and Fund XI filed a
registration statement with the Securities and Exchange Commission ("SEC")
for the offering and sale of their limited partnership units, which became
effective on December 31, 1996. Amendments to the registration statement
covering only Fund XI were filed with the SEC during 1997 and were declared
effective by the SEC on December 31, 1997. In order for the Company to be
reimbursed for any portion of these expenses, Fund XI will need to receive
approximately $1,250,000 in limited partners' contributions. At this time,
the Company believes that all of the foregoing organization and offering
expenses will be reimbursed.
Due from affiliates at December 31, 1997 and 1996 represents primarily
organization and offering expenses and acquisition and advisory fees paid by
the Company on behalf of Fund VIII, Fund IX, Fund X, and Fund XI. In
addition, Wells Investment Securities, Inc. agreed to reimburse the Company
for a portion of Fund IX's organization and offering expenses totaling
$104,037, which is included in due from affiliates at December 31, 1996. The
remaining due from affiliates represents operating expenses paid by the
Company on behalf of the affiliates and receivable from the Company's
shareholder. The following is a detail of due from affiliates at December
31:
<TABLE>
<CAPTION>
1997 1996
--------- ----------
<S> <C> <C>
Fund VIII $ 0 $ 152,501
Fund IX 0 422,996
Fund X 105,008 97,691
Fund XI 194,020 84,578
Wells Management Company, Inc. 0 2,113
Wells Investment Securities, Inc. 0 104,037
Shareholder 60,000 0
Other affiliates 995 8,927
--------- ---------
$ 360,023 $ 872,843
========= =========
</TABLE>
Due to affiliates includes advances from Wells Management Company, Inc., an
affiliate of the Company. Of these advances, $279,638 was used to fund the
general operations of the Company, and the remaining $300,000 was used to
fund the Company's investment in Wells REIT and Mutual Fund. The Company
anticipates repaying the entire obligation to Wells Management Company, Inc.
during 1998.
The Company's capital contribution to Wells REIT and Mutual Fund was
$201,000 and $100,000, respectively, which is included in cash in the
accompanying balance sheet. Certain regulations require the Company to
maintain these cash balances at Wells REIT and Mutual Fund;
I-16
<PAGE>
consequently, $300,000 of the Company's total cash is not available to fund
the general operations of the Company.
3. INVESTMENT IN PARTNERSHIPS
The following is a rollforward of the Company's investment in partnerships
as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Investment in partnerships, beginning of year $ 16,995 $ 16,483
Contribution to partnerships 0 800
Equity in loss of partnerships (10) 0
Distributions from partnerships (87) (288)
-------- --------
Investment in partnerships, end of year $ 16,898 $ 16,995
======== ========
</TABLE>
The Company's investment in each partnership at December 31, 1997 and 1996 is
as follows:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fund I $ 11,027 $ 11,027
Fund II 2,721 2,808
Wells Partners 3,150 3,160
-------- --------
$ 16,898 $ 16,995
======== ========
</TABLE>
As of December 31, 1997 and 1996, Fund I owned interests in a medical office
building, two commercial office buildings, three retail shopping centers,
and a project consisting of seven office buildings and a shopping center.
Fund II owns all of its properties through a joint venture, which, as of
December 31, 1997 and 1996, owned interests in a retail shopping center, a
project consisting of seven office buildings and a shopping center, two
office buildings, and a parcel of land on which a restaurant and a retail
shopping center were developed.
4. ACQUISITION AND ADVISORY FEES
Acquisition and advisory fees totaling $1,085,517 were earned from Fund X in
1997, and acquisition and advisory fees of $218,897 and $1,390,055,
respectively, were earned from Fund VIII and Fund IX in 1996. Pursuant to
the partnership agreements of Fund VIII, Fund IX, and Fund X, total fees
earned may not exceed 5% of limited partners' contributions. As of December
31, 1996, $152,501 of Fund VIII fees and $271,266 of Fund IX fees remained
uncollected and are included in due from affiliate. As of December 31, 1997,
$46,670 of Fund X fees remained uncollected and are included in due from
affiliates.
I-17
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed the indebtedness of an affiliate, Wells
Management Company, Inc. ("Wells Management"), for an amount not to exceed
$200,000. Management believes, however, that Wells Management has sufficient
resources to pay its indebtedness and does not anticipate that it will incur
a loss as a result of this guarantee.
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Company. In the normal course of business,
the Company may be subject to litigation or claims.
I-18
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Real Estate Fund XI, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND XI,
L.P. (a Georgia public limited partnership) as of December 31, 1997 and 1996.
These balance sheets are the responsibility of the Partnership's management.
Our responsibility is to express an opinion on these balance sheets 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 statements presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the balance sheets referred to above present fairly, in all
material respects, the financial position of Wells Real Estate Fund XI, L.P. as
of December 31, 1997 and 1996 in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 9, 1998
I-19
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
--------- --------
<S> <C> <C>
CASH $ 600 $ 600
DEFERRED OFFERING COSTS 194,020 84,578
--------- --------
Total assets $ 194,620 $ 85,178
========= ========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES, DUE TO AFFILIATE $ 194,020 $ 84,578
--------- --------
PARTNERS' CAPITAL:
General partners 500 500
Limited partner 100 100
--------- --------
TOTAL PARTNERS' CAPITAL 600 600
--------- --------
Total liabilities and partners' capital $ 194,620 $ 85,178
========= ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
I-20
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund XI, L.P. (the "Partnership") is a public limited
partnership organized on June 20, 1996 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners,
L.P., a Georgia nonpublic limited partnership. The Partnership has two
classes of limited partnership units. Upon subscription for units, each
limited partner must elect whether to have their units treated as Class A
units or Class B units. Thereafter, limited partners shall have the right to
change their prior elections to have some or all of their units treated as
Class A units or Class B units one time during each quarterly accounting
period. Limited partners may vote to, among other things: (a) amend the
partnership agreement, subject to certain limitations, (b) change the
business purpose or investment objectives of the Partnership, (c) remove a
general partner, (d) elect a new general partner, (e) dissolve the
Partnership, and (f) approve a sale of assets, subject to certain
limitations. Each limited partnership unit has equal voting rights,
regardless of class. The Partnership had no operations as of December 31,
1997.
The Partnership was formed to acquire and operate commercial real estate
properties, including properties which are either to be developed, currently
under development or construction, newly constructed, or have operating
histories.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying balance sheets.
The partners are required to include their respective share of profits and
losses in their individual income tax returns.
I-21
<PAGE>
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, distributions are paid first to
limited partners holding Class A units until they have received a 10% per
annum return on their net capital contributions, as defined. Then, such
distributions are paid to the general partners until they have received 10%
of the total amount distributed thus far. Any remaining cash available for
distribution is split 90% to the limited partners holding Class A units and
10% to the general partners. No such distributions will be made to the
limited partners holding Class B units.
DISTRIBUTION OF SALES PROCEEDS
Upon sales of properties, the net sales proceeds will be distributed in the
following order:
. To limited partners holding units which at any time have been treated
as Class B units until they receive an amount necessary to equal the
net cash available for distribution received by the limited partners
holding Class A units
. To limited partners on a per unit basis until each limited partner
has received 100% of their net capital contributions, as defined
. To all limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital contributions,
as defined
. To limited partners on a per unit basis until they receive an amount
equal to their preferential limited partner return (defined as the
sum of a 10% per annum cumulative return on net capital contributions
for all periods during which the units were treated as Class A units
and a 15% per annum cumulative return on net capital contributions
for all periods during which the units were treated as Class B units)
. To the general partners until they have received 100% of their
capital contributions, as defined
. Then, if limited partners have received any excess limited partner
distributions (defined as distributions to limited partners over the
life of their investment in the Partnership in excess of their net
capital contributions, as defined, plus their preferential limited
partner return), to the general partners until they have received
distributions equal to 20% of the sum of any such excess limited
partner distributions plus distributions made to the general partners
pursuant to this provision
. Thereafter, 80% to the limited partners on a per unit basis and 20%
to the general partners
I-22
<PAGE>
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
proportion that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero; (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance; and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to the qualified income offset
provisions of the partnership agreement; (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero; and (c) allocations to limited partners holding Class B
units in amounts equal to the deductions for depreciation, amortization, and
cost recovery previously allocated to them with respect to the specific
partnership property sold, but not in excess of the amount of gain on sale
recognized by the Partnership with respect to the sale of such property.
2. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
proceeds, will be paid by Wells Capital, Inc. (the "Company"), an affiliate
of the general partners, and not by the Partnership. Organization and
offering expenses do not include sales or underwriting commissions but do
include such costs as legal and accounting fees, printing costs, and other
offering expenses.
As of December 31, 1997 and 1996, the Company had paid organization and
offering expenses related to the Partnership of $194,020 and $84,578,
respectively. A registration statement covering both the Partnership and
Wells Real Estate Fund X, L.P. was filed with the Securities and Exchange
Commission ("SEC") on July 11, 1996. The registration statement of the
Partnership was declared effective by the SEC on December 31, 1996. An
amendment to the registration statement covering only the Partnership was
filed and declared effective by the SEC on December 31, 1997. The
Partnership needs to receive approximately $1,250,000 in limited partners'
contributions before any portion of the liability to the Company will be
paid. At this time, the general partners believe that all of the foregoing
organization and offering expenses will be reimbursed by the Partnership.
I-23
<PAGE>
3. RELATED-PARTY TRANSACTIONS
The Partnership may enter into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management and leasing of the
Partnership's properties, the Partnership will pay Wells Management and
leasing fees equal to the lesser of (a) fees that would be paid to a
comparable outside firm, or (b) 4.5% of the gross revenues generally paid
over the life of the lease plus a separate competitive fee for the one-time
initial lease-up of newly constructed properties generally paid in
conjunction with the receipt of the first month's rent. In the case of
commercial properties which are leased on a long-term net basis (ten or more
years), the maximum property management fee from such leases shall be 1% of
the gross revenues generally paid over the life of the leases except for a
one-time initial leasing fee of 3% of the gross revenues on each lease
payable over the first five full years of the original lease term.
The general partners are also general partners in other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners for other Wells
Real Estate Funds, may be in competition with the Partnership for tenants in
similar geographic markets.
4. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not as an
association taxable as a corporation for Federal income tax purposes. The
Partnership received an opinion of legal counsel as to its tax status as a
partnership, but such an opinion is not binding upon the Internal Revenue
Service.
I-24
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT A
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the General Partners or
their Affiliates ("Prior Programs") which have investment objectives similar to
the Partnership.
Prospective investors should read these Tables carefully together with the
summary information concerning the Prior Programs as set forth in "PRIOR
PERFORMANCE SUMMARY" elsewhere in this Prospectus.
INVESTORS IN THE PARTNERSHIP WILL NOT OWN ANY INTEREST IN THE PRIOR
PROGRAMS AND SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE PRIOR PROGRAMS.
These Tables present actual results of Prior Programs that have investment
objectives similar to those of the Partnership. The Partnership's investment
objectives are to maximize Net Cash From Operations; to preserve original
Capital Contributions; and to realize capital appreciation over a period of
time. All of the General Partners' Prior Programs have used a substantial
amount of capital and not acquisition indebtedness to acquire their properties.
The General Partners are responsible for the acquisition, operation,
maintenance and resale of the Partnership Properties. The financial results of
the Prior Programs thus provide an indication of the General Partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included herein:
TABLE I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
TABLE II - Compensation to Sponsor (in Dollars)
TABLE III - Annual Operating Results of Prior Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in TABLE VI, which is included in the Registration
Statement which the Partnership has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"ACQUISITION FEES" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the partnership or with a general
partner of the partnership in connection with the actual development of a
project after acquisition of the land by the partnership.
"ORGANIZATION EXPENSES" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
general partners or their affiliates in connection with the planning and
formation of the partnership.
"UNDERWRITING FEES" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
A-1
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the General Partners and
their Affiliates in Prior Programs for which offerings have been completed since
December 31, 1994. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VII, L.P. VIII, L.P. IX, L.P. X, L.P.
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Dollar Amount Raised $24,180,174/(3)/ $32,042,689/(4)/ $35,000,000/(5)/ $27,128,912/(6)/
=========== =========== =========== ===========
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 5.0% 5.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Percent Available for Investment 84.0% 85.0% 85.0% 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related to Purchase of Property 0.0% 0.2% 0.0% 0.0%
Cash Down Payment 16.3% 29.2% 0.0% 0.0%
Acquisition Fees/(2)/ 3.5% 4.5% 4.5% 4.5%
Development and Construction Costs 64.2% 48.0% 50.4% 14.4%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 84.0% 81.9% 54.9% 18.9%
---- ---- ---- ----
Percent Leveraged 0.0% 0.0% 0.0% 0.00%
==== ==== ==== ====
Date Offering Began 04/05/94 01/06/95 01/05/96 12/31/96
Length of Offering 12 mo. 12 mo. 12 mo. 12 mo.
Months to Invest 90% of Amount Available for
Investment (Measured from Beginning of Offering) 12 mo. 17 mo. /(7)/ /(8)/
Number of Investors 1,917 2,242 2,115 1,806
</TABLE>
- --------------------------------------------
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to Affiliates of the General Partners.
(3) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VII, L.P. closed its offering on January 5, 1995,
and the total dollar amount raised was $24,180,174.
(4) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund VIII, L.P. closed its offering on January 4, 1996,
and the total dollar amount raised was $32,042,689.
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund IX, L.P. closed its offering on December 30, 1996,
and the total dollar amount raised was $35,000,000.
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund X, L.P. closed its offering on December 30, 1997,
and the total dollar amount raised was $27,128,912.
(7) As of December 31, 1997, Wells Real Estate Fund IX, L.P. had not yet
invested 90% of the amount available for investment. The amount invested
in properties (including Acquisition Fees paid but not yet associated with
a specific property) at December 31, 1997 was 70.3% of the total dollar
amount raised. The amount invested and/or committed to be invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1997 was 83.5% of the total dollar
amount raised.
(8) As of December 31, 1997, Wells Real Estate Fund X, L.P. had not yet
invested 90% of the amount available for investment. The amount invested
in properties (including Acquisition Fees paid but not yet associated with
a specific property) at December 31, 1997 was 17.7% of the total dollar
amount raised. The amount invested and/or committed to be invested in
properties (including Acquisition Fees paid but not yet associated with a
specific property) at December 31, 1997 was 32.8% of the total dollar
amount raised.
A-2
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by General Partners or
Affiliates of the General Partners, including compensation paid out of offering
proceeds and compensation paid in connection with the ongoing operations of
Prior Programs having similar or identical investment objectives the offerings
of which have been completed since December 31, 1994. These partnerships have
not sold or refinanced any of their properties to date. All figures are as of
December 31, 1997.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VII, L.P. VIII, L.P. IX, L.P. X, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 04/05/94 01/06/95 01/05/96 12/31/96 --
Dollar Amount Raised $24,180,174 $32,042,689 $35,000,000 $27,128,912 $150,018,232
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 178,122 $ 174,295 $ 309,556 $ 260,748 $ 571,739
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 846,306 $ 1,281,708 $ 1,400,000 $ 1,085,157 $ 8,031,385
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 3,850,827 $ 1,630,740 $ 1,305,840 $ 438,195 $ 29,081,439
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 124,934 $ 85,523 $ 19,539 $ 0 $ 857,695
Partnership Management Fee -- -- -- -- --
Reimbursements $ 159,036 $ 112,773 $ 32,349 $ 11,137 $ 1,187,273
Leasing Commissions $ 97,856 $ 91,566 $ 29,162 $ 0 $ 800,710
General Partner Distributions -- -- -- -- 15,205
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
</TABLE>
- ---------------------------------
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate
Fund V, L.P. and Wells Real Estate Fund VI, L.P. during the past three
years. In addition to the amounts shown, Affiliates of the General Partners
of Wells Real Estate Fund I are entitled to certain property management and
leasing fees but have elected to defer the payment of such fees until a
later year on properties owned by Wells Real Estate Fund I. At December 31,
1997, the amount of such fees due the General Partners totaled $2,088,727.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VII, VIII, IX and X, which were not reallowed to participating
broker-dealers.
(3) Fees paid to the General Partners or their Affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(4) Includes $409,361 in net cash provided by operating activities, $3,059,640
in distributions to limited partners and $381,826 in payments to sponsor for
Wells Real Estate Fund VII, L.P.; $464,964 in net cash provided by operating
activities, $875,914 in distributions to limited partners and $289,862 in
payments to sponsor for Wells Real Estate Fund VIII, L.P.; $2,540 in net
cash provided by operating activities, $1,221,764 in distributions to
limited partners and $81,536 in payments to sponsor for Wells Real Estate
Fund IX, L.P.; $449,332 in net cash used by operating activities, $0 in
distributions to limited partners and $11,137 in payments to sponsor for
Wells Real Estate Fund X, L.P.; and $855,331 in net cash provided by
operating activities, $19,618,669 in distributions to limited partners and
$2,748,101 in payments to sponsor for other public programs.
A-3
<PAGE>
TABLE III
(UNAUDITED)
The following six (6) tables set forth operating results of prior
programs sponsored by the General Partners the offerings of which have been
completed since December 31, 1992. The information relates only to public
programs with investment objectives similar to those of the Partnership. All
figures are as of December 31 of the year indicated.
A-4
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND V, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 633,247 $ 590,839 $ 764,624 $ 656,958 $ 458,213
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 72,404 78,939 68,735 88,987 96,964
Depreciation and Amortization/(3)/ 1,042 6,250 6,250 6,250 6,250
---------- ---------- ---------- ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 559,801 $ 505,650 $ 689,639 $ 561,721 $ 354,999
========== ========== ========== =========== ===========
Taxable Income (Loss): Operations $ 763,486 $ 666,780 $ 676,367 $ 528,025 $ 280,000
========== ========== ========== =========== ===========
Cash Generated (Used By):
Operations (66,556) (65,728) (46,235) (10,395) 112,594
Joint Ventures 1,121,000 1,072,835 1,020,905 653,729 54,154
---------- ---------- ---------- ----------- -----------
$1,054,444 $1,007,107 $ 974,670 $ 643,334 $ 166,748
Less Cash Distributions to Investors:
Operating Cash Flow 1,054,444 1,007,107 969,011 643,334 151,336
Return of Capital 4,487 -- -- 44,257 --
Undistributed Cash Flow from Prior Year
Operations 1,987 3,672 -- 15,412 --
Cash Generated (Deficiency) after Cash ---------- ---------- ---------- ----------- -----------
Distributions $ (6,474) $ (3,672) $ 5,659 $ (59,669) $ 15,412
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 5,589,786
---------- ---------- ---------- ----------- -----------
$ -- $ (3,672) $ 5,659 $ (59,669) $ 5,605,198
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 764,599
Return of Original Limited Partner's Investment -- -- -- --
Property Acquisitions and Deferred Project Costs (154,131) (225) (233,501) 2,366,507 7,755,116
Cash Generated (Deficiency) after Cash ---------- ---------- ---------- ----------- -----------
Distributions and Special Items $ (160,605) $ (3,897) $ (227,842) $(2,426,176) $(2,914,517)
========== ========== ========== =========== ===========
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 36 71 73 58 29
- Operations Class B Units 0 (378) (272) (180) (54)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 74 69 69 55 36
- Operations Class B Units (256) (260) (246) (181) (58)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 36 65 63 46 10
- Return of Capital Class A Units 32 -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 68 65 63 43 10
- Return of Capital Class A Units -- -- -- 3 --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
</TABLE>
- --------------------------
(1) Includes $207,234 in equity in earnings of joint ventures and $250,979 from
investment of reserve funds in 1993; $592,902 in equity in earnings of joint
ventures and $64,056 from investment of reserve funds in 1994; $745,173 in
equity in earnings of joint ventures and $19,451 from investment of reserve
funds in 1995; $577,128 in equity in earnings of joint ventures and $13,711
from investment of reserve funds in 1996; and $623,249 in equity in earnings
of joint ventures and $9,998 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status of all developed property was 95%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $100,796 for 1993, $324,578 for 1994,
$440,333 for 1995, $592,281 for 1996, and $735,315 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $442,135 to Class A
Limited Partners, $(87,868) to Class B Limited Partners and $732 to General
Partners for 1993; $879,232 to Class A Limited Partners, $(316,460) to Class
B Limited Partners and $(1,051) to General Partners for 1994; $1,124,203 to
Class A Limited Partners, $(434,564) to Class B Limited Partners and $0 to
General Partners for 1995; $1,095,296 to Class A Limited Partners,
$(589,646) to Class B Limited Partners and $0 to General Partners for 1996;
and $559,801 to Class A Limited Partners, $0 to Class B Limited Partners and
$0 to General Partners in 1997.
A-5
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 884,802 $ 675,782 $ 1,002,567 $ 819,535 $ 82,723
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 82,898 80,479 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 4,687
---------- ---------- ------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 795,654 $ 589,053 $ 901,828 $ 700,896 $ 31,428
========== ========== ============ =========== ===========
Taxable Loss: Operations $1,091,770 $ 809,389 $ 916,531 $ 667,682 $ 31,428
Cash Generated (Used By): ========== ========== ============ =========== ===========
Operations (57,206) (2,716) 278,728 276,376 (2,478)
Joint Ventures 1,500,023 1,044,891 766,212 $ 203,543 --
----------- ---------- ------------ ---------- -----------
$1,442,817 $1,042,175 $ 1,044,940 $ 479,919 $ (2,478)
Less Cash Distributions to Investors:
Operating Cash Flow 1,442,817 1,042,175 1,044,940 245,800 --
Return of Capital 9,986 125,314 -- -- --
Undistributed Cash Flow from Prior Year
Operations -- 18,027 $ 216,092 -- --
---------- ---------- ------------ ---------- -----------
Cash Generated (Deficiency) after Cash
Distributions $ (9,986) $ (143,341) (216,092) $ 234,119 $ (2,478)
Special Items (not including sales and
financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- 12,163,461 12,836,539
---------- ---------- ------------ ----------- -----------
$ (9,986) $ (143,341) $ (216,092) $12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses -- -- 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- -- -- 100
Property Acquisitions and Deferred Project
Costs 310,759 234,924 10,721,376 5,912,454 3,856,239
---------- ---------- ------------ ---------- -----------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ (320,745) $ (378,265) $(10,937,468) $ 4,708,217 $ 7,195,998
========== ========== ============ =========== ===========
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 78 59 57 43 9
- Operations Class B Units (247) (160) (60) (12) (5)
Capital Gain (Loss) -- -- -- -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 75 56 56 41 1
- Operations Class B Units (150) (99) (51) (22) --
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 67 56 57 14 --
- Return of Capital Class A Units -- -- 4 -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 67 50 61 14 --
- Return of Capital Class A Units 0 6 -- -- --
- Operations Class B Units -- --
Amount (in Percentage Terms) Remaining Invested
in Program Properties at the end of the Last
Year Reported in the Table 100%
</TABLE>
- ----------------------------------
(1) Includes $3,436 in equity in loss of joint ventures and $86,159 from
investment of reserve funds in 1993, $285,711 in equity in earnings of joint
ventures and $533,824 from investment of reserve funds in 1994, $681,033 in
equity in earnings of joint ventures and $321,534 from investment of reserve
funds in 1995, $607,214 in equity in earnings of joint ventures and $68,568
from investment of reserve funds in 1996, and $856,710 in equity in earnings
of joint ventures and $28,092 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status was 94%.
(2) Includes partnership administrative expenses.
(3) Included in equity in loss of joint ventures in gross revenues is
depreciation of $3,436 for 1993, $107,807 for 1994, $264,866 for 1995,
$648,478 for 1996, and $896,753 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $39,551 to Class A Limited
Partners, $(8,042) to Class B Limited Partners and $(81) to the General
Partner for 1993; $762,218 to Class A Limited Partners, $(62,731) to Class B
Limited Partners and $1,409 to the General Partners for 1994; $1,172,944 to
Class A Limited Partners, $(269,288) to Class B Limited Partners and
$(1,828) to the General Partners for 1995; $1,234,717 to Class A Limited
Partners, $(645,664) to Class B Limited Partners and $0 to the General
Partners for 1996; and $1,677,826 to Class A Limited Partners, $(882,172) to
Class B Limited Partners and $0 to the General Partners for 1997.
A-6
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 816,237 $ 543,291 $ 925,246 $ 286,371 N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 76,838 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 4,688
---------- --------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 733,149 $ 452,776 $ 804,043 $ 203,263
========== ========= ============ ===========
Taxable Income: Operations $1,008,368 $ 657,443 $ 812,402 $ 195,067
========== ========= ============ ===========
Cash Generated (Used By):
Operations (43,250) 20,883 431,728 47,595
Joint Ventures 1,420,126 760,628 424,304 14,243
---------- --------- ------------ -----------
$1,376,876 $ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 1,376,876 781,511 856,032 52,195
Return of Capital 2,709 10,805 22,064 --
Undistributed Cash Flow from Prior Year Operations -- -- 9,643 --
Cash Generated (Deficiency) after Cash Distributions $ (2,709) $ (10,805) $ (31,707) $ 9,643
---------- --------- ------------ -----------
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions $ -- $ -- $ 805,212 $23,374,961
---------- --------- ------------ -----------
$ (2,709) $ (10,805) $ 773,505 $23,384,604
Use of Funds:
Sales Commissions and Offering Expenses -- -- 244,207 $ 3,351,569
Return of Original Limited Partner's Investment -- -- 100 --
Property Acquisitions and Deferred Project Costs 169,172 736,960 14,971,002 4,477,765
---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (171,881) $(747,765) $(14,441,804) $15,555,270
========== ========= ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 86 62 57 29
- Operations Class B Units (168) (98) (20) (9)
Capital Gain (Loss) -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 78 55 55 28
- Operations Class B Units (111) (58) (16) 17
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 805 43 52 7
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 70 42 51 7
- Return of Capital Class A Units -- 1 1 --
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment income Class A Units 54 29 30 4
- Return of Capital Class A Units 16 14 22 3
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
- ----------------------------------
(1) Includes $78,799 in equity in earnings of joint ventures and $207,572 from
investment of reserve funds in 1994, $403,325 in equity in earnings of joint
ventures and $521,921 from investment of reserve funds in 1995, $457,144 in
equity in earnings of joint ventures and $86,147 from investment of reserve
funds in 1996, and $785,398 in equity in earnings of joint ventures and
$30,839 from investment of reserve funds in 1997. At December 31, 1997, the
leasing status was 92% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, $140,533 for 1995, $605,247 for 1996, and
$877,869 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $233,337 to Class A Limited
Partners, $(29,854) to Class B Limited Partners and $(220) to the General
Partner for 1994; $950,826 to Class A Limited Partners, $(146,503) to Class
B Limited Partners and $(280) to the General Partners for 1995; $1,062,605
to Class A Limited Partners, $(609,829) to Class B Limited Partners and $0
to the General Partners for 1996; and $1,615,965 to class A Limited
Partners, $(882,816) to Class B Limited Partners and $0 to the General
Partners for 1997.
(footnotes continued on following page)
A-7
<PAGE>
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$972,030.
A-8
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,204,018 $ 1,057,694 $ 402,428 N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250
------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 1,102,567 $ 936,590 273,914
============ =========== ===========
Taxable Income: Operations $ 1,213,524 $ 1,001,974 404,348
============ =========== ===========
Cash Generated (Used By):
Operations 7,909 623,268 204,790
Joint Ventures 1,229,282 279,984 20,287
------------ ----------- -----------
$ 1,237,191 $ 903,252 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 1,237,191 903,252 --
Return of Capital 183,315 2,443 --
Undistributed Cash Flow from Prior Year Operations -- 225,077 --
------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (183,315) $ (227,520) 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions/(5)/ -- 1,898,147 30,144,542
------------ ----------- -----------
$ (183,315) $ 1,670,627 30,369,619
Use of Funds:
Sales Commissions and Offering Expenses -- 464,760 4,310,028
Return of Limited Partner's Investment 8,600 -- --
Property Acquisitions and Deferred Project Costs 10,675,811 7,931,566 6,618,273
Cash Generated (Deficiency) after Cash Distributions and ------------ ----------- -----------
Special Items $(10,867,726) $(6,725,699) 19,441,318
============ =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 73 46 28
- Operations Class B Units (150) (47) (3)
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 65 46 17
- Operations Class B Units (95) (33) (3)
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 54 43 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 47 43 --
- Return of Capital Class A Units 7 0 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 42 33 --
- Return of Capital Class A Units 12 10 --
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
- ----------------------------------
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995, $241,819 in equity in earnings of joint
ventures and $815,875 from investment of reserve funds in 1996, and
$1,034,907 in equity in earnings of joint ventures and $169,111 from
investment of reserve funds in 1997. At December 31, 1997, the leasing
status was 96% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995, $265,259 for 1996, and $841,666 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995; $1,207,540 to Class A Limited Partners, $(270,653) to
Class B Limited Partners and $(297) to the General Partners for 1996; and
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997.
(footnotes continued on following page)
A-9
<PAGE>
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$551,455.
A-10
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,199,300 $ 406,891 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 101,284 101,885
Depreciation and Amortization/(3)/ 6,250 6,250
------------ -----------
Net Income GAAP Basis/(4)/ $ 1,091,766 $ 298,756
============ ===========
Taxable Income: Operations $ 1,083,824 $ 304,552
============ ===========
Cash Generated (Used By):
Operations $ 501,390 $ 151,150
Joint Ventures 527,390 --
------------ -----------
$ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow $ 1,028,780 149,425
Return of Capital $ 41,834 $ --
Undistributed Cash Flow From Prior Year Operations 1,725 --
Cash Generated (Deficiency) after Cash Distributions $ (43,559) $ 1,725
------------ -----------
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 35,000,000
------------ -----------
$ (43,559) $35,001,725
Use of Funds:
Sales Commissions and Offering Expenses 323,039 4,900,321
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 13,427,158 6,544,019
Cash Generated (Deficiency) after Cash Distributions and ------------ -----------
Special Items $(13,793,856) $23,557,385
============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 53 28
- Operations Class B Units (77) (11)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 46 26
- Operations Class B Units (47) (48)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 36 13
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 35 13
- Return of Capital Class A Units 1 --
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 29 10
- Return of Capital Class A Units 7 3
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
- ----------------------------------
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996, and $593,914 in equity in earnings of
joint ventures and $605,386 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status was 93% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996, and $469,126 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996; and $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997.
(footnotes continued on following page)
A-11
<PAGE>
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$236,379.
A-12
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 372,507 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 88,232
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 278,025
===========
Taxable Income: Operations $ 382,543
===========
Cash Generated (Used By):
Operations $ 200,668
Joint Ventures
-----------
$ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow --
Return of Capital --
Undistributed Cash Flow From Prior Year Operations --
-----------
Cash Generated (Deficiency) after Cash Distributions $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions 27,128,912
-----------
$27,329,580
Use of Funds:
Sales Commissions and Offering Expenses 3,737,363
Return of Original Limited Partner's Investment 100
Property Acquisitions and Deferred Project Costs 5,188,485
Cash Generated (Deficiency) after Cash Distributions and -----------
Special Items $18,403,632
===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 28
- Operations Class B Units (9)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 35
- Operations Class B Units 0
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units __
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units __
- Return of Capital Class A Units --
- Operations Class B Units --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units __
- Return of Capital Class A Units __
- Return of Capital Class B Units --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
- ----------------------------------
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542 from
investment of reserve funds in 1997. At December 31, 1997, the leasing
status was 67% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per Unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1997, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled $0.
A-13
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Items 30 through 34 of Part II are incorporated by reference to the Registrant's
Registration Statement, as amended to date, Commission File No. 333-7979.
Item 35 Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
--------------------
The following financial statements of Wells Real Estate Fund XI,
L.P. are included in the Prospectus of Wells Real Estate Fund XI,
L.P.:
Audited Balance Sheet
(1) Report of Independent Public Accountants,
(2) Balance Sheet as of December 31, 1996, and
(3) Notes to Balance Sheet.
Unaudited Balance Sheets
(1) Balance Sheets as of August 31, 1997 and December 31,
1996, and
(2) Notes to Financial Statement.
The following financial statements of Wells Real Estate Fund XI,
L.P. are included in Supplement No. 1 to the Prospectus:
Audited Balance Sheets
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1997 and 1996, and
(3) Notes to Balance Sheets.
The following financial statements of Wells Partners, L.P. are
included in the Prospectus of Wells Real Estate Fund XI, L.P.:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1996 and 1995,
(3) Statements of Loss for the years ended December 31,
1996 and 1995,
(4) Statements of Partners' Capital for the years ended
December 31, 1996 and 1995,
(5) Statements of Cash Flows for the years ended December
31, 1996 and 1995,
(6) Notes to Financial Statements, and
(7) Schedule I - Market Value of Investments in
Partnerships (Unaudited).
Unaudited Financial Statements
(1) Balance Sheets as of August 31, 1997 and December 31,
1996,
(2) Statements of Operations for the eight months ended
August 31, 1997 and 1996,
(3) Statements of Partners' Capital for the eight months
ended August 31, 1997 and the year ended December 31,
1996,
(4) Statements of Cash Flows for the eight months ended
August 31, 1997 and 1996, and
(5) Condensed Notes to Financial Statements.
II-1
<PAGE>
The following financial statements of Wells Partners, L.P. are
included in Supplement No. 1 to the Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1997 and 1996,
(3) Statements of Loss for the years ended December 31,
1997 and 1996,
(4) Statements of Partners' Capital for the years ended
December 31, 1997 and 1996,
(5) Statements of Cash Flows for the years ended December
31, 1997 and 1996,
(6) Notes to Financial Statements, and
(7) Schedule I - Market Value of Investments in
Partnerships (Unaudited).
The following financial statements of Wells Capital, Inc. are
included in the Prospectus of Wells Real Estate Fund XI, L.P.:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1996 and 1995,
(3) Statements of Income for the years ended December 31,
1996 and 1995,
(4) Statements of Stockholder's Equity for the years ended
December 31, 1996 and 1995,
(5) Statements of Cash Flows for the years ended December
31, 1996 and 1995, and
(6) Notes to Financial Statements.
Unaudited Financial Statements
(1) Balance Sheets as of August 31, 1997 and December 31,
1996,
(2) Statements of Earnings for the eight months ended
August 31, 1997 and 1996,
(3) Statements of Stockholder's Equity for the eight months
ended August 31, 1997 and the year ended December 31,
1996,
(4) Statements of Cash Flows for the eight months ended
August 31, 1997 and 1996, and
(5) Condensed Notes to Financial Statements.
The following financial statements of Wells Capital, Inc. and
Subsidiaries are included in Supplement No. 1 to the Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31, 1997 and
1996,
(3) Consolidated Statements of (Loss) Income for the years
ended December 31, 1997 and 1996,
(4) Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1997 and 1996,
(5) Consolidated Statements of Cash Flows for the years
ended December 31, 1997 and 1996, and
(6) Notes to Consolidated Financial Statements.
II-2
<PAGE>
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit No. Description
- ----------- -----------
1/*/ Form of Dealer Manager Distribution Agreement between Registrant
and Wells Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement of Limited Partnership of
Wells Real Estate Fund XI, L.P. (included as Exhibit B to
Prospectus)
3(b)/*/ Certificate of Limited Partnership of Wells Real Estate Fund X,
L.P. dated June 20, 1996
3(c)/*/ Certificate of Limited Partnership of Wells Real Estate Fund XI,
L.P. dated June 20, 1996
4 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit C to Prospectus)
5(a)/*/ Opinion of Holland & Knight LLP regarding the legality of the
securities of Wells Real Estate Fund X, L.P. to be offered
5(b)/*/ Opinion of Holland & Knight LLP regarding the legality of the
securities of Wells Real Estate Fund XI, L.P. to be offered
8/*/ Opinion of Holland & Knight LLP regarding tax matters
10(a)/*/ Escrow Agreement between Wells Real Estate Fund XI, L.P. and The
Bank of New York
10(b)/*/ New York Escrow Agreement between Wells Real Estate Fund XI, L.P.
and The Bank of New York
10(c)/*/ Pennsylvania Escrow Agreement between Wells Real Estate Fund XI,
L.P. and The Bank of New York
10(d)/*/ Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc.
10(e)/*/ Form of Management Agreement between Registrant and Wells
Management Company, Inc.
10(f)/*/ Custodial Agency Agreement between Wells Real Estate Fund XI, L.P.
and The Bank of New York
10(g)/*/ Joint Venture Agreement of Fund IX and Fund X Associates, dated
March 20, 1997, between Wells Real Estate Fund IX, L.P. and Wells
Real Estate Fund X, L.P.
10(h)/**/ Lease Agreement, dated December 10, 1996, between Wells Real Estate
Fund IX, L.P. and ABB Flakt, Inc.
/*/ Previously filed in the Registrant's Form S-11 Registration
Statement, Commission File No. 333-7979, as amended to date.
/**/ Previously filed in Post-Effective Amendment No. 13 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and
Wells Real Estate Fund IX, L.P. on December 27, 1996, Registration
No. 33-83852.
II-3
<PAGE>
10(i)/**/ Development Agreement, dated December 10, 1996, between Wells
Real Estate Fund IX, L.P. and ADEVCO Corporation
10(j)/**/ Owner-Contractor Agreement, dated November 1, 1996, between Wells
Real Estate Fund IX, L.P. and Integra Construction, Inc.
10(k)/*/ Agreement for the Purchase and Sale of Real Property, dated May 30,
1997, between Fund IX and Fund X Associates and Wells Development
Corporation
10(l)/*/ Net Lease Agreement, dated May 30, 1997, between Wells Development
Corporation and Lucent Technologies Inc.
10(m)/*/ Development Agreement, dated May 30, 1997, between Wells
Development Corporation and ADEVCO Corporation
23(a)/*/ Consent of Holland & Knight LLP (included in Exhibits 5(a), 5(b)
and 8)
23(b) Consent of Arthur Andersen LLP - Wells Capital, Inc., Wells
Partners, L.P. and Wells Real Estate Fund XI, L.P.
Items 36 and 37 are incorporated by reference to the Registrant's Registration
Statement, as amended to date, Commission File No. 333-7979.
- -------------------
/*/ Previously filed in the Registrant's Form S-11 Registration
Statement, Commission File No. 333-7979, as amended to date.
/**/ Previously filed in Post-Effective Amendment No. 13 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and
Wells Real Estate Fund IX, L.P. on December 27, 1996, Registration
No. 33-83852.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 5 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Atlanta, and State of
Georgia, on the 2nd day of April, 1998.
WELLS REAL ESTATE FUND XI, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III
General Partner
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 5 to Registration Statement has been signed by the
following person in the capacity and on the date indicated.
<TABLE>
<CAPTION>
Signatures Title Date
- ---------- ----- ----
<S> <C> <C>
/s/ Leo F. Wells President (Chief Executive Officer), April 2, 1998
- ------------------ Treasurer (Chief Financial Officer)
Leo F. Wells, III and Sole Director of Wells Capital,
Inc., the sole general partner of Wells
Partners, L.P.
</TABLE>
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Sequential
Exhibit No.
- -----------------
<S> <C>
1/*/ Form of Dealer Manager Distribution Agreement between
Registrant and Wells Investment Securities, Inc.
3(a) Form of Amended and Restated Agreement of Limited
Partnership of Wells Real Estate Fund XI, L.P. (included as
Exhibit B to Prospectus)
3(b)/*/ Certificate of Limited Partnership of Wells Real Estate Fund
X, L.P. dated June 20, 1996
3(c)/*/ Certificate of Limited Partnership of Wells Real Estate Fund
XI, L.P. dated June 20, 1996
4 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit C to Prospectus)
5(a)/*/ Opinion of Holland & Knight LLP regarding the legality of
the securities of Wells Real Estate Fund X, L.P. to be
offered
5(b)/*/ Opinion of Holland & Knight LLP regarding the legality of
securities of Wells Real Estate Fund XI, L.P. to be offered
8/*/ Opinion of Holland & Knight LLP regarding tax matters
10(a)/*/ Escrow Agreement between Wells Real Estate Fund XI, L.P. and
The Bank of New York
10(b)/*/ New York Escrow Agreement between Wells Real Estate Fund XI,
L.P. and The Bank of New York
10(c)/*/ Pennsylvania Escrow Agreement between Wells Real Estate Fund
XI, L.P. and The Bank of New York
10(d)/*/ Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc.
10(e)/*/ Form of Management Agreement between Registrant and Wells
Management Company, Inc.
10(f)/*/ Custodial Agency Agreement between Wells Real Estate Fund
XI, L.P. and The Bank of New York
10(g)/*/ Joint Venture Agreement of Fund IX and Fund X Associates,
dated March 20, 1997, between Wells Real Estate Fund IX,
L.P. and Wells Real Estate Fund X, L.P.
10(h)/**/ Lease Agreement, dated December 10, 1996, between Wells Real
Estate Fund IX, L.P. and ABB Flakt, Inc.
10(i)/**/ Development Agreement, dated December 10, 1996, between
Wells Real Estate Fund IX, L.P. and ADEVCO Corporation
10(j)/**/ Owner-Contractor Agreement, dated November 1, 1996, between
Wells Real Estate Fund IX, L.P. and Integra Construction,
Inc.
- ----------------------
</TABLE>
/*/ Previously filed in the Registrant's Registration Statement, Commission
File No. 333-7979, as amended to date.
/**/ Previously filed in Post-Effective Amendment No. 13 to Form S-11
Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real
Estate Fund IX, L.P. on December 27, 1996, Registration No. 33-83852.
<PAGE>
<TABLE>
<CAPTION>
Sequential
Exhibit No.
- -----------------
<S> <C>
10(k)/*/ Agreement for the Purchase and Sale of Real Property, dated
May 30, 1997, between Fund IX and Fund X Associates and
Wells Development Corporation
10(l)/*/ Net Lease Agreement, dated May 30, 1997, between Wells
Development Corporation and Lucent Technologies Inc.
10(m)/*/ Development Agreement, dated May 30, 1997, between Wells
Development Corporation and ADEVCO Corporation
23(a)/*/ Consent of Holland & Knight LLP (included in Exhibits 5(a),
5(b) and 8)
23(b) Consent of Arthur Andersen LLP - Wells Capital, Inc., Wells
Partners, L.P. and Wells Real Estate Fund XI, L.P.
- ------------------------
</TABLE>
/*/ Previously filed in the Registrant's Registration Statement, Commission
File No. 333-7979, as amended to date.
<PAGE>
EXHIBIT 23(B)
CONSENT OF ARTHUR ANDERSEN LLP
- WELLS CAPITAL, INC.
- WELLS PARTNERS, L.P.
- WELLS REAL ESTATE FUND XI, L.P.
<PAGE>
Exhibit 23(b)
[LETTERHEAD OF ARTHUR ANDERSEN LLP]
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our report on
the December 31, 1997 financial statements of Wells Capital, Inc., Wells
Partners, L.P., and Wells Real Estate Fund XI, L.P. and to all references to our
firm included in or made a part of this registration statement.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 3, 1998
