<PAGE>
As filed with the Securities Exchange Commission on June 1, 1998
File No. 333-5604
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 5
TO
FORM SB-2
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
(Exact name of registrant as specified in its charter)
Minnesota 6500 41-1848181
(State of other (Primary Standard (IRS Employer
jurisdiction of Industrial Classification Identification
incorporation) Code Number) Number)
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
(612) 227-7333 or (800) 328-3519
1300 Minnesota World Trade Center Robert P. Johnson
30 East Seventh Street 1300 Minnesota World Trade Center
St. Paul, Minnesota 55101 30 East Seventh Street
(612) 227-7333 or (800) 328-3519 St. Paul, Minnesota 55101
(Address of registrant's intended (612) 227-7333 or (800) 328-3519
principal place of business) (Name, address, including zip code
and telephone number of agent for
service of process)
Copies to:
Thomas O. Martin
Dorsey & Whitney
2200 First Bank Place East
Minneapolis, Minnesota 55402
The registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting
pursuant to such Section 8(a), may determine.
</PAGE> 1
<PAGE>
AEI INCOME & GROWTH FUND XXII
LIMITED PARTNERSHIP
24,000 Limited Partnership Units
($1,000 Per Unit)
SUPPLEMENT NO. 5
TO
PROSPECTUS DATED JANUARY 10, 1997
This Supplement is distributed only with the Prospectus dated
January 10, 1997 and must be read in conjunction therewith.
AEI Incorporated
1300 Minnesota World Trade Center
30 East 7th Street
St. Paul, Minnesota 55101
(612) 227-7333
(800) 328-3519
FAX (612) 227-7705
The date of this Supplement is June 1, 1998
</PAGE> 2
<PAGE> THIS SUPPLEMENT
This Supplement is distributed to potential purchasers of
limited partnership interests ("Units") in AEI Income & Growth
Fund XXII Limited Partnership (the "Partnership"), a partnership
formed to acquire, on a debt-free basis, existing and newly
constructed commercial properties in the United States, to lease
such properties to corporate tenants under "triple-net" leases,
to hold such properties for appreciation, and eventually to
resell such properties for a profit.
This Supplement is distributed only with the Prospectus
relating to an investment in the Partnership dated January 10,
1997 (the "Prospectus") which provides detailed information
relating to the Partnership. This Supplement is intended only to
update the Prospectus by providing current information on the
following topics at the pages indicated:
Current Status
Release from Escrow/Extension 3
Properties
Completed Acquisition 3
Selected Financial Data 4
Management's Discussion and Analysis 4
Financial Statements of the Partnership for
the Year Ended December 31, 1997 and for
the Period from Inception (July 31, 1996)
to December 31, 1996 9
Financial Statements of the Partnership at
March 31, 1998 and 1997 and for the Periods
then ended 25
Exhibit B - Prior Performance Tables B-1
Each person who has received this Supplement should also
have received a copy of the Prospectus. The Prospectus should be
carefully reviewed for a detailed description of an investment in
the Partnership, including information relating to the management
of the Partnership, the Partnership's objectives and certain
risks of investment in the Partnership. Included among the risks
of investment in the Partnership are:
<bullet> Risks inherent in the significant compensation to be paid
to the General Partners and their Affiliates;
<bullet> Risks related to the purchase of real estate generally
(including changing market values, tenant defaults,
illiquidity of properties and difficulties of resale,
among others);
<bullet> Risks related to the illiquidity of an investment in the
units and the difficulty an investor may have in
disposing of his or her investment;
<bullet> Risks related to conflicts of interest the General
Partners may have in forming and operating the
Partnership ;
<bullet> Risks related to the inability of investors to review in
advance the property which the Partnership may acquire
and the reliance the investors must place on the ability
of the General Partners to chose appropriate investments;
<bullet> Risks related to the treatment of an investment in the
Partnership under Federal income tax laws.
</PAGE> 3
<PAGE>
CURRENT STATUS
Release from Escrow/Extension
The Prospectus indicated that the Partnership would not be
formed and capitalized, and all subscription funds would be held
in escrow, until receipt of subscriptions for 1,500 Units.
Subscriptions for the 1,500 Units required for release of escrow
proceeds were obtained, and the escrow proceeds released on May
1, 1997. Since that time, the Partnership has commenced the
normal operation of investigating the acquisition of properties
and has acquired an interest of one property, through the date
of this supplement. See "Properties". Pending investment in
properties, subscription proceeds have been invested in short-
term money market accounts. See "Management's Discussion and
Analysis."
At May 29, 1998, the Partnership had accepted
subscriptions for 11,612.269 Units for aggregate proceeds of
$11,612,269. The Managing General Partner has determined to
extend the Offering of Units to the earlier of the sale of all
units or January 10, 1999.
PROPERTIES
Completed Acquisition
TGI Friday's - Greensburg, Pennsylvania. On December 10,
1997 the Partnership acquired an interest in a newly constructed
TGI Friday's located in Greensburg, Pennsylvania. The Partnership
acquired 40% of the porperty and an affiliated Partnership, AEI
Real Estate Fund XVII Limited Partnership, acquired the remaining
interest. The total purchase price was $1,670,360. The property
is leased to Ohio Valley Bistros, Inc. under a Lease Agreement
with a primary term of 15 years and may be renewed for up to two
consecutive terms of five years. The Lease requires an annual
base rent of approximately $169,000 which will increase each
lease year, beginning in the second lease year by an amount equal
to one and thirteen one-hundredths percent of the annual rent
payable for the prior lease year.
The restaurant is approximately 4,800 square feet on
approximately 1.5 acres. The restaurant is located on the front
corner of a new development of over 300,000 square feet of retail
space, including a Lowe's and a Giant Eagle. The development is
on the west side of Greensburg and is on the south side of Route
30. Directly across Route 30 from the site are two other retail
centers and a Wal-Mart center. Greensburg is a bedroom community
40 miles east of Pittsburgh. Route 30 connects Greensburg and
Pittsburgh and has a traffice count of 40,000 vehicles per day.
There are very few casual theme restaurants in Greensburg and
none within two miles of this site. In 1995, there were over
78,000 people living within a five mile radius and over 181,000
people living within a ten mile radius.
Ohio Valley Bistros, Inc. currently operates ten TGI Friday's
throughout Ohio, Kentucky and Pennsylvania and is under contract
with the franchisor to develop and operate four more TGI Friday's.
</PAGE> 4
<PAGE>
SELECTED FINANCIAL DATA
The following selected financial data for the Partnership
for the three months ended March 31, 1998 and for the year ended
December 31, 1997 has been derived from, and should be read in
conjunction with, the Financial Statements included elsewhere
in this Supplement:
For the Three For the Year
Months Ended Ended December 31, 1997
March 31, 1998
INCOME $ 99,317 $ 116,807
=========== ===========
NET INCOME (LOSS) $ 37,000 $ (22,200)
=========== ===========
TOTAL ASSETS $ 8,701,085 $ 6,570,128
=========== ===========
NET INCOME (LOSS) PER LIMITED
PARTNERSHIP UNIT $ 4.43 $ (5.88)
=========== ===========
WEIGHTED AVERAGE
UNITS OUTSTANDING 8,100 3,736
=========== ===========
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis discusses
the Partnership's financial position at March 31, 1998 and
results of operation for the three months ended March 31, 1998.
Such discussion should be read in conjunction with the financial
statements of the Partnership occurring elsewhere in this
Supplement and in the Prospectus of which this Supplement is a
part. In addition, such discussion should be read together with
the descriptions in the Prospectus of the planned operations of
the Partnership, particularly the sections describing the conduct
of the offering, the period over which and the policy employed in
purchasing properties, and the application of proceeds contained
in the sections of the Prospectus captioned "Estimated Use of
Proceeds," "Investment Objectives and Policies," and "Compensation
to General Partners and Affiliates."
Results of Operations
For the three months ended March 31, 1998, the Partnership
recognized rental income of $16,913. During the same period, the
Partnership also earned $82,404 in investment income from
subscription proceeds which were invested in short-term money
market accounts. This investment income constituted 83% of total
income. The percentage of total income represented by investment
income declines as subscription proceeds are invested in
properties.
</PAGE> 5
<PAGE>
During the three months ended March 31, 1998 and 1997, the
Partnership paid Partnership administration expenses to
affiliated parties of $50,134 and $17,566, respectively. These
administration expenses include initial start-up costs and
expenses associated with processing distributions, reporting
requirements and correspondence to the Limited Partners. The
administrative expenses decrease after completion of the offering
and acquisition phases of the Partnership's operations. During
the same period, the Partnership incurred Partnership
administration and property management expenses from unrelated
parties of $8,177 and $50, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit and accounting
costs, insurance and other property costs.
The Partnership distributes all of its net income during
the offering and acquisition phases, and if net income after
deductions for depreciation is not sufficient to fund the
distributions, the Partnership may distribute other available
cash that constitutes capital for accounting purposes.
As of March 31, 1998, the Partnership's cash distribution
rate was 7.0% on an annualized basis. Pursuant to the
Partnership Agreement, distributions of Net Cash Flow were
allocated 97% to the Limited Partners and 3% to the General
Partners.
Since the Partnership has only recently purchased its real
estate, inflation has had a minimal effect on income from
operations. The Leases may contain cost of living increases
which will result in an increase in rental income over the term
of the Leases. Inflation also may cause the Partnership's real
estate to appreciate in value. However, inflation and changing
prices may also have an adverse impact on the operating margins
of the properties' tenants which could impair their ability to
pay rent and subsequently reduce the Partnership's Net Cash Flow
available for distributions.
AEI Fund Management, Inc. (AEI) performs all management
services for the Partnership. AEI is currently analyzing its
computer hardware and software systems to determine what, if any,
resources need to be dedicated regarding Year 2000 issues. The
Partnership does not anticipate any significant operational
impact or incurring material costs as a result of AEI becoming
Year 2000 compliant.
Liquidity and Capital Resources
The Partnership's primary sources of cash are from
proceeds from the sale of Units, investment income, rental income
and proceeds from the sale of property. Its primary uses of cash
are investment in real properties, payment of expenses involved
in the sale of units, the organization of the Partnership, the
acquisition of properties, the management of properties, the
administration of the Partnership, and the payment of
distributions.
</PAGE> 6
<PAGE>
The Partnership Agreement requires that no more than 15%
of the proceeds from the sale of Units be applied to expenses
involved in the sale of Units (including Commissions) and that
such expenses, together with acquisition expenses, not exceed 20%
of the proceeds from the sale of Units. As set forth under the
caption "Estimated Use of Proceeds" of the Prospectus, the
General Partners anticipate that 14% of such proceeds will be
applied to cover such expenses if the maximum proceeds are
obtained. To the extent organization and offering expenses
actually incurred exceed 15% of proceeds, they are borne by the
General Partners.
During the offering of Units, the Partnership's primary
source of cash flow will be from the sale of Limited Partnership
Units. The Partnership offered for sale up to $24,000,000 of
limited partnership interests (the "Units") (24,000 Units at
$1,000 per Unit) pursuant to a registration statement effective
January 10, 1997. From January 10, 1997 to May 1, 1997, the
minimum number of Limited Partnership Units (1,500) needed to
form the Partnership were sold and on May 1, 1997, a total of
1,629.201 Units ($1,629,201) were transferred into the
Partnership. Through March 31, 1998, the Partnership raised a
total of $10,166,265 from the sale of 10,166.265 Units. The
Managing General Partner has extended the offering of Units to
the earlier of completion of sale of all Units or January 9,
1999. From subscription proceeds, the Partnership paid
organization and syndication costs (which constitute a reduction
of capital) of $1,524,940.
Before the acquisition of properties, cash flow from
operating activities is not significant. Net income, after
adjustment for depreciation, is lower during the first few years
of operations as administrative expenses remain high and a large
amount of the Partnership's assets remain invested on a short-
term basis in lower-yielding cash equivalents. Net income will
become the largest component of cash flow from operating
activities and the largest component of cash flow after the
completion of the acquisition phase.
The Partnership Agreement requires that all proceeds from
the sale of Units be invested or committed to investment in
properties by the later of two years after the date of the
Prospectus or six months after termination of the offer and sale
of Units. While the Partnership is purchasing properties, cash
flow from investing activities (investment in real property) will
remain negative and will constitute the principal use of the
Partnership's available cash flow.
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg, Pennsylvania
for $668,144. The property is leased to Ohio Valley Bistros,
Inc. under a Lease Agreement with a primary term of 15 years and
annual rental payments of $67,650. The remaining interest in the
property was purchased by AEI Real Estate Fund XVII Limited
Partnership, an affiliate of the Partnership.
</PAGE> 7
<PAGE>
After completion of the acquisition phase, the
Partnership's primary use of cash flow is distribution and
redemption payments to Partners. The Partnership declares its
regular quarterly distributions before the end of each quarter
and pays the distribution in the first week after the end of each
quarter. The Partnership attempts to maintain a stable
distribution rate from quarter to quarter.
Beginning in 1998, the Partnership may acquire Units from
Limited Partners who have tendered their Units to the
Partnership. Such Units may be acquired at a discount. The
Partnership is not obligated to purchase in any year more than 5%
of the number of Units outstanding at the beginning of the year.
In no event shall the Partnership be obligated to purchase Units
if, in the sole discretion of the Managing General Partner, such
purchase would impair the capital or operation of the
Partnership.
Until capital is invested in properties, the Partnership
will remain extremely liquid. At March 31, 1998, $7,868,949 or
90% of the Partnership's assets were in cash or cash equivalents
(including accrued interest receivable). After completion of
property acquisitions, the Partnership will attempt to maintain a
cash reserve of only approximately 1% of subscription proceeds.
Because properties are purchased for cash and leased under triple-
net leases, this is considered adequate to satisfy most
contingencies.
</PAGE> 8
<PAGE>
Cautionary Statement for Purposes of the "Safe Harbor" Provisions
of the Private Securities Litigation Reform Act of 1995
The foregoing Management's Discussion and Analysis
contains various "forward looking statements" within the meaning
of federal securities laws which represent management's
expectations or beliefs concerning future events, including
statements regarding anticipated application of cash, expected
returns from rental income, growth in revenue, taxation levels,
the sufficiency of cash to meet operating expenses, rates of
distribution, and other matters. These, and other forward
looking statements made by the Partnership, must be evaluated in
the context of a number of factors that may affect the
Partnership's financial condition and results of operations,
including the following:
<bullet> Market and economic conditions which affect the value
of the properties the Partnership owns and the cash
from rental income such properties generate;
<bullet> the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
affects of these consequences for investors;
<bullet> resolution by the General Partners of conflicts with
which they may be confronted;
<bullet> the success of the General Partners of locating
properties with favorable risk return characteristics;
<bullet> the effect of tenant defaults; and
<bullet> the condition of the industries in which the tenants of
properties owned by the Partnership operate.
</PAGE> 9
<PAGE>
REPORT OF INDEPENDENT AUDITORS
To the Partners:
AEI Income & Growth Fund XXII Limited Partnership
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI INCOME
& GROWTH FUND XXII LIMITED PARTNERSHIP (a Minnesota limited
partnership) as of December 31, 1997 and 1996 and the related
statements of operations, cash flows and changes in partners'
capital for the year ended December 31, 1997 and for the period
from inception (July 31, 1996) to December 31, 1996. 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 AEI Income & Growth Fund XXII Limited Partnership as of
December 31, 1997 and 1996, and the results of its operations and
its cash flows for the year ended December 31, 1997 and for the
period from inception (July 31, 1996) to December 31, 1996, in
conformity with generally accepted accounting principles.
Minneapolis, Minnesota /s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P
February 4, 1998 Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
</PAGE> 10
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
DECEMBER 31
ASSETS
1997 1996
CURRENT ASSETS:
Cash and Cash Equivalents $ 5,808,792 $ 943
INVESTMENTS IN REAL ESTATE:
Land 295,020 0
Buildings and Equipment 373,124 0
Property Acquisition Costs 93,860 0
Accumulated Depreciation (668) 0
----------- -----------
Net Investments in Real Estate 761,336 0
----------- -----------
Total Assets $ 6,570,128 $ 943
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 161,446 $ 300
Distributions Payable 100,335 0
----------- -----------
Total Current Liabilities 261,781 300
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (4,970) 643
Limited Partners, $1,000 Unit Value;
24,000 Units authorized; 7,656 Units
issued and outstanding in 1997 6,313,317 0
----------- -----------
Total Partners' Capital 6,308,347 643
----------- -----------
Total Liabilities and Partners' Capital $ 6,570,128 $ 943
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE> 11
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE
PERIOD FROM INCEPTION (JULY 31, 1996) TO DECEMBER 31, 1996
1997 1996
INCOME:
Rent $ 4,001 $ 0
Investment Income 112,806 0
--------- ---------
Total Income 116,807 0
--------- ---------
EXPENSES:
Partnership Administration - Affiliates 137,699 165
Partnership Administration and Property
Management - Unrelated Parties 640 192
Depreciation 668 0
--------- ---------
Total Expenses 139,007 357
--------- ---------
NET LOSS $ (22,200) $ (357)
========= =========
NET LOSS ALLOCATED:
General Partners $ (222) $ (357)
Limited Partners (21,978) 0
--------- ---------
$ (22,200) $ (357)
========= =========
NET LOSS PER LIMITED PARTNERSHIP UNIT
(3,736 weighted average Units outstanding
in 1997) $ (5.88) $ 0
========= =========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE> 12
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE
PERIOD FROM INCEPTION (JULY 31, 1996) TO DECEMBER 31, 1996
1997 1996
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (22,200) $ (357)
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 668 0
Increase in Payable to AEI Fund Management, Inc. 161,146 300
----------- -----------
Total Adjustments 161,814 300
----------- -----------
Net Cash Provided By (Used For)
Operating Activities 139,614 (57)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (762,004) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from General Partners 0 1,000
Capital Contributions from Limited Partners 7,655,996 0
Organization and Syndication Costs (1,148,400) 0
Increase in Distributions Payable 100,335 0
Distributions to Partners (177,692) 0
----------- -----------
Net Cash Provided By
Financing Activities 6,430,239 1,000
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 5,807,849 943
CASH AND CASH EQUIVALENTS, beginning of period 943 0
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 5,808,792 $ 943
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE> 13
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1997 AND FOR THE
PERIOD FROM INCEPTION (JULY 31, 1996) TO DECEMBER 31, 1996
Limited
Partnership
General Limited Units
Partners Partners Total Outstanding
BALANCE, July 31, 1996 $ 0 $ 0 $ 0 0
Capital Contributions 1,000 0 1,000 0
Net Loss (357) 0 (357)
--------- ----------- ----------- ---------
BALANCE, December 31, 1996 643 0 643 0
Capital Contributions 0 7,655,996 7,655,996 7,656.00
Organization & Syndication Costs (60) (1,148,340) (1,148,400)
Distributions (5,331) (172,361) (177,692)
Net Loss (222) (21,978) (22,200)
--------- ----------- ----------- ---------
BALANCE, December 31, 1997 $ (4,970) $ 6,313,317 $ 6,308,347 7,656.00
========= =========== =========== =========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE> 14
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) Organization -
AEI Income & Growth Fund XXII Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management, Inc.
(AEI), performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. Under the terms of the
Restated Limited Partnership Agreement, 24,000 Limited
Partnership Units are available for subscription which, if
fully subscribed, will result in contributed Limited
Partners' capital of $24,000,000. The Partnership commenced
operations on May 1, 1997 when minimum subscriptions of
1,500 Limited Partnership Units ($1,500,000) were accepted.
At December 31, 1997, 7,655.996 Units ($7,655,996) were
subscribed and accepted by the Partnership. The General
Partners have contributed capital of $1,000. The Managing
General Partner has extended the offering of Units to the
earlier of completion of sale of all Units or January 9,
1999.
During the operation of the Partnership, any Net Cash Flow,
as defined, which the General Partners determine to
distribute will be distributed 97% to the Limited Partners
and 3% to the General Partners. Distributions to Limited
Partners will be made pro rata by Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's properties which the General
Partners determine to distribute will, after provisions for
debts and reserves, be paid in the following manner: (i)
first, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners receive an amount equal
to: (a) their Adjusted Capital Contribution plus (b) an
amount equal to 9% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) any
remaining balance will be distributed 90% to the Limited
Partners and 10% to the General Partners. Distributions to
the Limited Partners will be made pro rata by Units.
</PAGE> 15
<PAGE>
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed to
the Partners for such year. Any additional profits will be
allocated in the same ratio as the last dollar of Net Cash
Flow is distributed. Net losses from operations will be
allocated 99% to the Limited Partners and 1% to the General
Partners.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(1) Organization - (Continued)
For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's property will be
allocated in accordance with the Partnership Agreement as
follows: (i) first, to those partners with deficit balances
in their capital accounts in an amount equal to the sum of
such deficit balances; (ii) second, 99% to the Limited
Partners and 1% to the General Partners until the aggregate
balance in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital Contributions
plus an amount equal to 9% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, the
balance of any remaining gain will then be allocated 90% to
the Limited Partners and 10% to the General Partners.
Losses will be allocated 98% to the Limited Partners and 2%
to the General Partners.
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(2) Summary of Significant Accounting Policies -
Newly Issued Accounting Standards
In June, 1997, Statement of Financial Accounting Standards
No. 130 "Reporting Comprehensive Income" was approved for
issuance for fiscal years beginning after December 15,
1997. The Partnership adopted this Statement in the
fourth quarter of 1997. The effect of this Statement has
been determined that net income/loss for financial
statements and comprehensive income/loss is primarily the
same in all material respects.
</PAGE> 16
<PAGE>
Financial Statement Presentation
The accounts of the Partnership are maintained on the
accrual basis of accounting for both federal income tax
purposes and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(2) Summary of Significant Accounting Policies - (Continued)
The Partnership regularly assesses whether market events
and conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate
Cash Concentrations of Credit Risk
At times throughout the year, the Partnership's cash
deposited in financial institutions may exceed FDIC
insurance limits.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.
Income Taxes
The income or loss of the Partnership for federal income
tax reporting purposes is includable in the income tax
returns of the partners. Accordingly, no recognition has
been given to income taxes in the accompanying financial
statements.
</PAGE> 17
<PAGE>
The tax return, the qualification of the Partnership as
such for tax purposes, and the amount of distributable
Partnership income or loss are subject to examination by
federal and state taxing authorities. If such an
examination results in changes with respect to the
Partnership qualification or in changes to distributable
Partnership income or loss, the taxable income of the
partners would be adjusted accordingly.
Real Estate
The Partnership's real estate is or will be leased under
long-term triple net leases classified as operating
leases. The Partnership recognizes rental revenue on the
accrual basis according to the terms of the individual
leases. For leases which contain rental increases based
on cost of living increases, the increases are recognized
in the year in which they are effective.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(2) Summary of Significant Accounting Policies - (Continued)
Real estate is recorded at the lower of cost or estimated
net realizable value. The Financial Accounting Standards
Board issued Statement No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of" which was effective for the
Partnership's fiscal year ended December 31, 1996. This
standard requires the Partnership to compare the carrying
amount of its properties to the estimated future cash
flows expected to result from the property and its
eventual disposition. If the sum of the expected future
cash flows is less than the carrying amount of the
property, the Statement requires the Partnership to
recognize an impairment loss by the amount by which the
carrying amount of the property exceeds the fair value of
the property.
The Partnership has capitalized as Investments in Real
Estate certain costs incurred in the review and
acquisition of the properties. The costs will be
allocated to the land, buildings and equipment.
The buildings and equipment of the Partnership are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively.
</PAGE> 18
<PAGE>
(3) Related Party Transactions -
The Partnership owns a 40.0% interest in a TGI Friday's
restaurant in Greensburg, Pennsylvania. The remaining
interest in the property is owned by AEI Real Estate Fund
XVII Limited Partnership, an affiliate of the Partnership.
Each Partnership owns a separate, undivided interest in the
property. No specific agreement or commitment exists
between the Partnerships as to the management of their
respective interests in the property, and the Partnership
that holds more than a 50% interest does not control
decisions over the other Partnership's interest. The
financial statements reflect only this Partnership's
percentage share of the property's land, building and
equipment, liabilities, revenues and expenses.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(3) Related Party Transactions - (Continued)
AEI, AFM and AEI Securities, Inc. (ASI) (formerly AEI
Incorporated) received the following compensation and
reimbursements for costs and expenses from the Partnership:
Total Incurred by the Partnership
for the Year Ended December 31, 1997
and for the Period From Inception
(July 31, 1996) to December 31, 1996
1997 1996
a.AEI and AFM are reimbursed for all costs
incurred in connection with managing the
Partnership's operations, maintaining
the Partnership's books and communicating
the results of operations to the Limited
Partners. $ 137,699 $ 165
======== ========
b.AEI and AFM are reimbursed for all direct
expenses they have paid on the Partnership's
behalf to third parties. These expenses included
printing costs, legal and filing fees, direct
administrative costs, outside audit and accounting
costs, insurance and other property costs. $ 640 $ 192
======== ========
c.AEI is reimbursed for all property acquisition
costs incurred by it in acquiring properties on
behalf of the Partnership. The amounts are net
of financing and commitment fees and expense
reimbursements received by the Partnership from
the lessees in the amount of $11,414 for 1997. $ 102,004 $ 0
</PAGE> 19 ======== ========
<PAGE>
d.ASI was the underwriter of the Partnership offering.
Robert P. Johnson is the sole stockholder of ASI,
which is a member of the National Association of
Securities Dealers, Inc. ASI received, as
underwriting commissions 8% for sale of certain
subscription Units ($80 per unit sold, of which it
re-allowed up to $80 per unit to other participating
broker/dealers). ASI also received a 2%
non-accountable expense allowance for all Units
it sold through broker/dealers. These costs
are treated as a reduction of partners' capital. $ 765,600 $ 0
======== ========
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(3) Related Party Transactions - (Continued)
Total Incurred by the Partnership
for the Year Ended December 31, 1997
and for the Period From Inception
(July 31, 1996) to December 31, 1996
1997 1996
e.AEI is reimbursed for all costs incurred in
connection with managing the Partnership's
offering and organization. $ 153,495 $ 0
======== ========
f.AEI is reimbursed for all expenses it has paid
on the Partnership's behalf relating to the
offering and organization of the Partnership.
These expenses included printing costs, legal
and filing fees, direct administrative costs,
underwriting costs and due diligence fees. $ 229,305 $ 0
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c, e and f.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
</PAGE> 20
<PAGE>
(4) Investments in Real Estate -
The Partnership leases its properties to various tenants
through triple net leases, which are classified as operating
leases. Under a triple net lease, the lessee is responsible
for all real estate taxes, insurance, maintenance, repairs
and operating expenses of the property. The initial Lease
term is 15 years. The Lease contains renewal options which
may extend the Lease term an additional 10 years. The Lease
contains rent clauses which entitle the Partnership to
receive additional rent in future years based on stated rent
increases.
The Partnership's property is a commercial, single-tenant
building and was constructed and acquired in 1997. There
have been no costs capitalized as improvements subsequent to
the acquisition.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(4) Investments in Real Estate - (Continued)
The cost of the property and related accumulated
depreciation at December 31, 1997 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
TGI Friday's
Greensburg, PA $ 295,020 $ 373,124 $ 668,144 $ 668
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg,
Pennsylvania for $668,144. The property is leased to Ohio
Valley Bistros, Inc. under a Lease Agreement with a primary
term of 15 years and annual rental payments of $67,650.
The Partnership has incurred net costs of $102,004 relating
to the review of potential property acquisitions. Of these
costs, $8,144 have been capitalized and allocated to land,
building and equipment. The remaining costs of $93,860 have
been capitalized and will be allocated to properties
acquired subsequent to December 31, 1997.
</PAGE> 21
<PAGE>
The minimum future rentals on the Lease for years subsequent
to December 31, 1997 are as follows:
1998 $ 67,650
1999 68,414
2000 69,187
2001 69,969
2002 70,760
Thereafter 753,110
----------
$ 1,099,090
==========
There were no contingent rents recognized in 1997.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Partnership's total
rent revenue for the year ended December 31:
1997
Tenants Industry
Ohio Valley Bistros, Inc. Restaurant $ 4,001
----------
Aggregate rent revenue of major tenants $ 4,001
==========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 100%
==========
(6) Partners' Capital -
Cash distributions of $5,331 were made to the General
Partners and $172,361 were made to the Limited Partners for
the year ended December 31, 1997. The Limited Partners'
distributions represent $46.14 per Limited Partnership Unit
outstanding using 3,736 weighted average Units in 1997. The
distributions represent $-0- per Unit of Net Income and
$46.14 per Unit of return of contributed capital in 1997.
</PAGE> 22
<PAGE>
Beginning in 1998, the Partnership may acquire Units from
Limited Partners who have tendered their Units to the
Partnership. Such Units may be acquired at a discount. The
Partnership is not obligated to purchase in any year more
than 5% of the number of Units outstanding at the beginning
of the year. In no event shall the Partnership be obligated
to purchase Units if, in the sole discretion of the Managing
General Partner, such purchase would impair the capital or
operation of the Partnership.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(7) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
1997 1996
Net Loss for Financial
Reporting Purposes $ (22,200) $ (357)
Depreciation for Tax Purposes
Over Depreciation for Financial
Reporting Purposes (388) 0
Capitalized Start-Up Costs
Under Section 195 137,668 357
Amortization of Start-Up and
Organization Costs (167) 0
---------- ----------
Taxable Income to Partners $ 114,913 $ 0
========== ==========
</PAGE> 23
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
(7) Income Taxes - (Continued)
The following is a reconciliation of Partners' capital for
financial reporting purposes to Partners' capital reported
for federal income tax purposes for the years ended
December 31:
1997 1996
Partners' Capital for
Financial Reporting Purposes $ 6,308,347 $ 643
Depreciation for Tax Purposes
Over Depreciation for Financial
Reporting Purposes (388) 0
Capitalized Start-Up Costs
Under Section 195 138,024 357
Amortization of Start-Up and
Organization Costs (167) 0
Organization and Syndication Costs
Treated as Reduction of Capital
for Financial Reporting Purposes 1,148,400 0
----------- -----------
Partners' Capital for
Tax Reporting Purposes $ 7,594,216 $ 1,000
=========== ===========
(8) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, for the years ended
December 31:
1997 1996
Carrying Fair Carrying Fair
Amount Value Amount Value
Cash $ 307 $ 307 $ 943 $ 943
Money Market Funds 5,808,485 5,808,485 0 0
----------- ----------- --------- ---------
Total Cash and
Cash Equivalents $ 5,808,792 $ 5,808,792 $ 943 $ 943
=========== =========== ========= =========
</PAGE> 24
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
BALANCE SHEET
MARCH 31, 1998 AND DECEMBER 31, 1997
ASSETS
(Unaudited)
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 7,868,949 $ 5,808,792
INVESTMENTS IN REAL ESTATE:
Land 295,020 295,020
Buildings and Equipment 373,124 373,124
Property Acquisition Costs 168,666 93,860
Accumulated Depreciation (4,674) (668)
----------- -----------
Net Investments in Real Estate 832,136 761,336
----------- -----------
Total Assets $ 8,701,085 $ 6,570,128
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 219,225 $ 161,446
Distributions Payable 142,592 100,335
Unearned Rent 5,637 0
----------- -----------
Total Current Liabilities 367,454 261,781
----------- -----------
PARTNERS' CAPITAL (DEFICIT):
General Partners (8,223) (4,970)
Limited Partners, $1,000 Unit Value;
24,000 Units authorized; 10,166 and
7,656 Units issued and outstanding in
1998 and 1997, respectively 8,341,854 6,313,317
----------- -----------
Total Partners' Capital 8,333,631 6,308,347
----------- -----------
Total Liabilities and Partners' Capital $ 8,701,085 $ 6,570,128
=========== ===========
The accompanying notes to financial statements are an integral
part of this statement.
</PAGE> 25
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF OPERATIONS
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1998 1997
INCOME:
Rent $ 16,913 $ 0
Investment Income 82,404 0
----------- -----------
Total Income 99,317 0
----------- -----------
EXPENSES:
Partnership Administration - Affiliates 50,134 17,566
Partnership Administration and Property
Management - Unrelated Parties 8,177 50
Depreciation 4,006 0
----------- -----------
Total Expenses 62,317 17,616
----------- -----------
NET INCOME (LOSS) $ 37,000 $ (17,616)
=========== ===========
NET INCOME (LOSS) ALLOCATED:
General Partners $ 1,110 $ (17,616)
Limited Partners 35,890 0
----------- -----------
$ 37,000 $ (17,616)
=========== ===========
NET INCOME (LOSS) PER LIMITED PARTNERSHIP UNIT
(8,100 weighted average Units outstanding
in 1998) $ 4.43 $ 0
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 26
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CASH FLOWS
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
1998 1997
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (Loss) $ 37,000 $ (17,616)
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 4,006 0
Increase in Payable to AEI Fund Management, Inc. 57,779 17,566
Increase in Unearned Rent 5,637 0
----------- -----------
Total Adjustments 67,422 17,566
----------- -----------
Net Cash Provided By (Used For)
Operating Activities 104,422 (50)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (74,806) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Partners 2,510,270 0
Organization and Syndication Costs (376,540) 0
Increase in Distributions Payable 42,257 0
Distributions to Partners (145,446) 0
----------- -----------
Net Cash Provided By
Financing Activities 2,030,541 0
----------- -----------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 2,060,157 (50)
CASH AND CASH EQUIVALENTS, beginning of period 5,808,792 943
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 7,868,949 $ 893
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 27
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
STATEMENT OF CHANGES IN PARTNERS' CAPITAL
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
Limited
Partnershiip
General Limited Units
Partners Partners Total Outstanding
BALANCE, December 31, 1996 $ 643 $ 0 $ 643
Net Loss (17,616) 0 (17,616)
--------- ----------- ----------- -----------
BALANCE, March 31, 1997 $ (16,973) $ 0 $ (16,973)
========= =========== =========== ===========
BALANCE, December 31, 1997 $ (4,970) $6,313,317 $6,308,347 7,656.00
Capital Contributions 0 2,510,270 2,510,270 2,510.27
Organization and
Syndication Costs 0 (376,540) (376,540)
Distributions (4,363) (141,083) (145,446)
Net Income 1,110 35,890 37,000
--------- ----------- ----------- -----------
BALANCE, March 31, 1998 $ (8,223) $8,341,854 $8,333,631 10,166.27
========= =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
</PAGE> 28
<PAGE>
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1998
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Partnership, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Partnership
believes that the disclosures are adequate to make the
information presented not misleading. It is suggested that
these condensed financial statements be read in conjunction
with the financial statements and the summary of significant
accounting policies and notes thereto included in the
Partnership's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund XXII Limited Partnership
(Partnership) was formed to acquire and lease commercial
properties to operating tenants. The Partnership's
operations are managed by AEI Fund Management XXI, Inc.
(AFM), the Managing General Partner of the Partnership.
Robert P. Johnson, the President and sole shareholder of
AFM, serves as the Individual General Partner of the
Partnership. An affiliate of AFM, AEI Fund Management,
Inc., performs the administrative and operating functions
for the Partnership.
The terms of the Partnership offering call for a
subscription price of $1,000 per Limited Partnership Unit,
payable on acceptance of the offer. Under the terms of the
Restated Limited Partnership Agreement, 24,000 Limited
Partnership Units are available for subscription which, if
fully subscribed, will result in contributed Limited
Partners' capital of $24,000,000. The Partnership commenced
operations on May 1, 1997 when minimum subscriptions of
1,500 Limited Partnership Units ($1,500,000) were accepted.
At March 31, 1998, 10,166.265 Units ($10,166,265) were
subscribed and accepted by the Partnership. The General
Partners have contributed capital of $1,000. The Managing
General Partner has extended the offering of Units to the
earlier of completion of sale of all Units or January 9,
1999.
</PAGE> 29
<PAGE>
During the operation of the Partnership, any Net Cash Flow,
as defined, which the General Partners determine to
distribute will be distributed 97% to the Limited Partners
and 3% to the General Partners. Distributions to Limited
Partners will be made pro rata by Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of the Partnership's properties which the General
Partners determine to distribute will, after provisions for
debts and reserves, be paid in the following manner: (i)
first, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners receive an amount equal
to: (a) their Adjusted Capital Contribution plus (b) an
amount equal to 9% of their Adjusted Capital Contribution
per annum, cumulative but not compounded, to the extent not
previously distributed from Net Cash Flow; (ii) any
remaining balance will be distributed 90% to the Limited
Partners and 10% to the General Partners. Distributions to
the Limited Partners will be made pro rata by Units.
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of the Partnership's
property, will be allocated first in the same ratio in
which, and to the extent, Net Cash Flow is distributed to
the Partners for such year. Any additional profits will be
allocated in the same ratio as the last dollar of Net Cash
Flow is distributed. Net losses from operations will be
allocated 99% to the Limited Partners and 1% to the General
Partners.
For tax purposes, profits arising from the sale, financing,
or other disposition of the Partnership's property will be
allocated in accordance with the Partnership Agreement as
follows: (i) first, to those partners with deficit balances
in their capital accounts in an amount equal to the sum of
such deficit balances; (ii) second, 99% to the Limited
Partners and 1% to the General Partners until the aggregate
balance in the Limited Partners' capital accounts equals the
sum of the Limited Partners' Adjusted Capital Contributions
plus an amount equal to 9% of their Adjusted Capital
Contributions per annum, cumulative but not compounded, to
the extent not previously allocated; (iii) third, the
balance of any remaining gain will then be allocated 90% to
the Limited Partners and 10% to the General Partners.
Losses will be allocated 98% to the Limited Partners and 2%
to the General Partners.
</PAGE> 30
<PAGE>
The General Partners are not required to currently fund a
deficit capital balance. Upon liquidation of the
Partnership or withdrawal by a General Partner, the General
Partners will contribute to the Partnership an amount equal
to the lesser of the deficit balances in their capital
accounts or 1% of total Limited Partners' and General
Partners' capital contributions.
(3) Investments in Real Estate -
The Partnership will lease its properties to various tenants
through triple net leases, which will be classified as
operating leases. Under a triple net lease, the lessee is
responsible for all real estate taxes, insurance,
maintenance, repairs and operating expenses of the property.
The Partnership's property is a commercial, single-tenant
building. The cost of the property and related accumulated
depreciation at March 31, 1998 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
TGI Friday's
Greensburg, PA $ 295,020 $ 373,124 $ 668,144 $ 4,674
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On December 10, 1997, the Partnership purchased a 40.0%
interest in a TGI Friday's restaurant in Greensburg,
Pennsylvania for $668,144. The property is leased to Ohio
Valley Bistros, Inc. under a Lease Agreement with a primary
term of 15 years and annual rental payments of $67,650. The
Lease contains renewal options which may extend the Lease
term an additional 10 years. The Lease contains rent
clauses which entitle the Partnership to receive additional
rent in future years based on stated rent increases. The
remaining interest in the property was purchased by AEI Real
Estate Fund XVII Limited Partnership, an affiliate of the
Partnership.
The Partnership has incurred net costs of $176,810 relating
to the review of potential property acquisitions. Of these
costs, $8,144 have been capitalized and allocated to land,
building and equipment. The remaining costs of $168,666
have been capitalized and will be allocated to properties
acquired subsequent to March 31, 1998.
</PAGE> 31
<PAGE>
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Partnership. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
</PAGE> 32
<PAGE>
AEI INCOME & GROWTH FUND XXII
$24,000,000 (maximum)
Limited Partnership Units
Offered in 24,000 Units of $1,000 Each, Minimum Purchase: 2.5 Units
($2,500);
2 Units ($2,000) for Qualified Retirement Plans, Including Individual
Retirement Accounts and Keogh Plans (Higher in Certain States)
AEI Income & Growth Fund XXII Limited Partnership (the "Fund"), a
limited partnership organized under the laws of the State of
Minnesota, hereby offers limited partnership interests ("Units") at
a price of $1,000 per Unit. The Fund is organized to acquire, on a
debt-free basis, free-standing, single tenant, triple-net leased
commercial properties, to hold such properties for appreciation, and
eventually to resell such properties at a profit. To facilitate the
acquisition of properties upon completion, the Fund may make
advances to certain sellers of properties that are under
construction.
The Fund's investment objectives are to acquire properties that
offer investors the potential for (i) regular cash distributions of
lease income; (ii) growth in lease income through rent escalation
provisions; (iii) preservation of capital through "all-cash"
transactions; (iv) capital growth through appreciation in the value
of properties; and (v) stable property performance through long-term
lease contracts. No assurance can be given that such objectives can
be achieved. It will not be an objective of the Fund to shelter
taxable income of investors that is derived from sources other than
the Fund. The Fund is not a mutual fund or any other type of
investment company within the meaning of the Investment Company Act
of 1940 and is not subject to regulation thereunder.
There are significant risks associated with an investment in the
Fund, including the following:
Market and economic conditions which affect the value of
the properties the Fund will purchase and the cash from rental
income that such properties generate;
The Federal Income Tax Consequences of an investment in the Fund;
Conflicts of interest faced by the General Partners and
their Affiliates, including conflicts arising out of significant
compensation they may receive from the Fund;
The absence of a public market for the Units and
substantial restrictions on transfer imposed to avoid
classification as a publicly traded partnership for tax purposes;
and
The lack of information regarding properties that may be
acquired and the decrease in diversification of such properties
if only the minimum $1,500,000 of proceeds are obtained.
See "Risk Factors" for a detailed discussion of these and other
risks associated with an investment in the Fund.
</PAGE> 33
<PAGE>
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION NOR HAS THE COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. NEITHER THE ATTORNEY
GENERAL OF THE STATE OF NEW JERSEY, THE BUREAU OF SECURITIES OF THE
STATE OF NEW JERSEY, THE ATTORNEY GENERAL OF THE STATE OF NEW YORK
NOR THE SECURITIES ADMINISTRATOR OF ANY OTHER JURISDICTION HAS
PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
Price to Selling Commissions Proceeds to
Public and Expense Reimbursement<F1> Fund<F2>
Per Unit $ 1,000 $ 100 $ 900
Total Minimum 1,500,000 150,000 1,350,000
Total Maximum 24,000,000 2,400,000 21,600,000
The date of this Prospectus is January 10, 1997
<F1> The Units are being offered on a "best efforts" basis by AEI
Incorporated (an Affiliate of the General Partners) as Dealer-
Manager (the "Dealer-Manager") and by other participating
members of the National Association of Securities Dealers,
Inc. (the "Participating Dealers"). The Dealer-Manager will
be paid commissions and non-accountable expenses equal to 10%
of the gross proceeds from the sale of Units, all or a portion
of which may be reallowed to Participating Dealers. The Fund
may also reimburse the Dealer-Manager for the bona fide due
diligence expenses actually incurred by Participating Dealers,
not exceeding 1/2 of 1% of the gross offering proceeds. See
"Plan of Distribution."
<F2> Before deducting the due diligence expense allowance payable
to the Dealer-Manager and expenses for federal and state
registration fees, legal, accounting, printing and other costs
reimbursable to the General Partners in connection with
organizing the Fund and offering the Units, presently
estimated to be $75,000 if 1,500 Units are sold and $960,000
if 24,000 Units are sold. After deducting such expenses, and
unreimbursed acquisition expenses and working capital
reserves, it is estimated that the Fund will have
approximately $1,245,000 or 83% of the proceeds (minimum) and
$20,160,000 or 83.5% of the proceeds (maximum) available for
purchase of properties. See "Estimated Use of Proceeds."
</PAGE> 34
<PAGE>
The offering will terminate not later than one year after the
date of this Prospectus; provided, however, that in those states
that permit an extension, the offering may be extended to a date
not later than two years from the date of this Prospectus.
Subscription funds will be deposited in an interest-bearing escrow
account with Fidelity Bank, Edina, Minnesota. If subscriptions for
at least 1,500 Units have not been received by the termination
date, no Units will be sold and all funds will be returned to
subscribers with any interest actually earned thereon. After
subscriptions for the minimum number of Units have been received,
but prior to termination of the offering, the General Partners may
release the escrowed proceeds and commence the business operations
of the Fund. Upon admission to the Fund, each investor will
receive his or her pro rata share of any interest earned on
escrowed funds based on the date his or her subscription payment
was deposited. A subscriber may not withdraw funds from escrow.
See "Plan of Distribution."
THE USE OF PROJECTIONS 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 FUND IS A VIOLATION OF THE LAW. HOWEVER, SUCH PROHIBITION
SHOULD NOT BE CONSTRUED TO PREVENT THE FUND FROM FILING
SUPPLEMENTALLY ANY PRO-FORMA FINANCIAL STATEMENTS REQUIRED BY THE
FEDERAL SECURITIES LAWS AND REGULATIONS THEREUNDER.
NO PURCHASE OF UNITS BY AN INVESTOR MAY BE COMPLETED UNTIL AT
LEAST FIVE BUSINESS DAYS AFTER SUCH INVESTOR HAS RECEIVED A COPY OF
THIS PROSPECTUS.
SUMMARY OF THE OFFERING
The following summary highlights certain important information
and is not intended to be comprehensive, but should be read in
conjunction with the more detailed information set forth in this
Prospectus and its Exhibits. See Article II of the Limited
Partnership Agreement (attached to this Prospectus as Exhibit A)
for definitions of key terms used in this Prospectus.
The Fund. AEI Income & Growth Fund XXII Limited Partnership (the
"Fund") was organized in July 1996 as a Minnesota limited
partnership. Upon receipt of subscription proceeds of $1,500,000
the restated limited partnership agreement attached hereto as
Exhibit A (the "Partnership Agreement") will be executed by the
General Partners for themselves and as attorneys-in-fact for all
Limited Partners. The business and affairs of the Fund, including
the selection, acquisition and supervision of the operation of
properties, will be managed and controlled by the General Partners.
General Partners. The General Partners of the Fund are Robert P.
Johnson and AEI Fund Management XXI, Inc., a Minnesota corporation
wholly owned by Robert P. Johnson. AEI Fund Management XXI, Inc.
will serve as the Managing General Partner. The principal office of
the Managing General Partner is 1300 Minnesota World Trade Center,
30 East Seventh Street, Saint Paul, Minnesota 55101 and its
telephone number is (612) 227-7333 (toll free 800-328-3519). See
"General Partners."
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Limited Partners and Minimum Investment. Limited partnership
interests in the Fund are being offered in units of $1,000 (the
"Units"). An individual, partnership, corporation, trust,
association or other legal entity may, subject to acceptance by the
General Partners, purchase two and one-half ($2,500) or more Units.
An Individual Retirement Account, Keogh Plan or other Qualified Plan
may, subject to acceptance by the General Partners, purchase two
($2,000) or more Units unless applicable state law requires a larger
purchase. See Exhibit C. Investors may purchase any dollar amount
above the minimum investment.
Offering Period and Escrow. The offering period will commence
on the date of this Prospectus and terminate on or before one year
after the date of this Prospectus; subject to extension to up to two
years from the date of this Prospectus in those states permitting
such an extension. Subscription funds will be deposited in an
escrow account pending termination of the offering or formation of
the Fund. If subscriptions for at least 1,500 Units have not been
received by one year after the date of this Prospectus, no Units
will be sold and all funds will be returned to subscribers with any
interest actually earned thereon. Upon admission to the Fund, each
investor will be paid such investor's pro rata share of any interest
earned on escrowed funds based on the date his or her subscription
payment was deposited.
Fund's Business. The business of the Fund will be to acquire,
on a debt-free basis, free-standing, single tenant, commercial
properties, that are leased to tenants under "triple net" leases
(leases that require the tenant to pay for all real estate taxes,
insurance, maintenance, repairs and operating expenses), to generate
rental income from such properties, to sell such properties from
time to time, and to reinvest the proceeds in additional net leased
properties. The General Partners expect that most of the properties
purchased by the Fund will be single use properties and that many of
such properties will be leased to tenants in the restaurant or
retail industry, although the Fund may acquire commercial properties
leased to tenants in other industries. To facilitate the
acquisition of properties upon completion, the Fund may make
advances to certain sellers of properties that are under
construction.
Risks. An investment in the Fund involves a number of risks,
including risks related to (i) market and economic conditions which
effect the value of the Fund's properties, (ii) the tax consequences
of an investment in the Fund, (iii) certain conflicts of interest
that may be faced by the General Partners, (iv) the absence of a
public market for the Units and restrictions on transfer, and (v)
the lack of information regarding the properties that may be
purchased. See "Risk Factors."
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Fund Termination. Although the Partnership Agreement provides
that the existence of the Fund may continue until December 31, 2046,
it is likely that the Fund will be earlier dissolved and liquidated
upon the sale of all of its properties. The General Partners intend
to liquidate the Fund twelve to fifteen years after formation,
depending upon the then current real estate and money markets, the
economic climate and the income tax consequences to investors. If
the Fund were to finance the sale of some of its properties, the
Fund would continue to exist beyond such period until all such
financing is collected or otherwise converted to cash. There can be
no guarantee that the properties can be sold on terms favorable to
the Fund and its Partners.
Share of Net Cash Flow. Net Cash Flow from operations, if any,
with respect to each fiscal year will be distributed 97% to the
Limited Partners and 3% to the General Partners. Net Cash Flow
relating to the offering period will be distributed based on the
number of days each Unit is outstanding.
Share of Net Proceeds of Sale of Properties. Any distributed Net
Proceeds of Sale, after provision for debts, reserves and operating
expenses, will be distributed 99% to the Limited Partners and 1% to
the General Partners until the Limited Partners have received an
amount equal to their Adjusted Capital Contributions, plus a 9% per
annum return on their Adjusted Capital Contributions, cumulative but
not compounded, to the extent such 9% return has not been previously
distributed. Any remaining Net Proceeds of Sale will be distributed
90% to the Limited Partners and 10% to the General Partners. See
"Cash Distributions and Tax Allocations."
Reinvestment of Net Proceeds of Sale. The Partnership will retain
the right to reinvest Net Proceeds of Sale, after distribution to
Limited Partners of sufficient proceeds to cover income tax
liability (at a rate for all partners of seven percent above the
individual capital gains rate), in additional triple net lease
properties meeting the Fund's acquisition guidelines. The General
Partners intend that the Partnership will sell properties from time
to time when conditions are favorable, distribute the majority of
the net gain from such sales, and reinvest the remaining Net
Proceeds of Sale in additional triple net lease properties. The
frequency of such sales and reinvestment will depend on the
performance of each individual property and market conditions and
will depend, in part, on the economic benefits of continued
ownership. See "Investment Objectives and Policies."
Distribution Reinvestments. Limited Partners may, by indicating
in the subscription agreement their desire to do so, cause Net Cash
Flow from operations of the Fund to be automatically reinvested in
additional Units of the Fund during the offering period pursuant to
this Prospectus (which will not, in any event exceed two years from
the date hereof). Thereafter, Limited Partners may direct the
Managing General Partner to reinvest distributions from the Fund in
subsequent limited partnerships sponsored by the General Partners or
their Affiliates, provided such purchases comply with applicable
federal and state securities requirements and such Limited Partners
purchase the minimum amount of limited partnership interests in the
subsequent limited partnership. See "Summary of Restated
Partnership Agreement--Distribution Reinvestment Plan."
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Limited Right to Present Units. An investment in the Units is a
long-term investment and it is very unlikely that there will be a
trading market for the Units. Under certain conditions, however,
and in the discretion of the General Partners, commencing in 1998
and continuing in each year thereafter, the Fund may, upon request
by Limited Partners, repurchase up to five percent of the
outstanding Units at prices equal to a discount from the net value
of the Fund's assets (as determined by the Managing General
Partner). See "Summary of Limited Partnership Agreement--Repurchase
of Units."
Fund's Objectives. The Fund's objectives are to acquire
properties that offer investors the potential for: (i) regular cash
distributions of lease income; (ii) growth in lease income through
rent escalation provisions; (iii) preservation of capital through
"all-cash" transactions; (iv) capital growth through appreciation in
the value of properties; and (v) stable property performance through
long-term lease contracts. No assurances can be given that these
objectives can be achieved. It is not an objective of the Fund to
shelter taxable income from sources other than the Fund. The
General Partners currently estimate that cash distributions from
rents will begin in 1997, assuming offering proceeds are available
and invested in properties during 1997.
Fund Properties. As of the date of this Prospectus, the Fund did
not own any property. This Prospectus will be supplemented whenever
a reasonable probability arises during the course of the offering
that the Fund will invest in any specific property. The Fund may
not acquire any property in which the General Partners or their
Affiliates, other than an affiliated partnership that has investment
objectives and management compensation substantially identical to
the Fund, have any direct or indirect interest.
No Leverage. The Fund's properties will be purchased with the
proceeds of this offering without any indebtedness. The Fund will
not finance properties in the future to obtain proceeds for new
property acquisitions. If it is required to do so, the Fund may
incur short-term indebtedness, which may be secured by a portion of
the Fund's properties, to finance the day-to-day cash flow
requirements of the Fund (including cash flow necessary to
repurchase Units). The amount of borrowings that may be secured by
the Fund's properties is limited in the aggregate to 10% of the
purchase price of all Fund properties. The Fund will not incur
borrowings prior to application of the proceeds from sale of the
Units, will not incur borrowings to pay distributions, and will not
incur borrowings while there is cash available for distributions.
Because no financing is currently anticipated, it is not expected
that the Fund will produce unrelated business taxable income
("UBTI") under the Internal Revenue Code. See "Income Tax Aspects--
Personal Tax Consequences--Investment by Qualified Plans."
</PAGE> 38
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Tax Consequences. The General Partners are relying upon an opinion
of counsel regarding the taxability of the Fund as a partnership
rather than as an association taxable as a corporation and have not
requested a ruling from the Internal Revenue Service regarding such
issue or any other tax aspect associated with an investment in the
Fund. Prospective investors are urged to carefully review "Risks
and Other Important Factors--Federal Income Tax Risks" and "Income
Tax Aspects" with their tax advisor.
Compensation of General Partners and Affiliates. The General
Partners will be reimbursed, subject to limitations in the
Partnership Agreement, for direct costs incurred by them and their
Affiliates in connection with (i) the organization of the Fund and
this offering ("Organization and Offering Expenses"), (ii) the
acquisition of properties ("Acquisition Expenses"), (iii) the
disposition of properties, and (iv) the administration of the
Partnership, management of properties, leasing and releasing of
properties, and eventually dissolution of the Partnership and
liquidation of its assets (collectively, "Administrative Expenses").
Organization and Offering Expenses and Acquisition Expenses (which
are together called "Front-End Fees") may not exceed 20% of gross
offering proceeds. Administrative Expenses are reimbursed at Cost,
which includes an allocable portion of the General Partner's
overhead expenses and expenses of controlling persons. The aggregate
amount of Organization and Offering Expenses, Acquisition Expenses,
sales expenses, overhead expenses and controlling person expenses
reimbursed to the General Partners may not exceed (i) a Front-End
Fee equal to 20% of gross offering proceeds, (ii) property
management fees of up to 5% (for commercial properties) of net cash
flow, (iii) sales commissions of up to 3% of the sales price of
properties, and (iv) the difference between 10% of cash flow and the
cash flow actually paid to the General Partners. Part of the
Organization and Offering Expenses paid consists selling commissions
and nonaccountable expense reimbursements of 10% of the proceeds of
the Units paid to AEI Incorporated, an Affiliate of the General
Partners, a substantial majority of which will be reallowed to
Participating Dealers. See "Compensation to General Partners and
Affiliates."
WHO MAY INVEST
Subscriptions for Units will be accepted only from those persons who
represent in writing that they have either (i) a net worth (exclusive
of homes, home furnishings and automobiles) of at least $45,000 and an
annual gross income of at least $45,000 or (ii) irrespective of annual
gross income, a net worth of at least $150,000 (determined with the
same exclusions). The minimum investment required of each investor,
except Individual Retirement Accounts, Keogh Plans or other Qualified
Plans, is two and one-half Units ($2,500) (subject to the requirements
of certain states--see Exhibit C). The minimum investment for
Individual Retirement Accounts, Keogh Plans and other Qualified Plans
is two Units ($2,000) (subject to the requirements of certain states--
see Exhibit C), provided that the person who established the account
or plan meets the foregoing standards. An investment in the Fund will
not create an Individual Retirement Account or Keogh Plan or other
Qualified Plan for any investor; in order to create such a plan, an
investor must engage a qualified trustee or custodian, comply with all
applicable provisions of the Internal Revenue Code, and decide whether
an investment in the Fund is suitable for such plan.
</PAGE> 39
<PAGE>
Further, the General Partners and the Dealers are required to make
every reasonable effort to determine that the purchase of Units is an
appropriate investment for investors. In addition to the net worth
and income standards set forth above, such efforts must be designed to
ascertain whether the investor can reasonably benefit from an
investment in then Units based on the investor's investment
objectives, whether the investor can bear the risk of the investment
based on his or her investment situation, and whether the investor has
an apparent understanding of the risks of the investment, the lack of
liquidity of the Units, the restrictions on transferability of Units,
the background and qualifications of the General Partners, and the tax
consequences of the investment.
ADDITIONAL REQUIREMENTS APPLICABLE TO RESIDENTS OF CERTAIN STATES ARE
SET FORTH IN EXHIBIT C ATTACHED HERETO. For the form of written
representation required of persons investing in Units, see the
Subscription Agreement attached as Exhibit D to this Prospectus.
Investors seeking to transfer their Units after their initial
investment may be subject to the securities laws of the state in
which the transfer is to take place, including the imposition of
"suitability standards" of the type described above.
Trustees and custodians of Qualified Plans should consider, among
other things, (i) whether an investment in the Fund satisfies the
diversification requirements of Section 404(a) of the Employee
Retirement Income Security Act of 1974, and (ii) whethe r the
investment is prudent under such Section 404(a), considering the
nature of an investment in, and the compensation structure of, the
Fund and the potential lack of liquidity of the Units. The prudence
of a particular investment must be determined by the responsible
fiduciary taking into account all the facts and circumstances of the
tax-qualified retirement plan and of the investment. See "Income Tax
Aspects--Personal Tax Consequences--Investment by Qualified Plans."
RISK FACTORS
The purchase of the Units offered hereby involves various risks.
In addition to the factors set forth elsewhere herein, prospective
purchasers should carefully consider the following:
</PAGE> 40
<PAGE>
General Risks
Purchase of Unspecified Properties. Although the proceeds of this
offering will be used to acquire non-residential commercial properties
(including single-tenant properties in the restaurant and retail
industry) that are subject to long-term triple net leases, no
properties have been identified for acquisition. This Prospectus will
be appropriately supplemented whenever a reasonable probability arises
that the Fund will invest in any other property. Investors will not
have an opportunity to evaluate the relevant economic, financial and
other factors regarding the properties in which the proceeds of this
offering will be invested. Investors must rely upon the ability of
the General Partners with respect to the investment of the proceeds of
this offering and management of the properties. No assurance can be
given that the Fund will be successful in obtaining suitable
investments or that the objectives of the Fund will be achieved. In
addition, to the extent that there is a significant delay between the
time Units are purchased and the time the offering proceeds are
invested in properties, there may be a corresponding delay in the
receipt by an investor of the benefits, if any, of an investment in
the Units.
Size of Fund. The Fund will be capitalized with contributions of not
less than $1,500,000 and not more than $24,000,000. The profitability
of the Fund could be affected by the amount of funds at its disposal.
If only the minimum proceeds are obtained, the Fund will be less able
to achieve a diversification of properties and the percentage of the
gross offering proceeds applied to organizational and offering costs
may be higher. Further, although the General Partners intend to
diversify the Fund's investment in properties to the extent possible,
they are under no obligation to do so and proceeds from this offering
may, in the sole discretion of the General Partner, be invested in a
single property. See "Estimated Use of Proceeds" and "Plan of
Distribution." PENNSYLVANIA INVESTORS: Because the minimum closing
amount is less than $2,400,000, you are cautioned to carefully
evaluate the Fund's ability to fully accomplish its stated objectives
and to inquire as to the current amount of Fund subscriptions.
No History of Operations. The Fund has only recently been formed and
has no history of operations.
Conflicts of Interest.The General Partners and their Affiliates will
provide substantially all of the management services to the Fund and
will also have an interest in the Fund. In addition, the General
Partners manage a number of other funds engaged in investment in net
leased real estate, some of which may purchase joint interests in the
properties the Fund acquires. The Dealer-Manager is also an Affiliate
of the General Partners and the Fund is not represented by separate
counsel. The organization and operation of the Fund involves various
conflicts of interest for the General Partners. See "Conflicts of
Interest."
Reliance On Management. Except for certain voting rights afforded
Limited Partners by the Limited Partnership Agreement, the Limited
Partners have no control over the management of the Fund or its
properties, but must rely almost exclusively upon the General
Partners. See "Summary of Limited Partnership Agreement."
</PAGE> 41
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Financial Position of General Partners. AEI Fund Management XXI, Inc.,
the Managing General Partner, was formed in 1994 to serve as general
partner of AEI Income and Growth Fund XXI Limited Partnership, an
affiliated limited partnership with substantially the same structure
and investment objectives as the Fund. The Managing General Partner
does not have substantial net worth. The Individual General Partner,
Robert P. Johnson, who represents that he has a net worth in excess of
$2,400,000, has been involved as a general partner in public and
private net lease real estate funds and energy funds for more than
twenty years. Mr. Johnson could become subject to claims of creditors
for liabilities unrelated to the Fund's business in an amount that
could adversely affect the Fund. A substantial portion of the assets
of the Individual General Partner consist of illiquid investments that
were valued using valuation formulae established by, and which are
believed reasonable by, the Individual General Partner. There can be
no assurance that such assets could be sold at their estimated value.
Death or Withdrawal of General Partners. In the event of the death,
removal, bankruptcy or withdrawal of both of the General Partners, the
Fund will be dissolved. While the Limited Partners may elect, under
such circumstances, to continue the Fund and its business with a new
general partner, the Limited Partners may not be able to find, or
agree upon, a person willing to act as general partner. In such
event, the Fund would be liquidated. Sale of properties under such
circumstances might not produce an advantageous price and the
investors might suffer adverse tax and economic consequences. The
Fund will not have the benefit of insurance on the life of the
Individual General Partner.
Indemnification of General Partners. Under the Limited Partnership
Agreement, the General Partners are not liable to the Fund or to the
Limited Partners for any act or omission that they determine in good
faith is in the best interest of the Fund, except for acts of
negligence or misconduct, and under certain circumstances the General
Partners will be entitled to indemnification from the Fund for certain
losses. See "General Partners--Fiduciary Responsibility."
Not a Real Estate Investment Trust or Investment Company. The Fund
is not a mutual fund or a real estate investment trust and it will not
operate in a manner as to be classified as an "investment company" for
purposes of the Investment Company Act of 1940. The management and
the investment practices and policies of the Fund are not supervised
or regulated by any federal or state authority.
Representation by Attorneys and Accountants. The Fund, its Limited
Partners and the General Partners are not represented by separate
counsel. See "Conflicts of Interest--Lack of Separate
Representation." The legal counsel and accountants for the Fund have
not been retained, and will not be available, to provide legal
counseling or tax advice to investors. Therefore, prospective
investors should retain their own legal and tax advisors.
</PAGE> 42
<PAGE>
No Market for Units/Restrictions on Transfer. It is anticipated that
no public market for the Units will develop. Consequently, holders of
Units may not be able to liquidate their investment in the event of a
financial emergency or for any other reason, and Units may not be
readily accepted as collateral for a loan. In addition, under section
9.1 of the Partnership Agreement, Units may not be assigned without
notice to and approval by the Managing General Partner. Although such
approval is required when the assignment or transfer is not in
violation of the Partnership Agreement, the Partnership Agreement
places substantial restrictions on the form and number of transfers
that may be made in order to retain the treatment of the Fund as a
partnership for income tax purposes under Internal Revenue Service
definitions of "Publicly Traded Partnerships." See "Income Tax
Aspects-Publicly Traded Partnerships." Further, the transfer of a
Unit may result in adverse tax consequences for the transferor. See
"Income Tax Aspects--Sale of Units."
Limited Liability. Although investors will be limited partners in a
limited partnership, certain events under the Uniform Limited
Partnership Act can result in general liability being imposed upon
them. For example, if a Limited Partner takes part in control of the
business of the Fund, he or she may become liable as a general
partner. Also, it is possible that a failure on the part of the Fund
to file certain documents in some jurisdictions in which it operates
may jeopardize their limited liability. Under the Minnesota Revised
Uniform Limited Partnership Act, however, an investor generally will
be liable to a Fund or its creditors only for any difference between
such investor's contributions to the capital of the Fund and the
amount of such contribution the investor has committed in writing to
make, for amounts or property wrongfully distributed to such investor
by the Fund, and for any return of such investor's contributions to
the capital of the Fund, plus interest, to the extent that a creditor
extended credit or had a claim against the Fund prior to such return.
Repurchase of Units. The Partnership Agreement provides that Partners
may tender Units to the Fund for repurchase by it commencing in 1998.
In 1998 and 1999, the repurchase price will be equal to 80% of the
Limited Partner's Adjusted Capital Contribution. In each year
thereafter the repurchase price will be calculated by the General
Partners twice a year based on the value of the Fund's assets. See
"Summary of Limited Partnership Agreement--Repurchase of Units." The
Fund is not required, however, to repurchase Units in excess of five
percent of the Units outstanding in any year and is not required to
repurchase Units if such repurchase would impair the Fund's ability to
continue operations. The repurchase price for any Units must be paid
out of either (i) Fund revenues otherwise distributable to Limited
Partners or (ii) Fund borrowings. Accordingly, to the extent that the
Fund repurchases Units, distributions to remaining Limited Partners
may initially be reduced. Moreover, there may be circumstances under
which Fund revenues and borrowings will be insufficient to fully fund
such repurchases.
</PAGE> 43
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Distribution Reinvestment Plan. All purchases of Units in the Fund's
Distribution Reinvestment Plan will be made at a price of $1,000 per
Unit (the initial public offering price). There can be no assurances
that such price does, or will throughout the life of the Fund and such
Plan, reflect the fair market value of the Units. To the extent the
Fund performs well and the value of its property appreciates, such
price may represent a bargain purchase price to Participants in the
Plan and may cause dilution in the appreciation in value of Units of
investors who are not Participants in the Plan. Conversely, to the
extent the Fund performs poorly and the value of its properties
decline, such price may be in excess of the fair value of a Unit and
may benefit investors not participating in the Plan by diluting the
decline in value of their Units. Although Participants in the Plan
may withdraw at any time upon thirty days notice, the Fund will not
appraise properties prior to each reinvestment and there can be no
assurances that information regarding the Fund adequate to evaluate
the value of a Unit will be received far enough in advance of any
reinvestment to make a decision to participate or withdraw. Further,
the Fund will pay commissions to brokers engaged by investors on
reinvestments unless it has otherwise been advised by a Participant in
writing.
Distributions of Capital. During the offering and acquisition phase
of the Fund's operations,the General Partners intend to distribute all
interest income earned on proceeds that are temporarily invested. To
the extent that net operating revenues are not sufficient to fund all
such distributions, they may constitute a return of capital.
Temporarily Invested Proceeds. Pending investment in properties, the
offering proceeds will be invested in short-term government securities
or in insured deposits with a financial institution and will earn
interest at short-term deposit rates. The amount invested in insured
accounts may periodically exceed insurance limits and there can be no
assurance that the Partnership would recover the full amount of the
account if the financial institution in which they are deposited were
placed in receivership. No such funds, however, will be invested in
the accounts of an institution with less than $100 million in assets
or capital of less than seven percent of assets.
Risks Involved in Real Estate Transactions
Risks of Real Estate Ownership. The Fund's investment in non-
residential commercial properties will be subject to the risks
generally incident to the ownership of real property, including risks
related to national economic conditions, changes in the investment
climate for real estate, changes in local market conditions, changes
in interest rates, changes in real estate tax rates, other operating
expenses, governmental rules and fiscal policies, uninsured losses,
the financial condition of tenants, and other factors beyond the
control of the General Partners. The Fund's properties are subject to
the risk of the inability to retain tenants or of the default by
tenants (and the inability to lease properties to new tenants
thereafter), which could result from adverse changes in local real
estate markets or other factors. The General Partners believe that
because the Fund will be investing in triple net lease properties on
an all-cash basis, some of the general risks associated with
investments in real property will be reduced.
</PAGE> 44
<PAGE>
No Assurance of Property Appreciation or Fund Profits. There is no
assurance that the properties to be acquired by the Fund will operate
at a profit, will appreciate in value, or will be sold at a profit.
The marketability and value of each property will depend upon many
factors beyond the control of the General Partners. Since investments
in real property are generally illiquid, there is no assurance that
there will be a market for any property.
Adequacy of Reserves. Because the Fund's properties will be subject to
triple net leases, the General Partners will utilize only a relatively
small portion of the gross proceeds of this offering for the Fund's
working capital reserve. There can be no assurance that adequate
reserves will be available.
Tenant Default. The financial failure of a tenant of the Fund may
cause a reduction in the Net Cash Flow of the Fund and a decline in
the value of the property leased to such tenant. In the event of such
default, there is no assurance that the Fund would be able to find a
new tenant for the property at the same rental, or to sell the
property without incurring a loss. Like most entities that invest in
real estate, prior funds sponsored by Affiliates of the General
Partners have purchased properties that have been leased to tenants
who have defaulted on lease obligations. In the event of the
bankruptcy of a tenant, there can be no assurance that the Fund could
rapidly recover leased property from a trustee in bankruptcy
proceedings or that the Fund would receive rent in such proceedings
sufficient to cover its expenses, if any, with respect to such
property. Bankruptcies have caused several months' interruption in
rental payments from lessees of properties in some prior partnerships.
See "Prior Performance."
Net Leases. Net leases frequently give the tenant greater discretion in
the use of the property than do ordinary property leases (e.g., with
respect to rights to sublease, to make alterations in the leased
premises and to terminate the lease in certain circumstances).
Although the value of such properties might be adversely affected by
the failure of tenants to renew such leases, the General Partners will
attempt to reduce this risk by entering into long-term leases of 10 or
more years.
Single Use Properties.The properties which the Fund purchases may be
designed or built primarily for a particular tenant such as a specific
restaurant franchisee. If the Fund holds such a property upon
termination of the lease and the tenant elects not to renew its lease,
or if such a tenant otherwise defaults on its lease obligations, the
property may not be readily marketable to a new tenant without
substantial capital improvements or remodeling. Such improvements
might require expenditure of funds otherwise available for
distribution or the sale of the property at a lower price.
</PAGE> 45
<PAGE>
The Restaurant and Retail Industry. It is anticipated that many of the
properties to be acquired will be leased to operators in the
restaurant industry or in the retail industry. Both of these
industries are highly competitive and can be affected by factors such
as changes in regional or local economies, seasonality and changes in
consumer preference. Although the General Partners will attempt to
limit these risks by emphasizing acquisition of properties for cash
that are leased to established national and regional companies (see
"Properties"), there can be no assurance that a downturn affecting
such industries would not have an adverse effect on the Fund.
Construction Lending. The Fund intends to advance funds to certain
seller/lessees prior to acquisition to assist in financing the
construction of such properties. At no time will outstanding
construction loans exceed 30% of offering proceeds. Although all of
such advances will be secured by the property and all improvements
thereon, and although none of the ten public funds previously
sponsored by the General Partners have ever experienced a default on a
construction loan, construction lending is subject to a number of
risks. Risks incurred by owners during construction, including cost
overruns, nonperforming contractors, changes in construction codes and
changes in cost, can cause financial difficulty and increase the
likelihood of default on a construction loan. If a borrower defaults
on an advance during construction, the Fund's primary recourse is to
foreclose on the property. Such foreclosure is normally subject to a
period of redemption, depending upon the applicable laws of the
jurisdiction in which the property is located, of up to one year
during which time the Fund would not be able to dispose of the
property and during which time the property would not produce income.
In addition, if the Fund acquired title to a property through
foreclosure, there can be no assurance that the property could be
resold at a price equal to the principal amount of the loan. If, as
is likely, the property were only partially complete at the time of
foreclosure, the Fund might be required to expend capital to complete
the property to enhance its sale. Although in many cases it is
anticipated that the Fund may have recourse against an individual
guarantor in the event of a default, there can be no assurances that
the ability of the guarantor to satisfy the default would not be
impaired by the same financial circumstances that caused the default.
Sale of Properties and Reinvestment of Proceeds.The General Partners
may, from time to time, sell properties and reinvest the proceeds
therefrom in additional net lease properties. Limited Partners will
not have the right to receive cash upon sale of the properties other
than cash representing a majority of the gain, and must rely on the
ability of the General Partners to find appropriate properties in
which to reinvest such proceeds. Upon the final sale of all Fund
properties, if the Fund provides financing to purchasers, the
liquidation of the Fund could be delayed until such financing is fully
collected.
Uninsured Losses.The General Partners will arrange for comprehensive
insurance coverage on the properties. However, certain types of
losses (generally of a catastrophic nature) may be either uninsurable
or not economically insurable. Should such a disaster occur, the Fund
could suffer a complete loss of capital invested in, and any profits
expected from, the affected properties.
</PAGE> 46
<PAGE>
Federal Income Tax Risks
Audits. A ruling from the Internal Revenue Service (the "Service")
has not been obtained with respect to any tax aspect of an investment
in the Fund. Availability of certain tax consequences intended to be
realized by Limited Partners may be challenged upon audit by the
Service. See "Income Tax Aspects--Fund Tax Audits, Returns and
Penalties." Any adjustment resulting from an audit by the Service
also could result in adjustments to the tax returns of the Limited
Partners and may lead to an examination of other items unrelated to
the Fund or an examination of prior tax returns. Moreover, Limited
Partners could incur substantial legal and accounting costs in
connection with any challenge by the Service of the position taken by
the Fund on its tax returns regardless of the outcome of such a
challenge.
Partnership Status. The General Partners have not requested, and do
not intend to request, a ruling from the Service as to whether the Fund
will be taxed as a partnership rather than as an association taxable
as a corporation. In the absence of such a ruling, there will be no
assurance from the Service that it will not challenge the Fund's
position that it is not an association taxable as a corporation. The
Fund has received the opinion of Dorsey & Whitney LLP, counsel for the
Fund, that pursuant to current Treasury Regulations, which Regulations
they believe to be controlling, and based upon certain representations
of the General Partners, the Fund will be treated as a partnership for
federal income tax purposes and will not be treated as an association
taxable as a corporation. Such opinion is not binding upon the
Service and the treatment of the Fund as a partnership for federal
income tax purposes may be altered by subsequent events, including
substantial trading of Units.
In the event the Fund is treated for tax purposes as an association
taxable as a corporation rather than as a partnership, net losses of
the Fund (including depreciation on real property and taxes and other
operating expenses paid by the Fund) would be reflected only on the
Fund's tax return and would not be deductible on the tax returns of
the Limited Partners. In addition, in such event, net income of the
Fund, including gain on sale of properties, would be taxable to the
Fund and then taxable again to Limited Partners upon distribution to
them (in most cases). See "Income Tax Aspects--Partnership Status."
</PAGE> 47
<PAGE>
Fund Allocations. The Partnership Agreement allocates to each
Partner his or her distributive share of Fund tax items. Whether such
allocations will be respected for federal income tax purposes is
governed by Section 704(b) of the Code and regulations promulgated
thereunder. Section704(b) generally requires that Fund allocations
must have substantial economic effect. The allocations contained in
the Partnership Agreement appear to satisfy the requirements of
regulations under Section 704(b) as to allocations that do not cause
or increase a deficit balance in a Partner's capital account. Counsel
for the Fund has concluded, therefore, as of the date of this
Prospectus, that it is more likely than not that the allocations under
the Partnership Agreement will be recognized for federal income tax
purposes under Section 704(b) of the Code so long as such conditions
are satisfied.Compliance with the regulations depends,in certain cases,
on the individual tax situations of the Partners, and counsel's opinion
does not extend to such situations. See "Income Tax Aspects--
Fund Allocations."
New Tax Legislation--Changes in Federal Tax Laws, Regulations and
Interpretations Thereof. Investors should not rely unduly on the
prospect that tax consequences provided by existing law will continue
to be afforded or that changes in the interpretation of applicable
income tax laws will not be made by administrative or judicial action
that will adversely affect the tax consequences of an investment in
the Fund. Tax benefits of an investment in the Fund could be reduced
or tax liabilities could be incurred by reason of changes in the tax
law. Any legislative, administrative or judicial changes may or may
not be retroactive with respect to transactions entered into prior to
the effective date of such changes.
Fund Income. For any year in which the Fund has taxable net income or
any gain on sale of properties, individual Partners will be required
to report their allocable share of such income or gain, whether or not
net cash in a corresponding amount is distributed to them, on their
federal and state tax returns and will be liable for the payment of
taxes thereon. Such taxes could be greater than cash distributions
received by a Partner from the Fund for the year, particularly in
years in which the Fund sells properties and reinvests the proceeds
therefrom or uses distributable Net Cash Flow to repurchase Units.
Partners participating in a Distribution Reinvestment Plan will be
required to report the net income from the fund that might otherwise
have been covered by distributions that are reinvested even though
they will not receive any cash from such distributions.
Tax Liability Upon Sale or Disposition of Property or Units. A sale or
other disposition of a property or a disposition of Units by a Limited
Partner may result in substantial tax liability to such Limited
Partner. Furthermore, under certain circumstances, the taxes payable
by a Limited Partner resulting from the sale of a property or from the
disposition of Units by such Limited Partner could exceed the cash
available to such Limited Partner from such sale or the proceeds from
such disposition of Units.
</PAGE> 48
<PAGE>
CAPITALIZATION
The capitalization of the Fund after the issuance and sale of the
minimum of 1,500 Units and the maximum of 24,000 Units is as follows:
After Sale of After Sale of
1,500 Units 24,000 Units
Title of Class Minimum (Maximum)<F1>
General Partners' Capital <F2> $ 1,000 $ 1,000
Limited Partners' Capital 1,500,000 24,000,000
Less Organization and Offering
Expenses <F3> (225,000) (3,360,000)
Total Limited Partners' Equity $ 1,275,000 $ 20,640,000
<F1> There can be no assurance that the maximum proceeds will be obtained.
<F2> The General Partners have contributed an aggregate of $1,000 to the
Fund. In the event the General Partners have negative balances in
their capital accounts after dissolution and winding up of, or their
withdrawal from, the Fund, the General Partners will contribute to
the Fund an amount equal to the lesser of (a) the deficit balances in
their capital accounts or (b) an amount equal to 1% of the sum of the
Limited Partners' capital contributions and the capital contributions
required to be made by the General Partners pursuant to this provision.
<F3> Includes (i) selling commissions and nonaccountable expense allowances
equal to 10% and due diligence expenses reimbursements of up to 1/2 of
1% or offering proceeds payable to the Dealer-Manager, (ii) federal
and state securities registration fees, fees of counsel, accountant's
fees, printing expenses, and other out-of-pocket expenses paid by the
General Partners to non-affiliates, and (iii) expenses of the General
Partners and Affiliates, at Cost (as defined in the Partnership
Agreement), in organizing the Fund and arranging for the sale of Units.
</PAGE> 49
<PAGE>
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the
estimated use of proceeds from the sale of Units. All proceeds of the
offering will be held by the Fund for the benefit of investors to be
used in substantially the manner set forth below. Certain of the
figures set forth below cannot be precisely calculated at the present
time and could vary materially from the amounts shown.
Minimum Maximum
(1,500 Units) (24,000 Units)
Dollars Percent Dollars Percent
Gross Offering Proceeds <F1> $ 1,500,000 100.0% $24,000,000 100.0%
Less Organization and
Offering Expenses:
Selling Commissions and
Nonaccountable Expenses <F2> 150,000 10.0% 2,400,000 10.0%
Other Organization and
Offering Expenses <F3> 75,000 5.0% 960,000 4.0%
Amount Available for
Investment (net proceeds) $ 1,275,000 85.0% $20,640,000 86.0%
Acquisition Expenses <F4> 60,000 4.0% 720,000 3.0%
Working Capital Reserve 15,000 1.0% 240,000 1.0%
Cash Available for Purchase
of Properties<F4> $ 1,200,000 80.0% $19,680,000 82.0%
<F1> Such amounts exclude the aggregate of $1,000 contributed by the
General Partners.
<F2> The Dealer-Manager will be paid selling commissions and
nonaccountable expenses totaling 10% and may reallow a portion
of such commissions and expenses to Participating Dealers that
are members of the National Association of Securities Dealers,Inc.
<F3> Includes a 1/2 of 1% due diligence expense allowance payable
to the Dealer-Manager and federal and state securities
registration fees, fees of counsel, accountant's fees,
printing expenses, and other out-of-pocket expenses paid by the
General Partners to non-affiliates as well as expenses of the General
Partners and Affiliates, at Cost (as defined in the Partnership
Agreement), in organizing the Fund and arranging for the sale of
Units. The sum of selling commissions and such other Organization
and Offering Expenses may not, in any event, exceed 15% of the gross
offering proceeds. To the extent they exceed such amount, Organization
and Offering Expenses will be borne by the General Partners.
<F4> Most properties that the Fund will acquire are newly constructed
properties purchased at construction cost, which cost includes
most of the incidental expenses incurred in acquiring a property,
all of which are reflected in the table as Acquisition Expenses.
The Fund charges most sellers a funding fee for accepted
proposals and a loan fee for proposals on which construction
advance are made to cover most of these expenses. The General Partners
estimate that all but approximately $15,000 (minimum) and $240,000
(maximum) of the Acquisition Expenses will be covered by fees charged
by the Partnership to such third party sellers and that the actual
amount invested in properties will be approximately $1,245,000
(minimum) and $20,160,000 (maximum). No Acquisition Fees will be paid
to the General Partners or their Affiliates.
</PAGE> 50
<PAGE>
The amount available for investment in properties will not, in any event,
be less than 80% of gross offering proceeds. The proceeds of the
offering will be held in trust by the Fund for the benefit of the
purchasers of Units to be used only for the purposes set forth above.
INVESTMENT OBJECTIVES AND POLICIES
Principal Investment Objectives
The Fund intends to acquire on a debt-free basis, free-standing,
single tenant, triple-net leased commercial properties located
throughout the United States. The Fund may also sell such properties
and purchase other commercial properties from time to time when, in
the discretion of the General Partners, conditions are favorable to do
so.
The General Partners expect that many of these properties will be
leased to companies in the restaurant industry or the retail industry,
although properties in other industries may be acquired. See
"Properties." It is expected that such properties will be leased to
single entities rather than multiple tenants and that most will be
acquired in sale-leaseback transactions. If the minimum 1,500 Units
are sold, the General Partners anticipate that the Fund will acquire
two properties. If the maximum 24,000 Units are sold, the General
Partners anticipate that the Fund will acquire up to fifteen
properties. Except as set forth herein, the Fund does not have a
policy, and there is no limitation, as to the amount or percentage of
its assets that may be invested in any one property. The Fund's
principal investment objectives are to invest the proceeds of this
offering in non-residential commercial properties that will offer the
investors the potential for:
(i) regular cash distributions of lease income;
(ii) growth in lease income through rent escalation
provisions;
(iii) preservation of capital through "all-cash"
transactions;
(iv) capital growth through appreciation in the value of
properties; and
(v) stable property performance through long-term lease
contracts.
There can be no assurance that such objectives can be attained. It is not
an objective of the Fund to shelter taxable income of investors that
is derived from sources other than the Fund.
</PAGE> 51
<PAGE>
Acquisition of Properties
The Fund intends to use the net proceeds (after payment of selling
commissions and offering costs), estimated to be approximately
$1,275,000 if 1,500 Units are sold and approximately $20,640,000 if
24,000 Units are sold, for the purchase of improved income-producing
commercial real estate that is, or will be, subject to triple net
leases at the time of purchase. The Fund may commit to purchase
properties upon their physical completion at agreed prices or pursuant
to pricing formulas. The Fund will not purchase or lease any property
from, or sell or lease any property to, the General Partners or their
Affiliates, provided that the Fund may purchase real property from the
General Partners or their Affiliates if the General Partners or their
Affiliates purchased the property in their own name and temporarily
held title thereto for the purpose of facilitating the acquisition of
the property, the borrowing of money, the obtaining of financing for
the Fund or any other purpose related to the business of the Fund, and
the property is purchased by the Fund for a price no greater than the
price paid by the General Partners or their Affiliates plus
Acquisition Expenses.
Although the Fund does not intend to acquire any unimproved or
undeveloped properties or to participate in the development of any
properties, the Fund may advance funds or make loans in connection
with the construction of a property to be purchased by the Fund. Any
such loan would be secured by the land and improvements under
construction. In no event will such outstanding advances for
construction exceed 30% offering proceeds.
The Fund does not own any properties and has not identified any
properties which it expects to acquire. The Managing General Partner
expects that many of the properties the Fund acquires will be leased
to established, operating franchisees and franchisers in the
restaurant industry, or to established retail companies. Properties
may, however, be acquired for lease to entities in other industries.
See "Properties." Proposals for acquisitions in such industries will
be considered from tenants to which prior partnerships sponsored by
Affiliates of the General Partners have leased properties, although
the General Partners will not be limited to such entities. There is no
affiliation between the General Partners and any of the companies that
are lessees of properties held by prior partnerships.
The purchase price of each property will be supported by an
independent appraisal of the fair market value of the property.
Nevertheless, the General Partners will rely on their own analysis and
not on such appraisal in determining whether to acquire, and the terms
of the acquisition, of a particular property. Copies of such
appraisals will be retained at the office of the Fund for at least
five years and will be available for inspection and duplication by any
Limited Partner.
Prior to the acquisition of any property, the Fund will be provided
with evidence satisfactory to the General Partners that the Fund will
acquire marketable title to such property, subject only to acceptable
liens and encumbrances. Such evidence may include a policy of title
insurance, an opinion of counsel or such other evidence as is
customary in the locality in which the property is situated.
</PAGE> 52
<PAGE>
After release from escrow, and pending investment in properties, the
offering proceeds will be invested in short-term government securities
or in insured deposits with a financial institution and will earn
interest at short-term deposit rates. Any of the net proceeds of this
offering (except for amounts used to pay operating expenses or to
establish working capital reserves as determined by the Managing
General Partner) that have not been invested or committed for
investment in real property by the later of 24 months after the date
of this Prospectus or six months after termination of the offering of
Units will be distributed, without interest but together with any
commissions or other Organization and Offering Expenses paid thereon,
by the Fund to the Limited Partners as a return of capital. All funds
will be available for the general use of the Fund during such period
and may be expended in operating the properties that have been
acquired. Investment capital will not be segregated or held separate
from other capital of the Fund pending investment. For the purpose of
the foregoing, funds will be deemed to have been committed to
properties, and will not be returned to the Limited Partners, to the
extent written contractual agreements have been executed prior to the
expiration of the foregoing period, regardless of whether any such
investment is ultimately consummated. To the extent any funds have
been reserved to make contingent payments in connection with any
property pursuant to a written contractual agreement in connection
with such property, or pursuant to a decision of the General Partners
that additional reserves are necessary in connection with any
property, regardless of whether any such payment is ultimately made,
funds will not be returned to the Limited Partners.
Distributions
The Fund intends to distribute Net Cash Flow from operations to the
Limited Partners within 30 days after the close of each fiscal
quarter. The ultimate amount of such distributions will depend upon
the profitable operation and cash flow of the Fund. Net Cash Flow
from operations will not be used for the acquisition of properties,
although rental revenue may be held as reserves. Net Cash Flow
otherwise distributable to Limited Partners may be used to repurchase
Units. See "Summary of Limited Partnership Agreement--Repurchase of
Units." Investors who elect to participate in a distribution
reinvestment plan will not receive such distributions of Net Cash
Flow. Instead, the distributions of such participants will be applied
to the purchase of additional Units or interests in subsequent limited
partnerships with substantially identical investment objectives. See
"Summary of Limited Partnership Agreement--Distribution Reinvestment
Plan."
During the offering and acquisition phase of the Fund's operations,
the General Partners intend to distribute all interest income earned
on proceeds that are temporarily invested. To the extent that net
operating revenues are not sufficient to fund all such distributions,
they may constitute a return of capital.
</PAGE> 53
<PAGE>
Sale or Financing of Properties
The Fund expects to sell some or all of its properties prior to its
final dissolution and termination and to reinvest the proceeds from
such sales in additional triple-net leased commercial properties. The
Fund reserves the right, at the discretion of the General Partners, to
either distribute Net Proceeds on Sale to the Partners or to reinvest
such proceeds in triple net leased properties that meet the
acquisition criteria set forth in this Prospectus. The Fund will not,
however, reinvest any Net Proceeds of Sale unless sufficient proceeds
are distributed to the Limited Partners to pay income taxes (assuming
the Limited Partners are taxable at a rate of seven percent above the
individual capital gains rate).
The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of performance
of the property and market conditions and will depend, in part, on the
economic benefits of continued ownership. In deciding whether to sell
properties, the General Partners will consider factors such as
potential capital appreciation, cash flow and federal income tax
consequences.
The Fund may sell cotenancy or other fractional interests in
properties, rather than selling its entire interest in a property. The
Managing General Partner believes that, depending on market
conditions, sales of smaller interests through exchanges designed to
comply with section 1031 of the Internal Revenue Code may result in
higher overall sales proceeds. In those instances in which the
Partnership does not sell all of its interest in a property, it will
retain, either alone or with another partnership sponsored by
affiliates of the General Partners, the authority to direct management
and policies relating to operation and sale of the property.
The General Partners expect that the Fund will commence liquidation
through the sale of its remaining properties twelve to fifteen years
after its formation, although final liquidation may be delayed by a
number of circumstances, including market conditions and seller
financing of properties.
Although the General Partners intend to sell Fund properties for cash,
purchase money obligations secured by mortgages may be taken as
partial payment. The terms of payment to the Fund may be affected by
custom in the area in which the property being sold is located and the
then prevailing economic conditions. To the extent the Fund receives
notes and property other than cash on sales, such proceeds will not be
included in Net Proceeds of Sale until and to the extent the notes or
other property are actually collected, sold, refinanced or otherwise
liquidated. Therefore, the distribution to Partners of the proceeds
of a sale may be delayed until the notes or other property are
collected at maturity, sold, refinanced or otherwise converted to
cash. The Fund may receive payments (cash and other property) in the
year of sale in an amount less than the full sales price and
subsequent payments may be spread over several years. The entire
balance of the principal may be a balloon payment due at maturity.
For federal income tax purposes, unless the Fund elects otherwise, it
will report the gain on such sale ratably as principal payments are
received under the installment method of accounting.
</PAGE> 54
<PAGE>
Borrowing Policies--No Acquisition Leverage
The Fund will incur no indebtedness in connection with the purchase of
the properties. Instead, properties will be acquired on a debt-free
basis. In addition, the Fund will not refinance properties to obtain
proceeds for the acquisition of additional properties. In the
discretion of the General Partners, the Fund may incur short-term
indebtedness secured by Fund properties to finance operations
(including, if necessary, the redemption of Units). In no event will
such borrowings secured by properties exceed, in the aggregate, 10% of
the purchase price of the properties. The Fund will not incur
borrowings prior to application of the proceeds from sale of the Units
and will not incur borrowings specifically to pay distributions.
The Fund will not obtain permanent financing from the General Partners
or their Affiliates. Recourse for any indebtedness normally will be
limited to the particular Fund property to which the indebtedness
relates, but recourse on such indebtedness may include all Fund assets
and the assets of the General Partners. To the extent recourse is
limited to the Fund's property, under most circumstances such
indebtedness would increase the Limited Partners' tax basis in the
Units if the Fund's principal activity is determined to be investing
in real property. Where recourse on loans includes all Fund assets,
the equity of the Fund in its other properties could be reduced or
eliminated through foreclosure on a particular property.
The Fund will not issue any senior securities and the Fund will not
invest in junior mortgages, junior deeds of trust or similar
obligations.
Joint Venture Investments
The Partnership Agreement permits the Fund to invest in a property
jointly owned with another fund sponsored by the General Partners or
their Affiliates that has investment objectives and management
compensation provisions substantially identical to those of the Fund,
subject to certain terms and conditions contained in the Partnership
Agreement, which are summarized below. The Fund's ability to enter
into such a joint venture with another fund sponsored by the General
Partners or their Affiliates may be important if the Fund wishes to
acquire an interest in a specified property but does not have
sufficient funds (or, at the time it enters into a commitment to
acquire a specified property, cannot determine whether it will have
sufficient funds) to acquire the entire property.
</PAGE> 55
<PAGE>
The Partnership Agreement requires that, in any joint venture with
another fund sponsored by the General Partners or their Affiliates,
the following conditions must be satisfied. First, the Fund will
invest only in a joint venture having comparable investment objectives
and the investment by each party to the joint venture must be on
substantially the same terms and conditions. Second, the Fund may not
pay more than once, directly or indirectly, for the same services and
may not act indirectly through any such joint venture if the Fund
would be prohibited from doing so directly because of restrictions
contained in the Partnership Agreement. Third, the compensation of
the General Partners and such Affiliates in the other fund must be
substantially identical to their compensation in the Fund. Fourth, in
the event of a proposed sale of the property initiated by the other
joint venture partner, the Fund must have a right of first refusal to
purchase the other party's interest.
There is a potential risk of impasse on joint venture decisions and a
potential risk that, even though the Fund will have the right of first
refusal to purchase the other party's interest in the joint venture,
the Fund may not have the resources to exercise such right.
Reserves for Operating Expenses
The General Partners expect that approximately one percent of the
gross proceeds of the offering initially will be reserved to meet
costs and expenses of the Fund's properties, capital expenditures and
initial cash distributions. To the extent that such reserves and any
income of the Fund are insufficient to defray such costs and other
obligations and liabilities, it will be necessary to attempt to
finance or refinance properties or, in the event financing or
refinancing is not available on acceptable terms, to liquidate the
Fund's investment in certain of its properties on possibly unfavorable
terms. During the holding period of a property, the Fund may increase
reserves from Net Cash Flow to meet anticipated costs and expenses and
other economic contingencies. If, in any fiscal quarter, the General
Partners determine that reserves are in excess of the amount necessary
for Fund operations, such excess may be included in and distributed as
Net Cash Flow.
Management of Properties
Each property will be managed, and the lease obligations of tenants
will be enforced, by the Managing General Partner or its Affiliates.
Such management will include negotiations with tenants, reletting and
re-modeling properties, receiving and depositing monthly lease
payments, periodic verification of tenant payment of real estate taxes
and of insurance coverage, and periodic inspection of properties and
tenants' sales records, where applicable. The Managing General
Partner or such Affiliates will be compensated for such management at
Cost, which includes an allocable portion of overhead expenses. See
"Compensation to General Partners and Affiliates." Because the
properties will be triple net leased, the tenants will be responsible,
at their expense, for day-to-day on-site management and maintenance of
the properties.
</PAGE> 56
<PAGE>
Changes in Investment Objectives and Policies
Limited Partners have no voting rights with respect to the
establishment, implementation or alteration of the investment
objectives and policies of the Fund, all of which are the
responsibility of the General Partners. Nevertheless, the General
Partners will not make any material changes in the investment
objectives and policies described above without first obtaining the
written consent or approval of Limited Partners owning in the
aggregate more than 50% of the then outstanding Units.
PROPERTIES
As of the date of this Prospectus, the Fund had not acquired any
properties. The General Partners are continually evaluating
properties for acquisition and engaging in negotiations with sellers
regarding the purchase of properties for the Fund. Depending upon the
proceeds obtained, the General Partners intend to diversify the type
and location of commercial properties acquired. The Fund is not
limited as to the amount or percentage of its assets that may be
invested in any specific property. Although the Fund presently
intends to purchase two or more properties with the net proceeds of
this offering, the General Partners may purchase only a single
property if, in their judgment, such purchase would be in the best
interest of the Fund.
The General Partners expect that many of the properties purchased by
the Fund will be acquired from companies that will simultaneously
lease back the properties from the Fund. The Fund's leases will
include provisions for rent increases through participation in gross
sales of the tenant or through regular rental increases on specific
dates, or both. There can be no assurance that the Fund will be able
to include the foregoing provisions in all of its leases.
All of the Fund's properties will be rented under triple net leases
which generally provide that the tenant is responsible for all real
estate taxes, insurance, maintenance, repairs and operating expenses
of the properties. The General Partners expect that the Fund's leases
will also provide that risks such as fitness for use or purpose,
design or condition, quality of material or workmanship, latent or
patent defects, compliance with specifications, location, use,
condition, quality, description or durability will be borne by the
lessee. Furthermore, it is customary in commercial property
transactions that the lease provide for early termination upon the
occurrence of certain events (e.g., casualty or substantial
condemnation). If such provisions are required, the General Partners
will endeavor to have the provisions drafted in such a manner as to
protect the Fund's investment in its properties.
</PAGE> 57
<PAGE>
Acquisition Candidates
The General Partners intend that the Fund will acquire free-standing,
single tenant properties triple net leased to commercial companies.
Prior partnerships sponsored by the General Partners and their
Affiliates have leased properties to businesses in the restaurant and
retail industry and many of the properties acquired by the Partnership
may be leased to tenants in such industries. There is, however, no
prohibition on the acquisition of properties in other industries and
the Managing General Partner's intend to monitor industry trends and
invest in properties that serve to provide the most favorable return
without an excessive risk of default.
The Restaurant Industry. The restaurant industry is one of the
largest and fastest growing industries in the United States, with
annual sales at the top 100 restaurant chains alone exceeding $111
billion in 1995. Demographic trends are particularly favorable to the
casual dining segment of the restaurant industry with a steady
increase in the number of two-income families and a rapidly expanding
senior citizen population. Because this industry is highly property
dependent, the General Partners believe it offers some of the best
opportunities for transactions of the type in which the Fund proposes
to engage. Further, the General Partners believe that this industry
includes a number of companies and franchisees with established track
records that are attractive to the Fund.
The Retail Industry. Trends in the retail industry have increased the
attractiveness of retail establishments as acquisition candidates for
the Fund. Consumer demand for a large selection of merchandise in a
single category at discount prices has caused many retailers to turn
to large freestanding properties with minimal interior partitions.
These retail establishments or "superstores" are often grouped
together into a "power center" with few, if any, small retailers.
Many of the large retailers that operate these establishments are
driven by operating margins to minimize investment in real estate and
use lease transactions to finance the purchase and construction of
their facilities. In 1995, more than $17 billion was expected to be
spent on new retail construction. The General Partners believe that
the rapid expansion in these establishments may present attractive
candidates for acquisition by the Fund.
Acquisition Criteria
In determining whether a property is a suitable acquisition for the
Fund, the General Partners will consider the following factors, among
others:
(a) the credit-worthiness of the lessee and the lease
guarantor, if any, and their ability to meet lease obligations
independent of cash flow to be generated by the property;
(b) the location, condition, use and design of the
property and its suitability for a long-term triple net lease;
(c) the terms of the proposed lease and guaranty, if
any (including, specifically, provisions relating to rent
increases or percentage rent and provisions relating to passing on
operating expenses to tenants);
</PAGE> 58
<PAGE>
(d) the prospects for long-term appreciation of the property;
(e) the prospects for long-range liquidity of the investment; and
(f) the stability and potential growth of the community in which
a property is located.
In addition, the General Partners will apply the following standards with
respect to the properties to be acquired:
(a) Tenants must be actively involved in the daily
operation of the business for which the property is leased.
(b) Tenants must have experience and a history of successful
operations in the business for which the property is
leased. The Fund will not acquire properties for lease to
inexperienced tenants.
(c) Tenants will be required to provide evidence of cash flow,
independent of cash flow generated by the property, or cash
reserves, sufficient to allow the tenant to meet its current
obligations under the lease.
Although acquisitions may vary from these standards, any variation must be
justified to management of the General Partners.
To secure performance by the lessee of its lease obligations, and when
available, the Fund may require tenants to provide cash deposits,
letters of credit, lease insurance, personal guarantees or some
combination thereof. The foregoing forms of security are designed to
minimize any interruption of rental payments from properties the Fund
purchases. Although each of these measures should help protect the
Fund, in a number of instances it may be impossible to ensure that all
rental payments are protected. Individual guarantees or letters of
credit may be devalued by severe business setbacks of the tenant that
result in the insolvency of the guarantor or bankruptcy proceedings
that impair the Fund's ability to immediately evict a tenant or
proceed against the security. Accordingly, despite these security
measures, some funds sponsored by Affiliates of the General Partners
have owned properties on which rental payments have been interrupted.
See "Prior Performance."
During the offering period, and at such time as the General Partners
believe a reasonable probability exists that any additional property
will be acquired by the Fund, this Prospectus will be supplemented to
disclose the pending acquisition. Based upon the experience and
acquisition methods of the General Partners, this will normally occur
on the signing of a legally binding purchase agreement, but may occur
before or after such signing, depending on the particular
circumstances surrounding each potential acquisition. A supplement to
this Prospectus will describe in detail the proposed terms of
purchase, the property to be acquired, the financial results of the
prior operation, if any, of the property, and other information
considered appropriate for an understanding of the transaction. Upon
termination of this offering, no further supplements to this
Prospectus will be distributed, but Limited Partners will receive
reports containing substantially equivalent information. See "Reports
to Limited Partners."
</PAGE> 59
<PAGE>
IT SHOULD BE UNDERSTOOD THAT THE INITIAL DISCLOSURE OF ANY PROPOSED
ACQUISITION CANNOT BE RELIED UPON AS AN ASSURANCE THAT THE FUND WILL
ULTIMATELY CONSUMMATE SUCH PROPOSEDACQUISITION OR THAT THE INFORMATION
PROVIDED CONCERNING THE PROPOSED ACQUISITION WILL NOT CHANGE BETWEEN
THE DATE OF THIS PROSPECTUS OR SUPPLEMENT AND THE ACTUAL PURCHASE.
GENERAL PARTNERS
Fiduciary Responsibility
The General Partners are accountable to the Fund as fiduciaries and
consequently must exercise good faith in handling the Fund's affairs.
Nevertheless, the Partnership Agreement provides that the General
Partners will not be liable to the Fund or the Limited Partners for
acts or omissions in the exercise of their judgment relative to the
Fund if their actions were not the result of negligence or misconduct.
Furthermore, the Fund will indemnify the General Partners for any
claim or liability arising out of their activities on behalf of the
Fund unless such claim or liability was the result of negligence or
misconduct. Therefore, the Limited Partners have a more limited right
of action than would otherwise be the case absent such provisions in
the Partnership Agreement.
In the opinion of the Securities and Exchange Commission (the
"Commission") and the securities administrators of most states,
indemnification for liabilities arising under the Securities Act of
1933 (the "Act") and arising under state securities laws is against
public policy and therefore unenforceable. In the event that a claim
for indemnification for liabilities arising under the Act or under
state securities laws (other than the payment by the Fund of expenses
incurred or paid by the General Partners in the successful defense of
any such action, suit or proceeding) is asserted by the General
Partners in connection with the securities being registered, the Fund
will submit to a court of appropriate jurisdiction, after apprising
such court of the position of the Commission and state securities
administrators, including without limitation the Massachusetts
Securities Division, the Missouri Securities Division, the
Pennsylvania Securities Commission and the California Commissioner of
Corporations, the question of whether such indemnification by it is
against public policy as expressed in the Act and will be governed by
the final adjudication of such issue.
</PAGE> 60
<PAGE>
Management
The General Partners will have the sole and exclusive right, power and
responsibility to manage the Fund's business, including, under certain
limited circumstances, the right and power to have the Fund obtain
loans secured by its property. The General Partners will make all of
the investment decisions of the Fund, including decisions relating to
the properties to be acquired, the method and timing of financing (if
any) of such properties, the selection of tenants, the terms of leases
on such properties, and the method and timing of the sale of
properties. The General Partners will coordinate and manage all of
the activities of the Fund, maintain the Fund records and accounts,
and arrange for the preparation and filing of all Fund tax returns.
Certain of the administrative and management functions to be performed
by the General Partners may be delegated to their Affiliates, provided
that any compensation to Affiliates of the General Partners will be at
Cost. See "Compensation to General Partners and Affiliates."
The General Partners expect that all of the lease agreements with
respect to the properties of the Fund will provide that the tenant is
responsible for all real estate taxes, insurance and maintenance, and
the General Partners expect to have little day-to-day on-site property
management obligations.
Background and Experience
AEI Fund Management XXI, Inc. ("AFM"),the Managing General Partner,
is a Minnesota corporation formed in August 1994 to serve as a General
Partner of AEI Income & Growth Fund XXI Limited Partnership, an
affiliated limited partnership ("Fund XXI"). AFM does not have any
significant net worth and is subject to general liability for the
obligations of Fund XXI. The sole shareholder and director of AFM is
Robert P. Johnson, who also serves as its President. Most of the
management services for the Fund will be performed by AEI Fund
Management, Inc., a Minnesota corporation having substantially the
same officers as AFM, and will be billed directly to the Fund. Each
of the officers of AFM also holds a position as an officer in the
corporations formed to serve as General Partners of prior funds
sponsored by the General Partners.
The officers and sole director of AFM are as follows:
Name Age Position
Robert P. Johnson 52 Sole Director, Chief Executive
Officer and President
Mark E. Larson, CPA 43 Chief Financial Officer, Treasurer
and Secretary
</PAGE> 61
<PAGE>
Robert P. Johnson will also serve as Individual General Partner of the
Fund. Mr. Johnson is the President, Chief Executive Officer, sole
shareholder and sole director of AFM. From 1970 to the present he has
been employed exclusively in the investment industry, specializing in
limited partnership investments. In that capacity, he has been
involved in the development, analysis, marketing and management of
public and private investment programs investing in net lease
properties as well as public and private investment programs investing
in energy development. Since 1971, Mr. Johnson has been the
President, a director and a registered principal of AEI Incorporated,
which is registered with the Securities and Exchange Commission as a
securities broker-dealer, is a member of the National Association of
Securities Dealers, Inc. (NASD) and is a member of the Security
Investors Protection Corporation (SIPC). Mr. Johnson has been
President, a director and the principal shareholder of AEI Fund
Management, Inc., a real estate management company founded by him,
since 1978. Mr. Johnson is currently a general partner or principal
of the general partner of each of the limited partnerships set forth
under "Prior Performance." Although not currently subject to any
material contingent liabilities, Mr. Johnson could become subject to
the claims of creditors as a general partner of such limited
partnerships or other Funds he manages.
Mark E. Larson, a Certified Public Accountant, is Chief Financial
Officer, Secretary and Treasurer of AFM, and has been employed by AEI
Fund Management, Inc. and affiliated entities since 1985. From 1979
to 1985, Mr. Larson was with Apache Corporation as Manager of Program
Accounting responsible for the accounting and reports for
approximately 45 public partnerships. Mr. Larson will be primarily
responsible for supervising the accounting functions of AFM and the
Fund, including coordination of reports to the Commission and Limited
Partners.
</PAGE> 62
<PAGE>
PRIOR PERFORMANCE
During the past twenty-two years, Mr. Johnson and his affiliates have
syndicated eleven public and eleven private net lease commercial
property investment partnerships throughout the United States.
Since 1984, Mr. Johnson and affiliates have formed, syndicated and now
manage eleven public real estate partnerships that have purchased, for
cash, single tenant properties under long-term triple net leases.
With the exception of size, all of such partnerships are similar to
the Fund. The offering of interests in the first such partnership,
Net Lease Income & Growth Fund 84-A Limited partnership, terminated in
December 1984 with the maximum $5,000,000 of subscriptions. The
offering of interests in the next four partnerships, AEI Real Estate
Fund 85-A Limited Partnership, AEI Real Estate Fund 85-B Limited
Partnership, AEI Real Estate Fund 86-A Limited Partnership, and AEI
Real Estate Fund XV Limited Partnership terminated in June 1985,
February 1986, July 1986 and December 1986, respectively, each with
the maximum $7,500,000 of subscriptions. The offering of interests in
AEI Real Estate Fund XVI Limited Partnership terminated in November
1987, with the maximum $15,000,000 of subscriptions. The offerings of
interests in AEI Real Estate Fund XVII Limited Partnership, AEI Real
Estate Fund XVIII Limited Partnership, AEI Net Lease Income & Growth
Fund XIX Limited Partnership and AEI Net Lease Income & Growth Fund XX
Limited Partnership terminated on November 1, 1988, December 4, 1990,
February 5, 1993, and January 19, 1995, respectively with $23,388,700,
$22,783,050, $21,157,928 and $24,000,000 of subscriptions. The
offering of interests in AEI Income & Growth Fund XXI Limited
Partnership is expected to terminated on or before February 1, 1997.
An aggregate of approximately 13,000 limited partners purchased
interests in such partnerships.
The properties purchased by all of such partnerships were new, or
recently constructed, triple net leased commercial properties. At
July 31, 1996, approximately $148,000,000 of properties had been
purchased or were under contractual commitment for purchase by the
public partnerships. The following table sets forth the geographic
distribution of the 130 properties purchased, or under commitment to
purchase, by prior public partnerships:
Number Number
State of Properties State of Properties
Alabama 1
Arizona 5 Missouri 5
Arkansas 1 Montana 1
California 4 Nebraska 4
Colorado 4 Nevada 2
Florida 6 New Hampshire 1
Georgia 2 New Mexico 1
Illinois 2 North Carolina 3
Indiana 3 Ohio 11
Iowa 2 Oregon 1
Kansas 1 South Carolina 3
Kentucky 1 Tennessee 3
Louisiana 4 Texas 36
Michigan 4 Virginia 5
Minnesota 11 Wisconsin 3
</PAGE> 63
<PAGE>
By dollar amount invested, approximately 68% of such properties were
restaurants, 14% were retail facilities, 10% were childcare centers,
6% were auto service centers and the remaining 2% were convenience
centers, a motel and an office building. The General Partners will
provide to any potential investor upon request, and upon payment of a
fee to cover costs of reproduction and mailing, a copy of the Annual
Report on Form 10-K for any of such Funds as filed with the Securities
and Exchange Commission.
All but two of the private partnerships were specified property
syndications. Of the remaining private partnerships, one acquired four
properties on a "blind pool" basis and one is a private partnership
currently being offered to institutional investors on a blind pool
basis. The private partnerships purchased thirteen properties for
$6,371,894, ten of which were restaurants, two supermarkets and one an
automotive center. Six of those properties were in Minnesota, three
in Florida and one each in Nebraska, Iowa, Michigan and Ohio. As with
this offering, the primary objective of the earlier private
partnerships was production of income (not tax shelter) by investment
in single-tenant properties that were located in various areas of the
United States and that were leased on a "triple net" basis. Unlike
this offering, however, all but three of the private partnerships
acquired properties with indebtedness of up to 75% of the purchase
price.
Like most entities engaged in real estate operations, the partnerships
sponsored by the General Partners and their Affiliates have invested
in some properties that were leased to tenants that failed to fully
perform under the terms of the leases, including timely performance of
rental payments. Upon nonperformance, the Affiliates managing such
properties take such action, which may include termination of leases
in the case of continued recalcitrance or an apparent inability to
meet lease obligations, as is prudent in commercial lease
transactions. In the case of terminations, the property may be leased
to a new tenant under renegotiated terms.
When lessees default on lease obligations, rental payments may be
interrupted for a period of time. Although such rental interruption
may cause a decrease in distributions of cash flow for a period of
time, because all of the public partnerships invest in a number of
properties and the General Partners attempt to diversify the types of
property held for investment, no default or series of defaults has
caused a public partnership sponsored by the General Partners to miss
a quarterly distribution of cash flow or to have inadequate cash to
fund operations. It is the continuing objective of the General
Partners to minimize the number of such properties through careful
property evaluation and investigation of the credit-worthiness of
lessees prior to purchase and by renegotiating leases or locating new
tenants in a manner designed to minimize any interruption of cash
flow.
</PAGE> 64
<PAGE>
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
The General Partners and their Affiliates will provide most of the
services the Fund requires and will be compensated for such services.
AEI Incorporated, an Affiliate, will serve as Dealer-Manager in the
sale of the Units and will receive commissions and expense allowances,
most of which will be paid or "reallowed" to Participating Dealers.
See "Plan of Distribution." AEI Fund Management, Inc. ("FMI"), an
Affiliate of the General Partners, will provide administrative
services in connection with the organization of the Fund and the sale
of Units, the acquisition of properties, the administration of the
Fund, the management of properties, the sale of properties, and the
liquidation of the Fund. Such Affiliate will be reimbursed for all of
its expenses in furnishing such services at its "Cost," which includes
a portion of the general expenses directly related to the furnishing
of such services. In addition, the General Partners will receive an
interest in Net Cash Flow and Net Proceeds on Sale of Properties.
Robert P. Johnson, the Individual General Partner, is the sole
shareholder and director, and the chief executive officer, of each of
the Managing General Partner, the Dealer-Manager, and principal
shareholder of FMI.
Under applicable state securities regulation, a general partner may
receive fees for the services it provides, a 10% interest in Net Cash
Flow, and a 15% interest in Net Proceeds on Sale (after return of a 6%
cumulative, noncompounded return to limited partners). The aggregate
amount of fees for organization and offering services and for services
in connection with the acquisition of properties is limited by such
regulation to 20% of the limited partner capital contributions
(assuming no leverage). In addition, such regulations allow a
property management fee equal to 6% (for commercial properties) of the
net cash flow from properties, sales commissions of up to 3% of the
sales price for properties, and reimbursement for all administrative
expense, except certain items of overhead and the salaries of
controlling persons.
Rather than receiving the 10% interest in Net Cash Flow allowed, the
General Partners of the Fund are paid only 3% of Net Cash Flow. In
addition, the General Partners of the Fund have increased their
subordination in Net Proceeds on Sale to an 9% return to Limited
Partners rather than the 6% subordination required. Finally, the
General Partners do not receive any of the fixed fees allowed under
applicable regulation for services, including fees for the real estate
acquisition and sales services they provide to the Fund.
</PAGE> 65
<PAGE>
Rather than being paid a fee based on a fixed percentage of revenue,
assets or sales proceeds for services, the General Partners and their
Affiliates are reimbursed at their Cost for the services they perform
on behalf of the Fund. As defined in the Partnership Agreement, Cost
includes salaries of controlling persons and certain items of overhead
attributable to the furnishing of services. This salary and expense
reimbursement would not be allowed under administrative
interpretations of some state "blue sky" laws in a traditional real
estate program. Instead, these state interpretations provide for the
payment of fixed fees and a 10% interest in Net Cash Flow to cover
these administrative costs. Reimbursement to the General Partners and
Affiliates of other Administrative Expenses that would not be allowed
if the Fund paid the increased interest in Net Cash Flow and the fixed
fees are limited to the extent they would exceed the aggregate of the
fixed fees and the Net Cash Flow interest the General Partners are
allowed under applicable regulation but not paid in the Fund. In
addition, Organization and Offering Expenses and Acquisition Expenses
reimbursed to the General Partners and Affiliates remain subject to
the limitation that, when added to such expenses paid to third
parties, they will not exceed 20% of the subscription proceeds from
sales of Units to Limited Partners. Further, all reimbursements must
be provided at a cost that is less than or equal to the price that
would be paid to an unaffiliated party rendering comparable services
in the same geographic area. Although the General Partners expect
that such reimbursements will be less than the fees they would
otherwise be allowed to be paid, pursuant to Section 6.2 of the
Partnership Agreement the aggregate Cost of such reimbursements could
approach an amount equal to the fees the General Partners are allowed
to be paid under applicable state regulation.
The following table sets forth the forms of compensation,
Fund distributions and cost reimbursements that will or may be
paid by the Fund to the General Partners or their Affiliates in
connection with the operation of the Fund and its properties,
assuming the minimum 1,500 Units and the maximum 24,000 Units are
sold. The following arrangements were formulated by the General
Partners and are not the result of arm's-length negotiations with
the Fund.
Person or Form and Method Estimated
Entity of Compensation Dollar Amount
Receiving
Compensation
Offering Stage
AEI
Incorporated Selling commissions and $2,520,000 (maximum) and
nonaccountable expense $157,500 (minimum), all
allowance equal to 10% but approximately $480,000
of proceeds, all or a (maximum) and $30,000
portion of which may be (minimum) of which is
reallowed to Participating expected to be reallowed.
Dealers, and a 1/2% due
diligence allowance, all
of which will be reallowed
to Participating Dealers.
</PAGE> 66
<PAGE>
General Partners Reimbursement at Cost for Estimated $840,000 (maximum)
and other Organization and and $67,500 (minimum), but
Affiliates Offering Expenses <F1> subject to the limitation
that all Organization and
Offering Expenses(including
payments to the Dealer
Manager and third parties)
not exceed 15% of gross
offering proceeds (F2).
Most of such expenses are
are paid or repaid to
nonaffiliates.
Property Acquisition Stage
General Partners Reimbursement at Cost for Estimated $700,000 (maximum)
and Affiliates all Acquisition Expenses<F3> and $60,000 (minimum), but
not more than the difference
between 20% of offering
proceeds and all
Organization and Offering
Expenses.
Operating Stage
General Partners 3% of Net Cash Flow in each Not Presently Determinable
fiscal year.
General Partners Reimbursement at Cost for all Estimated $75,000 to
Administrative Expenses $250,000 for the first 12
attributable to the Fund, months of operations. The
including all expenses related cumulative amount of such
to management and disposition expense reimbursements for
of the Fund's properties and general overhead of the
all other transfer agency, General Partners and
reporting, partner relations Affiliates, and for
and other administrative controlling person expenses,
functions. <F4> together with Front-End Fees
and sales expenses, may not
exceed the sum of (i) Front-
End Fees of 20% of gross
offering proceeds, (ii) 5%
of revenues from properties,
(iii) a 3% sales commission,
and (iv)10% of Net Cash Flow
(after such reimbursements)
less amounts paid to the
General Partner as its
shares of cash flow.
</PAGE> 67
<PAGE>
Liquidation Stage
General Partners 1% of distributions of Net Not Presently Determinable
Proceeds of Sale until
Limited Partners have
received an amount equal to
(a) their Adjusted Capital
Contributions, plus (b) an
amount equal to 9% of their
Adjusted Capital Contributions
per annum, cumulative but not
compounded, to the extent not
previously distributed. 10%
of distributions of Net Proceeds
of Sale thereafter.
<F1> Includes federal and state securities registration fees, fees of
counsel, accountant's fees, printing expenses, and other
out-of-pocket expenses paid to non-affiliates.
<F2> To the extent Organization and Offering Expenses exceed 15% of
gross offering proceeds, they will be borne by the General Partners.
<F3> See Section 2.1 of the Limited Partnership Agreement for the
definition of Acquisition Expenses. All such expenses will be
paid at Cost (as defined in the Limited Partnership Agreement).
<F4> Subject to the limitations set forth in Section 6.2(b) of the
Limited Partnership Agreement, the Fund will reimburse the
General Partners and their Affiliates at Cost for their
Administrative Expenses incurred in managing all operations of
the Fund, including such Expenses incurred in connection with
providing services for the acquisition, leasing, and operation
of properties. Such expenses include the salaries, fees and
expenses paid to employees and consultants of the General
Partners and such Affiliates for work performed relative to
the Fund including office rent, telephone, travel, employee
benefit expenses and other expenses attributable to the
performance of such services.The majority of these expenses are
allocated based on the number of hours devoted by employees to
the affairs of the Fund, as recorded on daily time records of
such employees and the remainder are allocated at the end of
each month based upon the number of limited partners and the
capitalization of the Fund.
No real estate commissions will be paid to the General Partners or
Affiliates in connection with the purchase or sale of any of the
Fund's properties. The General Partners and Affiliates are, however,
compensated at their Cost, subject to the limitations set forth in the
preceding table and in Section 6.2 of the Partnership Agreement, for
all expenses they incur in connection with the purchase and sale of
properties. No Acquisition Fees will be paid to the General Partners.
The General Partners and their Affiliates will not be compensated for
services not set forth in the table above.
</PAGE> 68
<PAGE>
CONFLICTS OF INTEREST
The Fund will be subject to actual and potential conflicts of interest
arising out of relationships with the General Partners and their
Affiliates. These conflicts include, but are not limited to, the
following:
Lack of Arm's-Length Negotiations
Both during the operation of the Fund and upon its liquidation, the
General Partners may realize income from the Fund. The agreements and
arrangements, including those relating to compensation, between the
Fund and the General Partners are not the result of arm's-length
negotiations. Moreover, because a significant portion of the General
Partners' compensation will not be payable until the sale of Fund
properties, the interests of the General Partners and the Limited
Partners with respect to the timing and price of such sale may
conflict.
Other Real Estate Activities of General Partners
Robert P. Johnson, AFM and their Affiliates are actively engaged in the
net lease commercial property real estate business as general partners
in other limited partnerships. Mr. Johnson also intends to offer
additional real estate limited partnership interests in the future.
The Fund will not have independent management and it will rely on the
General Partners and their Affiliates for its operations. The General
Partners will devote only so much of their time to the business of the
Fund, as in their judgment, is reasonably required. It is anticipated
that, although Mr. Johnson may personally devote approximately 60% of
his time to the business of the Fund during its offering and property
acquisition stages, the amount of time he spends on Fund activities
will probably be less than 10% of his overall work time thereafter.
The allocation of management time, services and functions among
various existing partnerships and any future partnerships that the
General Partners and their Affiliates may organize, as well as other
business ventures in which they are involved, may create conflicts of
interest. The General Partners and their Affiliates believe that they
either have, or can retain, sufficient staff to be fully capable of
discharging their responsibilities to all partnerships with which they
are affiliated.
Competition With General Partners and Other Affiliated Partnerships For
Purchase and Sale of Real Property
The General Partners and their Affiliates may engage in other business
ventures, including forming and sponsoring other public or private
limited partnerships, and neither the Fund nor any investor will be
entitled to any interest therein.
</PAGE> 69
<PAGE>
It is possible from time to time that the Fund will have proceeds
available to acquire additional properties at the same time as other
partnerships sponsored by the General Partners or their Affiliates.
In the event that both the Fund and another partnership managed by the
General Partners and their Affiliates have capital available for
investment in the same or similar properties, conflicts of interest
will arise as to which of the partnerships should proceed to acquire
the property or properties involved. In such situations, the General
Partners and their Affiliates will review the investment portfolio of
each partnership and will make the decision as to which partnership
will acquire the property on the basis of several factors, including
(i) the cash flow requirements of each partnership, (ii) the degree of
diversification of each partnership, (iii) the estimated income tax
effects of the purchase on each partnership, (iv) the amount of funds
available to each partnership and (v) the length of time such funds
have been available for investment. If funds should be available in
two or more partnerships to purchase a given property or properties
and the factors enumerated above have been evaluated and deemed
equally applicable to each partnership, the property will be acquired
by the partnership that first reached its minimum investment level,
and any other conflicts that arise will be resolved by the General
Partners in their discretion.
In addition, conflicts of interest may arise between the Fund, the
General Partners and other limited partnerships with which the General
Partners are affiliated under other circumstances, such as when the
Fund attempts to sell or rent real property. The General Partners may
sell less than 100% of the interest in a property and the Fund may own
a fractional interest in the real estate being sold. The General
Partners may be forced to choose between selling the interest in the
property that is held by the Fund and the interest that is held by the
General Partner or another affiliated partnership. Such conflicts will
be generally be resolved by the General Partners, in their discretion,
after consideration of the investment objectives of the partnerships
holding interests in the property and the length of time until the
planned final disposition of properties by such partnerships. The
General Partners may allow the sale of the fractional interest held by
the General Partners or another affiliated partnership prior to the
sale of the interest held by the Fund. There can be no assurances
that the terms of sale of all fractional interest in a property that
are sold at different times will be the same.
Possible Joint Investment with Affiliated Partnerships
The Fund may invest in a property jointly with another partnership
sponsored by the General Partners or their Affiliates under the
conditions described in "Investment Objectives and Policies--Joint
Venture Investments." In the event of such a joint venture, conflicts
of interest could arise between the joint venture partners.
General Partner's Representation of Fund in Audit Proceedings
</PAGE> 70
<PAGE>
The Managing General Partner will act as the "tax matters partner"
pursuant to Section 6231 of the Internal Revenue Code. This grants
the Managing General Partner certain discretion and authority
regarding extensions of time for assessment of additional tax against
the Limited Partners related to Fund income, deductions or credits and
settlement or litigation of controversies involving such items. The
positions taken by the Managing General Partner on tax matters may
have differing effects on the General Partners and the Limited
Partners. Any decisions made by the Managing General Partner with
respect to such matters will be made in good faith consistent with its
fiduciary duties to the Fund and the Limited Partners. The Managing
General Partner, to the extent its actions as tax matters partner are
in good faith and reasonably intended to be in the best interests of
the Fund and subject to the indemnification and exculpation language
contained in the Partnership Agreement, may be entitled to indemnity
for liability incurred as a result of such actions. See Exhibit A,
Section 6.5 at Page A-12.
Lack of Separate Representation
The Fund, the Limited Partners and the General Partners are not
represented by separate counsel. The attorneys and accountants who
will perform services for the Fund also perform services for
Affiliates of the Fund, including the General Partners, AEI
Incorporated (the Dealer-Manager) and other Affiliates of the General
Partners. Without independent legal representation, investors may not
receive legal advice regarding certain matters that might be in their
interest but contrary to the interest of the General Partners and
their Affiliates. Should a dispute arise between the Fund and the
General Partners or their Affiliates or should negotiations or
agreements between the Fund and the General Partners, other than those
existing or contemplated on the effective date of this Prospectus, be
necessary, the General Partners will cause the Fund to retain separate
counsel for such matters. Any future agreement between the Fund and
the General Partners or their Affiliates will provide that such
agreement may be terminated at the option of the Fund upon 60 days'
notice without penalty to the Fund.
Affiliation of Selling Agent
AEI, which is wholly owned by Robert P. Johnson, is serving as Dealer-
Manager for the offering of Units. Accordingly, the "due diligence"
investigation customarily performed by an underwriter is being
performed by an Affiliate of the General Partners. AEI believes,
however, that such due diligence has, in fact, been exercised.
Moreover, under Section 34 of Article III of the NASD Rules of Fair
Practice, each Participating Dealer has an obligation to make an
appropriate independent inquiry about the offering.
</PAGE> 71
<PAGE>
Expense Reimbursements
The General Partners and their Affiliates are reimbursed at their Cost
for the services they perform on behalf of the Fund. As defined in
the Partnership Agreement, Cost includes salaries of controlling
persons and certain items of overhead attributable to the furnishing
of services. This salary and expense reimbursement would not be
allowed under administrative interpretations of some state "blue sky"
laws, known as the "NASAA Guidelines," in a traditional real estate
program. Instead, these state interpretations provide for the payment
of fees based on a percentage of revenue or sales proceeds and a 10%
interest in Net Cash Flow to cover these administrative costs.
Reimbursement to the General Partners and Affiliates of other
Administrative Expenses that would not be allowed if the Fund paid the
increased interest in Net Cash Flow and the fixed fees are limited to
the extent they would exceed the aggregate of the fixed fees and the
Net Cash Flow interest the General Partners are allowed under
applicable regulation but not paid in the Fund. In addition,
Organization and Offering Expenses and Acquisition Expenses reimbursed
to the General Partners and Affiliates remain subject to the
limitation that, when added to such expenses paid to third parties,
they will not exceed 20% of the subscription proceeds from sales of
Units to Limited Partners. Further, all reimbursements must be
provided at a cost that is less than or equal to the price that would
be paid to an unaffiliated party rendering comparable services in the
same geographic area. Although the General Partners expect that such
reimbursements will be less than the fees and increased interest in
Net Cash Flow they would otherwise be allowed to be paid under state
securities laws, pursuant to Section 6.2 of the Partnership Agreement
the aggregate Cost of such reimbursements be as mucg as the fees and
increased interest in Net Cash Flow interest the General Partners are
allowed to be paid under applicable state regulation.
CASH DISTRIBUTIONS AND TAX ALLOCATIONS
Cash Distributions
The General Partners intend to make distributions of available Net Cash
Flow, if any, within 30 days after the end of each fiscal quarter.
The Fund's objective is to acquire net leased properties which will
generate partially "tax deferred" cash distributions to Limited
Partners. Net Cash Flow from operations, if any, with respect to each
fiscal year will be distributed 97% to the Limited Partners and 3% to
the General Partners.
Upon sale or other disposition of any of the properties, Net Proceeds of
Sale may be reinvested in additional properties. Net Proceeds of Sale
that are not reinvested in additional properties will be distributed
as follows:
(a) First, 99% to the Limited Partners and 1% to the General Partners
until the Limited Partners have received an amount from Net Proceeds
of Sale equal to the sum of (i) their Adjusted Capital Contributions,
plus (ii) an amount equal to a 9% per annum return on their Adjusted
Capital Contributions, cumulative but not compounded, to the extent
such 9% return has not been previously distributed to them.
</PAGE> 72
<PAGE>
(b) Any remaining balance will be distributed 90% to the Limited
Partners and 10% to the General Partners.
The 1% unsubordinated interest in Net Proceeds of Sale received by the
General Partners for a $1,000 capital contribution is not
proportionate to the interest that would be received by a Limited
Partner with the same capital contribution.
Tax Allocations
For income tax purposes, all income, profits, gains and losses of the
Fund for each fiscal year, other than any gain or loss realized upon
the sale, exchange or other disposition of any of the Fund's
properties, shall be allocated as follows: (a) net loss shall be
allocated 99% to the Limited Partners, .6% to the Managing General
Partner and .4% to the Individual General Partner so long as the
Limited Partners have positive balances in their capital accounts (if
their capital accounts are reduced to zero, all losses are allocated
to the General Partners; and (b) net income will be allocated first in
the ratio, and to the extent, Net Cash Flow is distributed to the
Partners for such year and any additional income for such year will be
allocated in the same ratio as the last dollar of Net Cash Flow is
distributed.
For income tax purposes, the gain realized upon the sale, exchange or
other disposition of any property will be allocated as follows:
(i) first, to and among the Partners in an amount equal to the negative
balances in their respective capital accounts (pro rata based on the
relative amounts of such negative balances),
(ii) then, 99% to the Limited Partners and 1% to the General Partners
until the balance in each Limited Partner's capital account equals the
sum of such Limited Partner's Adjusted Capital Contribution plus an
amount equal to a 9% per annum return on such Limited Partner's
Adjusted Capital Contribution, cumulative but not compounded, to the
extent not previously distributed,
(iii) the balance of any remaining gain will then be allocated to the
Limited Partners and the General Partners in the same manner as the
last dollar distributed.
For income tax purposes, any loss on the sale, exchange or other
disposition of any property shall be allocated 98% to the Limited
Partners and 2% to the General Partners.
</PAGE> 73
<PAGE>
INCOME TAX ASPECTS
The complexity of the applicable federal income tax laws and regulations
prevents a detailed explanation of the federal income tax treatment of
the Fund or the tax treatment of investors in the Fund; and, except as
specifically stated below, no representations can be made as to state
income tax consequences or that any federal income tax consequence
described below will be realized. A prospective investor is urged to
consult with and must rely upon his or her counsel and accountant (and
be responsible for their fees for advice) concerning the state and
federal income tax consequences of ownership of Units that are
attributable to the investor's personal tax situation. Furthermore,
investors must realize that periodic consultations with respect to
their individual tax situations may be necessary because of future
changes in the applicable statutes and regulations or in their
interpretations by the courts or the state or federal tax authorities.
Opinion of Counsel
Dorsey & Whitney LLP, counsel to the Fund, has rendered an opinion on
all material federal tax issues relating to an investment in the Fund
which involves a reasonable possibility of challenge by the Internal
Revenue Service or, where such an opinion cannot be rendered with
respect to a material tax issue, has described the reasons for the
inability to so opine. As set forth below, counsel has not rendered
an opinion on certain federal tax issues whose outcome depends to a
large extent upon facts and circumstances that will only be
determinable or will arise in the future. In particular, for the
foregoing reasons and as more fully described below, no opinion is
given with respect to the probable outcome as to certain tax issues
that could be considered material to an investment in the Fund, such
as (i) the allocation of basis among buildings (the cost of which is
depreciable), personal property (the cost of which is depreciable over
a shorter period), and the underlying land (the cost of which is not
depreciable), (ii) whether the Fund will be characterized as a
"dealer" in real estate at the time of sale or disposition of the
Fund's properties, (iii) whether the Properties will be considered to
be "held for investment," (iv) whether the leases to be entered into
by the Fund will be "true leases"or will be "stepped payment leases"
for purposes of determining whether the Fund will be considered an
"owner" of properties entitled to take depreciation and other
deductions thereon and for purposes of the timing of recognition of
rental income thereon, and (v) whether the Fund's allocation of start-
up, organization, syndication and acquisition expenses for purposes of
the deduction or capitalization of such expenses will be upheld.
Where counsel has not issued an opinion because the factors relevant
to the issue involved cannot be determined at this time, depend on an
investor's tax situation, or turn on aspects of law that are at
present uncertain, no inferences should be drawn as to any possible
legal outcome.
</PAGE> 74
<PAGE>
Subject to the information contained herein, counsel has advised the
Fund that in the aggregate the significant tax benefits, as described
herein, potentially available to an investor will probably be
realized. Counsel has reviewed the material set forth under "Income
Tax Aspects" and "Risk and Other Important Factors--Tax Aspects" and
believes that such material constitutes a full and fair general
disclosure of the material tax risks associated with an investment in
the Units.
An opinion of counsel represents only such counsel's best legal judgment
and has no binding effect or official status of any kind. No
assurance can be given that the conclusions reached in an opinion
would be sustained by a court if challenged by the Service.
Therefore, investors will assume the risks of a Service challenge of
the tax interpretations set forth herein or otherwise made by the Fund
or the General Partners and the risks of changes in tax laws, rules,
regulations and interpretations.
Counsel's opinion, which is summarized herein, has been filed with the
Securities and Exchange Commission as Exhibit 8 to the Fund's
registration statement, of which this Prospectus is a part.
General
The partnership form has been employed in an effort to allow investors
in the Fund to obtain a direct pass-through of their pro rata share of
the operating results of the Fund. Under the Internal Revenue Code of
1986, as amended (the "Code"), no federal income tax is payable by a
partnership that is not a "publicly traded partnership." Each Partner
is required to report on his or her federal income tax return his or
her distributive share of the profits, losses, gains, income,
deductions and credits of the Fund. Subject to certain limitations,
including limitations on passive activity losses (See "Personal Tax
Consequences--Losses and Credits from Passive Activities"), each
Partner may deduct his or her share of the Fund's losses, if any, for
any Fund fiscal year on his or her individual return to the extent of
the adjusted basis of his or her interest in the Fund as of the end of
such year. Likewise, each Partner must include his or her
distributive share of any Fund taxable income for each year with his
or her other taxable income whether or not he or she has received cash
distributions from the Fund during such year.
</PAGE> 75
<PAGE>
Partnership Status
The Fund has received an opinion from its legal counsel to the effect
that under currently applicable Treasury Regulations, which
Regulations they believe to be controlling, the Fund will be treated
as a partnership for federal income tax purposes and, subject to the
discussion below under "Income Tax Aspects--Publicly Traded
Partnership", will not constitute an "association" taxable as a
corporation. In rendering this opinion, legal counsel is relying
principally on the existing Treasury Regulations under Section 7701 of
the Code. In two significant cases regarding the classification of
limited partnerships for tax purposes, the opinions of the Court of
Claims and the United States Tax Court closely followed the tests set
forth in these regulations. See Zuckman v. United States, 524 F.2d
79 (Ct. Cl. 1975); Phillip G. Larson, 66 T.C. 159 (1976), acq., 1979-l
C.B. l. See also Rev. Rul. 79-106, 1979-l C.B. 448. Even though the
Service has agreed to follow the Tax Court's decision in Larson in
applying the currently existing Regulations under Section 7701, new
Regulations could be proposed that might be adverse to the Fund and
persons owning Units.
Section 301.7701-2(a)(2) of the Treasury Regulations provides that since
two factors--associates and an objective to carry on business and
divide the gains therefrom--are generally common to both corporations
and partnerships, the determination of whether an organization that
has such characteristics is to be treated for tax purposes as a
partnership or as an association taxable as a corporation depends on a
determination of the presence or absence of such factors as
centralization of management, continuity of life, free transferability
of interests and limited liability. Section 301.7701-2(a)(3)
specifies that an unincorporated organization shall not be classified
as an association taxable as a corporation unless such organization
has more corporate characteristics than non-corporate characteristics.
In Larson, the majority opinion of the Tax Court was premised on a
conclusion by the Court that under these Treasury Regulations each of
the four above-described characteristics bears equal weight in
determining whether an organization has more corporate characteristics
than non-corporate characteristics.
The Fund's legal counsel has concluded that, under the Regulations'
tests, the Fund lacks continuity of life and limited liability and
that the Fund should therefore be treated as a partnership for federal
income tax purposes. The basis for this conclusion is discussed in
more detail below.
1. Continuity of Life. Section 301.7701-2(b)(1) of the Treasury
Regulations provides that if the death, legal incapacity, bankruptcy,
withdrawal or removal of a general partner ("an event of dissolution")
will dissolve the Fund, continuity of life will not exist. Article
XII of the Partnership Agreement provides that upon an event of
dissolution (other than the withdrawal of all the General Partners
when no substitute General Partner has been admitted to the Fund), the
Fund shall continue and the business of the Fund shall be vested in
the new Fund consisting of the remaining members of the former Fund.
If, however, no General Partner remains and no successor General
Partner is elected, the Fund will automatically terminate.
</PAGE> 76
<PAGE>
Section 301.7701-2(b)(3) of the Treasury Regulations provides that,
notwithstanding the provisions of the limited partnership agreement,
if any member has the power under local law to dissolve the
organization, the organization lacks continuity of life. The
Regulations specifically provide that a limited partnership subject to
a statute corresponding to the 1916 Uniform Limited Partnership Act
("ULPA") lacks continuity of life. The Fund will be formed pursuant
to the Revised Uniform Limited Partnership Act, as codified in Chapter
322A of the Minnesota Statutes, which the Service has determined
corresponds to the ULPA.
The Service has stated in Rev. Proc. 89-12, 1989-1 C.B. 798, 4.05,
that for a limited partnership formed in a state with a statute
corresponding to the ULPA, the Service will not rule that the
partnership lacks continuity of life unless, in connection with the
removal of a general partner, the partnership agreement does not
permit less than a majority in interest of limited partners to elect a
new general partner to continue the partnership. The Limited
Partnership Agreement of the Fund satisfies this requirement.
Furthermore, in Rev. Proc. 92-88, 1992-2 C.B. 496, the Service
recently stated that, if the Service has determined in a revenue
ruling that a state's limited partnership act corresponds to ULPA, a
limited partnership formed under that act will be treated as lacking
the corporate characteristics of continuity of life.
In view of the above, the Fund's counsel is of the opinion that the Fund
lacks the corporate characteristic of continuity of life.
2. Limited Liability. The Regulations provide that an organization
has the corporate characteristic of limited liability if there is no
member who is personally liable for the debts of the organization.
The Regulations further provide that if general partners who are
personally liable for the debts of a partnership either have
"substantial assets" in addition to their interest in the partnership
or are not "dummies" acting as the agents for the limited partners,
limited liability does not exist.
In Rev. Proc. 92-88, the Service stated that a limited partnership
having at least one corporate general partner and one individual
general partner will be treated as lacking limited liability where the
net worth of the individual general partner or partners is expected to
equal, on a continuing basis, the lesser of 10% of the total
contributions to the partnership or $1,000,000. Rev. Proc. 92-88 at
4.03(2) and (3). Robert P. Johnson, the individual general partner of
the Fund has represented that he has, and expects to have throughout
the life of the Fund, a net worth of at least $2,400,000 (determined
without regard to the value of his Units), which is equal to 10% of
the maximum contributions that may be made to the Fund. Thus the net
worth of the sole Individual General Partner will satisfy the net
worth required by Rev. Proc. 92-88 to avoid the characteristic of
limited liability. Therefore, based on the net worth representation
of Robert P. Johnson, counsel to the Fund is of the opinion that the
General Partners currently, in the aggregate, satisfy the "substantial
assets" requirement of the Regulations and the safe harbor test of
Rev. Proc. 92-88.
</PAGE> 77
<PAGE>
Even if the General Partners are not deemed to have substantial assets,
the corporate characteristic of limited liability will not be present
if the General Partners are not acting merely as agents for the
Limited Partners. The Tax Court has held that, in the case of
corporate general partners, if (1) the persons controlling the general
partners are independent from, and unrelated to, the limited partners,
and (2) the general partners are not being used by the limited
partners "as a screen to conceal their own active involvement in the
conduct of the business" of the partnership, the general partner or
partners will not be considered "dummies." The General Partners have
represented that the persons who become Limited Partners will not
control or use the General Partners to conceal their own active
involvement in the conduct of the business of the Fund. In addition,
the fact that the Fund has an individual general partner should
support the position that the General Partners are not acting as mere
agents for the Limited Partners.
Counsel to the Fund has concluded, therefore, that under the tests of
the applicable Treasury Regulations, the Fund lacks at least
continuity of life and limited liability. Because the absence of any
two of the four principal characteristics is sufficient to establish
that the Fund will be treated as a partnership for federal income tax
purposes, counsel to the Fund has concluded that the Fund will be
treated as a partnership for federal income tax purposes and not as an
"association" taxable as a corporation.
The Partnership Agreement complies with the requirements of Rev. Proc.
89-12, which provides that, for the purpose of obtaining an advance
ruling that a limited partnership will be classified as a partnership,
the partnership agreement must require the general partners to
contribute to the partnership, upon dissolution and termination of the
partnership, an amount equal to the lesser of (a) the deficit balances
in their capital accounts or (b) the excess of 1.01% of the total
capital contributions of the limited partners over the amount
previously contributed by the general partners.
</PAGE> 78
<PAGE>
If for any reason the Fund is treated for federal income tax purposes
as a corporation, income and deductions of the Fund will be reflected
only on its income tax return rather than being passed through to the
Partners, and the Partners will be treated as corporate shareholders
for tax purposes. The Fund would be required to pay income tax at
corporate tax rates on any net income, thereby reducing the amount of
cash available for distribution to the Partners. Distributions by the
Fund to the Partners then would be taxable to them as dividends to the
extent of current and accumulated earnings and profits of the Fund or
treated as gain from the sale of their partnership interests to the
extent such distributions exceeded both the current and accumulated
earnings and profits of the Fund and the Partner's tax basis for his
or her interest. In addition, in the event of sale or redemption of a
Limited Partner's entire interest in the Fund, a Limited Partner would
recognize gain or loss to the extent of the amount by which the
proceeds recognized exceeded or were less than the Limited Partner's
adjusted basis in his or her interest. Moreover, if the loss of
partnership status were to occur at a time when the Fund's total
liabilities exceeded the aggregate tax basis of all assets, the
Service might take the position that a constructive incorporation had
occurred and that the Fund and, therefore, the Partners realized gain
under Section 357(c) of the Internal Revenue Code equal to the
difference between such liabilities and the aggregate tax basis of
such assets.
Publicly Traded Partnerships
The Code contains several provisions that significantly change the tax
treatment of "publicly traded partnerships" and the income and loss
they generate. Under the Code, unless 90% of a publicly traded
partnership's income is from passive-type investments, a publicly
traded partnership will be taxed as if it were a corporation.
Generally, income from a publicly traded partnership will be treated as
portfolio income. Such income from a publicly traded partnership
cannot be offset by passive losses from other sources and losses from
the publicly traded partnership cannot be used to offset passive
income from other sources.
</PAGE> 79
<PAGE>
The Code defines a partnership as a "publicly traded partnership" if
(i) interests in the partnership are traded on an established securities
market, or (ii) interests in such partnership are readily tradeable on
a secondary market (or the substantial equivalent thereof). Treasury
Regulations issued in August 1995 under Section 7704 of the Code
provide that an established securities market includes an national
exchange registered under the Securities Exchange Act of 1934, or
exempted therefrom because of limited volume, any regional or local
exchange or any inter-dealer quotation system that regularly
disseminates firm buy or sell quotations. The Regulations provides
that a "secondary market," or its "substantial equivalent," exists if
interests in the partnership are regularly quoted by any person making
a market in the interests, any person regularly makes available bid or
offer quotes and stands ready to effect buy or sell transactions at
the quoted prices, the holder of a partnership interests has a readily
available regular and ongoing opportunity to sell or exchange the
interest through a public means of obtaining or providing information
of offers to by, sell or exchange the partnership interest, or there
is any other opportunity to buy, sell or exchange interests in the
partnership in a manner that is comparable to the foregoing.
The Treasury Regulations provide for several "safe harbors" from the
definition of a "publicly traded limited partnership." Interests in a
partnership will not be considered readily tradeable on a secondary
market or a substantial equivalent if the interests traded during the
partnership tax year represent two percent or less of partnership
capital or profits if transfers executed through a matching service or
pursuant to certain redemption and repurchase agreements are excluded
from the calculation. Generally, transfers of partnership interests
by gift, at death, between family members, as a distribution from a
retirement plan, as a large block, and at original issue, regardless
of volume, will be disregarded for purposes of the safe harbor test
above.
The General Partners will not list the Units for trading on an exchange,
in the over the counter market, or in any inter-dealer quotation
system. Although it is likely that some transfers of limited
partnership units will occur, such transfers will be on an individual
basis and will not be negotiated in a time frame comparable to that
which would be available on a secondary market. The Partnership
Agreement provides that the General Partners may refuse to recognize
any transfer or refuse to repurchase any Units, if such transfer or
repurchase, together with all other transfers or repurchases of Units
in the same calendar year other than the exempt transfers noted above,
would exceed five percent of the Units outstanding at the beginning of
such calendar year. The Partnership Agreement also provides that, if
the General Partners permit a non-exempt transfer in excess of the
test described above, such transfer, together with all other transfers
for such calendar year, but excluding transfers made through the
repurchase provisions or Qualified Matching Services, cannot exceed
two percent (2%) of the Units outstanding.
Based upon existing interpretations of the Service and the foregoing
provisions of the Partnership Agreement, and provided that any
transfers are made in accordance with such interpretations and
provisions, counsel to the Fund is of the opinion that the Fund will
not be considered a publicly traded partnership as contemplated by the
Code.
</PAGE> 80
<PAGE>
Partnership Allocations
The Partnership Agreement allocates to each Partner his or her
distributive share of income, gain, loss, deduction, or credit. The
Partnership Agreement also provides for a specific allocation of
partnership proceeds among the Partners upon dissolution and
termination of the Fund, upon the refinancing, sale, or other
disposition of the Fund properties, and a specific allocation of cash
flow. Section 704(b) of the Internal Revenue Code provides that the
allocations under the Partnership Agreement shall govern unless those
allocations do not have substantial economic effect. In the event the
allocations in the Partnership Agreement do not have substantial
economic effect, each Partner's distributive share of income, gain,
loss, deduction, or credit (or item thereof) shall be determined in
accordance with the Partner's interest in the Fund.
Regulations under Section 704(b) impose three requirements for an
allocation to be deemed to have economic effect: (1) capital accounts
must be maintained in accordance with the rules established in the
final Regulations; (2) upon liquidation of the partnership,
liquidating distributions are required in all cases to be made in
accordance with positive capital account balances; and (3) if a
partner has a deficit balance in his or her capital account at the
time of liquidation of the Partner's interest in the partnership he or
she must be unconditionally obligated to restore such negative balance
to the partnership. The Regulations further provide an alternate test
for economic effect. If requirements (1) and (2) above are met and
the partnership contains a "qualified income offset," an allocation
that does not cause or increase a deficit balance in a partner's
capital account will be deemed to have economic effect.
The Partnership Agreement appears to comply with requirements (1) and
(2) above and contains, a "qualified income offset" provision.
Moreover, it appears that the economic effect of the allocations in
the Partnership Agreement is substantial as interpreted in the final
Regulations under Section 704(b). There is no unlimited obligation in
the Partnership Agreement for any Partner to restore a deficit balance
in his or her capital account on liquidation.
The Service has published final regulations under Sections 752 and
704 of the Code relating, respectively, to the treatment of partnership
liabilities and the allocation of deductions attributable to
nonrecourse debt. Because it is not currently expected that the Fund
will incur nonrecourse indebtedness, Counsel does not believe that the
issuance of these regulations will affect the analysis of the
partnership allocations set forth above.
</PAGE> 81
<PAGE>
It is the opinion of counsel for the Fund, therefore, as of the date of
this Prospectus, that it is more likely than not that the allocations
to a Partner, if properly made in accordance with the Partnership
Agreement, will be recognized for federal income tax purposes under
Section 704(b) of the Code to the extent that such allocations do not
cause or increase a deficit balance in a Partner's capital account.
It is assumed for purposes of this opinion that the allocations in the
Partnership Agreement do not, by design or in practice, provide for
allocations to Partners based on their individual tax situation or
status. Because the interpretation of certain aspects of the
Regulations under Section 704(b) is still uncertain, no assurance can
be given that the allocations contained in the Partnership Agreement
will not be challenged by the Service.
Tax-Exempt Use Property
Units will be purchased by both tax-exempt entities and investors not
exempt from taxation. Section 168(h)(6) of the Code provides that in
certain instances where a partnership has as partners both tax-exempt
entities and persons or entities not exempt from taxation, a portion
of the property owned by the partnership will be deemed tax-exempt use
property that must be depreciated over the greater of 40 years or 125%
of any long-term lease. Under Section 168(h)(6), unless the
allocation of partnership tax items under the Partnership Agreement is
determined to be a qualified allocation, any property owned by the
Fund will be deemed to be tax-exempt use property to the extent of the
tax-exempt entities' proportionate share of the Fund. A qualified
allocation is an allocation to a tax-exempt entity that is consistent
with the entity's being allocated the same distributive share of
income, gain, loss, deduction, credit and basis during the entire
period the entity is a partner, and which allocation has substantial
economic effect as determined under Section 704(b)(2). The
partnership Agreement provides for varying allocations of profits,
losses and items of income of the Fund.
Although the issue is somewhat uncertain because of the lack of clear
guidelines in applicable Temporary and Proposed Regulations, counsel
for the Fund has reviewed the allocation provisions contained in the
Partnership Agreement and believes that, pursuant to existing
authority, such allocations are not qualified allocations under
Section 168(h)(6). Although Limited Partners that are tax-exempt
entities will be allocated distributive shares of income, gain, loss,
deduction, credit and basis in the same manner and in the same
proportion that such items are allocated to Limited Partners who are
not tax-exempt entities, such allocations are not the same during the
entire period that such entities are partners. Therefore, it is
likely that, to the extent of the interests of tax-exempt Limited
Partners in the Fund, a portion of the Fund's property will be
depreciated over 40 years and that depreciation deductions to all
Limited Partners will be decreased in early years of operation as a
result of this adjustment.
</PAGE> 82
<PAGE>
Status of the Fund as Owner and Lessor of the Improvements
Although it is anticipated that the Fund will be treated as the owner
of the properties, the Service has taken the position in certain
situations that certain lease transactions should be treated as
financing transactions with the result that, for federal income tax
purposes, the lessor of the property is not treated as the owner and
is not entitled to take depreciation and other deductions with respect
to his or her investment. In several cases the Service has been
sustained in court on this issue. In this regard, the Service has
promulgated guidelines in Revenue Procedure 75-21, 1975-1 C.B. 715,
indicating the conditions that must be satisfied in order to obtain an
advance ruling that the lessor is the owner of property for federal
income tax purposes. Some of these conditions may not be met by the
Fund in its anticipated net leasing of the properties. Nevertheless,
Revenue Procedure 75-21 expressly states that the guidelines do not
define, as a matter of law, whether a transaction is or is not a lease
and are not intended to be used for audit purposes.
In recent cases in which the ownership status of the lessor has been
upheld for tax purposes, the courts have given significant weight to
such factors as (1) the presence of a third-party lender; (2) the
possibility that the lessor will obtain material non-tax benefits from
its ownership of the property; and (3) the structuring of purchase
options granted to the lessee in such a fashion that the purchase
price is "fair" and there is no "economic compulsion" on the part of
the lessee to purchase the property pursuant to such options.
Moreover, in several recent cases, the courts rejected arguments by
the Service that such factors as the net nature of the lease, the
nonrecourse nature of the mortgage loan or the equivalence of rental
payments due under the lease to debt service payments due under the
mortgage loan evidence a lack of ownership by the lessor for tax
purposes. See, e.g., Dunlap v. Commissioner, 74 T.C. 1377 (1980);
Sanderson v. Commissioner, 50 T.C. 1033 (1985); Hilton v.
Commissioner, 671 F.2d 316 (9th Cir. 1982).
Leases entered into by prior partnerships sponsored by the General
Partners and their Affiliates have, in general, contained terms
indicative of ownership in accordance with the factors enumerated
above. The General Partners will continue to attempt to enter into
leases that will result in the Fund being treated as the owner of the
leased property. Nevertheless, the characterization of transactions
as leases involves analysis of complex factual situations under
evolving judicial doctrines and, because the Fund has not yet entered
into any leases and no analysis thereof is possible, counsel for the
Fund has not expressed an opinion on the status of the Fund as owner
and lessor of properties.
Stepped Payment Leases
Under Section 467 of the Code, a lessor may be required to accrue rental
income for income tax purposes during a taxable period in amounts that
differ from the actual rental payments received during such period if
(i) rental payments are made after the close of the calendar year
following the calendar year in which the use of the property occurs,
or (ii) rental payments increase over the term of the lease ("Section
467 Lease").
</PAGE> 83
<PAGE>
If a lease is a Section 467 Lease but is not a disqualified leaseback
or long-term agreement described below, the lessor must include in
current income for any period rentals allocated by the lease to that
period plus the present value of rentals allocated to such period but
not paid until future periods. Accordingly, unless such a Section 467
Lease allocates rent to periods earlier than the payment date of such
rent, Section 467 should not have any effect on the taxable income
from such lease.
If a lease that is a Section 467 Lease does not allocate rent to
specific periods or, subject to certain exceptions, (i) is entered
into in a leaseback transaction, or (ii) is for a term of in excess of
75% of the statutory recovery period for the property subject to the
lease, and (iii) provides for increasing rents to avoid income
taxation (a "disqualified leaseback or long-term agreement"), the
lessor may be required to disregard actual rental payments and accrue
and recognize as income in each lease period a constant amount which,
if paid as of the close of each lease period under the rental
agreement, would result in an aggregate present value equal to the
present value of the aggregate payments required under the agreement.
Although no regulations have been issued, Section 467 instructs the
Service to exclude from "disqualified leaseback or long-term
agreements" leases providing for increases determined by reference to
price indices and leases providing for increases based upon percentage
of lessee receipts.
Lessors under leaseback or long-term agreements who are not required to
accrue a constant amount must, upon disposition of the property
subject to the lease, recapture as ordinary income the lesser of (i)
the difference between the amount which would have been taken into
account had the lessor been required to accrue a constant amount and
the amount actually taken into account for the periods prior to the
disposition or (ii) the gain realized.
Prior partnerships have entered into leases which may qualify as Section
467 Leases. In certain instances, such agreements may require accrual
of a constant amount or may require recapture on the disposition of
the property subject to the lease. Because the Fund has not yet
entered into any lease agreements, it is not possible to determine
what treatment of the Fund's leases may be required under Section 467.
If the Fund enters into agreements that require accrual of a constant
amount, such an accrual could result in the Fund's recognition in
certain years of a greater amount of income than is actually received.
If, on the other hand, the Fund is required to recapture ordinary
income on the disposition of property subject to its leases, the Fund
will recognize ordinary income rather than capital gain to the extent
of the recapture. For individuals, estates, and trust, ordinary
income is currently subject to a top marginal rate of 39.6% while
capital gains are subject to a top marginal rate of 28%.
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<PAGE>
Organization and Syndication Costs and Other Payments to the General
Partners
The General Partners and their Affiliates will be reimbursed for all
costs incurred by the General Partners or such Affiliates that are
attributable to the Fund. Such reimbursements will include costs
incurred in syndicating, organizing and managing the Fund, as well as
an allocation of related general and administrative costs of the
General Partners and their Affiliates. The General Partners will
categorize reimbursements as start-up, syndication, organization,
management or acquisition costs.
Section 709 of the Code denies the Fund a deduction for amounts paid or
incurred in connection with the issuance or marketing of Units
("syndication expenses"). However, under Sections 709 and 195 of the
Code, amounts paid or incurred to organize the Fund ("organization
expenses"), or to create an active trade or business conducted by the
Fund ("start-up expenses") may be amortized over a period of not less
than 60 months. The General Partners will allocate certain expenses
between syndication, organization and start-up and may amortize
certain organization and start-up expenses. There can be no assurance
that the Service will accept the General Partners' determination of
the classification of the costs with respect to syndicating and
organizing the Fund, and because the issue is factual in nature,
counsel to the Fund has not issued an opinion on this issue. The
General Partners, however, will attempt to follow the applicable
Treasury Regulations relating to which costs qualify as organizational
costs and which costs are deemed syndication costs.
Acquisition Expenses incurred in connection with acquired properties
will generally be added to the purchase price and amortized. All
other reimbursements will be deducted as management expenses. The
Service has successfully challenged the deductibility of such payments
to general partners in other cases and may allege that such expenses
reimbursed to the General Partners or an Affiliate are not currently
deductible by the Fund. The General Partners believe that the
management expenses to be reimbursed to the General Partners or an
Affiliate by the Fund will be deductible either under Code Section
707(a) (transactions between a partnership and a partner acting in a
capacity other than as a member of the partnership) or under Section
707(c) ("guaranteed payments" that are determined without regard to
the income of the partnership), and such expenses will be paid for
necessary and ordinary services rendered to the Fund. Upon audit, the
Service may challenge the General Partners' allocation of expenses,
either on the basis of the nature of the reimbursements paid or on the
basis that the reimbursements were paid to the General Partners or an
Affiliate for performing services within the normal scope of their
duty as General Partners and, therefore, may not be deducted. The
deductibility of such reimbursements to be paid to the General
Partners or an Affiliate ultimately will depend upon, among other
things, a factual determination of the nature of the services
performed and cannot be predicted with certainty. The Fund's legal
counsel has not issued an opinion on the deductibility of these
expenses because their deductibility is inherently a factual issue
that depends upon their amount or the appropriateness of the relevant
items for reimbursement.
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Depreciation Deductions
1. General. The Code permits a taxpayer to claim depreciation
deductions with respect to property used in a trade or business or
held for the production of income. As a general rule the cost of
acquiring or constructing an asset, including all costs incident to
such acquisition or construction, may be included in the tax basis
thereof for the purposes of computing cost recovery deductions.
The Fund will claim depreciation, cost recovery and amortization
deductions with respect to the properties it acquires to the extent
permitted by the applicable Code provisions. Although such deductions
will reduce the Fund's taxable income, they will also reduce the
Fund's adjusted basis in the properties, thereby increasing the
potential gain (or decreasing the potential loss) to the Fund upon the
ultimate disposition of the properties. See "Sales of Fund Property
and Foreclosure."
2. MACRS. Under the Modified Accelerated Cost Recovery System
("MACRS"), tangible real or personal property (other than land) that
qualifies as "recovery property" is eligible for MACRS deductions over
specific statutory recovery periods. The applicable recovery period
for nonresidential real property with a class life exceeding 27.5
years (which includes most commercial real property) is 39 years. The
Fund intends to purchase only commercial properties. Accordingly, the
Fund will depreciate most of its real properties over 39 years using
the straight-line method. But see "Income Tax Aspects--Tax-Exempt Use
Property." Under Rev. Proc. 87-56, certain real properties, including
automotive service station buildings and car wash buildings, in which
prior partnerships sponsored by the General Partners have invested,
have class lives of less than 27.5 years and are not nonresidential
real property subject to the 39 years recovery period. Automotive
service stations and car washes are depreciated over a recovery period
of 15 years. The MACRS deduction with respect to a property in the
year of acquisition will be based on the number of months in which the
property has been placed in service by the Fund, and each property
will be deemed placed in service for MACRS purposes in the middle of
the month in which it is placed in service by the Fund.
A small portion of the property to be purchased by the Fund is expected
to be five-year recovery property. Five-year recovery property is
subject to a table delineating the amount deductible in each year.
The table is based on the double declining balance method but converts
to the straight line method to maximize depreciation in later years.
During the first year the table incorporates a half-year convention.
A new entity such as the Fund is subject to a short taxable year, thus
reducing the first year cost recovery deduction to the amount
specified in the aforementioned table multiplied by a fraction, the
numerator of which is the number of months the Fund is involved in
activity and the denominator of which is twelve. No investment tax
credit will be available on the personal property of the Fund.
</PAGE> 86
<PAGE>
3. Allocation of Purchase Price. Allocation of the purchase price of
a property among the various depreciable and nondepreciable assets is
a factual question, and there can be no assurance that the allocations
made by the Managing General Partner will be accepted by the Service.
In determining the allocation of the purchase price between
depreciable and nondepreciable assets, the Managing General Partner
relies on its own experience and on reports of independent appraisal
firms on similar properties acquired by affiliated partnerships.
Because none of the Fund's properties have been acquired and the issue
depends on facts that are not yet determined, counsel to the Fund has
not rendered an opinion on this issue. Adjustment of the allocation
of the purchase price of a property could decrease Fund depreciation
deductions thereby increasing Fund taxable income or decreasing Fund
losses.
Basis of Fund Interest
Subject to the at risk rules and the passive activity loss limitations
(see "Personal Tax Consequences--Losses and Credits from Passive
Activities"), a Partner is generally allowed to deduct his or her
allocable share of partnership losses to the extent of the adjusted
basis in the Partner's Units. Each Limited Partner's adjusted basis
of the Partner's Units initially will include his or her contribution
to the capital of the Fund and the Partner's pro rata share of
indebtedness as to which neither the Fund nor any Partner is
personally liable ("nonrecourse liabilities"). Under the "at risk"
rules, a taxpayer cannot deduct losses arising from an activity,
including the activity of holding real property, to the extent such
losses exceed the aggregate amount with respect to which the taxpayer
is financially "at risk" in such activity. Generally, a taxpayer is
"at risk" in the amount of his or her capital contribution plus his or
her share of recourse liabilities and "qualified" nonrecourse
liabilities within the meaning of Section465(b)(6) of the Code.
Although the General Partners will attempt to ensure that financing,
if any, that may be placed on properties in the future will be
qualified nonrecourse financing, because that determination depends on
facts not yet in existence, no assurances can be given that any loans
actually obtained by the Fund will qualify as amounts at risk under
Section 465.
A Limited Partner's adjusted basis of his or her Units will increase by
the Partner's distributive share of Fund income for each year and
decrease by his or her distributive share of Fund losses and by
distributions of cash and other property made by the Fund to him or
her (and for this purpose the Partner's share of any reduction in
principal of the Fund's indebtedness will be treated as a distribution
of cash to the Partner); provided, however, that the adjusted basis
may not be reduced below zero. In the event that the amount of Fund
losses allocated to a Limited Partner for any fiscal year exceeds the
Partner's available basis of his or her Units, such excess losses may
be carried forward to such time, if ever, such basis is sufficient to
absorb such excess losses.
</PAGE> 87
<PAGE>
Nonliquidating Distributions
Nonliquidating distributions of cash to a Partner generally will be
regarded as a return of capital for tax purposes to the extent of a
Partner's adjusted basis of his Units and serve to reduce such basis
by an amount equal to the cash distributed. To the extent that the
amount of cash distributed exceeds the Limited Partner's adjusted
basis of his Units prior to distribution, the Limited Partner will
recognize taxable gain. Nonliquidating distributions of property
other than cash to a Limited Partner will reduce the Limited Partner's
basis in his Units by an amount equal to the adjusted basis of the
property in the hands of the Fund; provided, however, that the
adjusted basis of his Units may not be reduced below zero. The
distributed property will have a basis in the hands of the distributee
Limited Partner equal to its adjusted basis in the hands of the Fund,
except that the basis of such property shall not exceed the adjusted
basis of such Limited Partner's Units reduced by the amount of any
cash distributed in the same transaction.
Sales of Fund Property and Foreclosure
In the event the Fund sells a property, gain will be recognized to the
extent that the amount realized from such sale exceeds the Fund's
adjusted basis of such property and loss will be recognized to the
extent that the adjusted basis of such property exceeds the amount
realized. The amount realized from the sale or other disposition of a
property includes all cash received, all liabilities assumed and the
fair market value of all property received other than cash. If a
purchaser of such property assumes or takes subject to liabilities
encumbering the transferred property, the amount of such liabilities
represents consideration to be included in the amount realized by the
Fund as though there had been a payment in a like amount.
The federal income tax consequences of the foreclosure of a mortgage,
deed of trust or other financing instrument with respect to a property
depend on a number of factors. In general, however, the Partners will
recognize taxable gain to the extent the foreclosed liability exceeds
the adjusted basis of the property. If the property is sold in
foreclosure for an amount greater than the applicable liability, the
rules described in the preceding paragraph will apply.
In the event of the disposition (including a sale as a result of
foreclosure) of any depreciable real property within one year after
acquisition (even if straight-line depreciation has been taken) or of
any depreciable personal property, gain, if any, will be recaptured as
ordinary income to the extent that depreciation has been previously
allowed on the property. Further, in the case of an installment sale
all depreciation to be recaptured as ordinary income will be
recaptured in the year of sale without regard to the actual payment
received in such year.
</PAGE> 88
<PAGE>
If the Fund is considered a dealer in real estate at the time of any
sale of a property, installment sale reporting of the amount of
recognized gain will not be available. Therefore, an installment sale
of property by the Fund could result in a recognition of income in an
amount exceeding cash distributions from the Fund in the year of sale.
If the Fund is not a dealer, deferral of recognition of income from an
installment sale will be available, although under certain
circumstances the amount of tax deferred may be subject to an interest
charge denominated as additional tax.
Under certain circumstances, the sale of property may not generate for
the Partners net cash proceeds in amounts sufficient to cover the tax
liabilities thereby created for the Partners. Such circumstances
might include (i) the sale of a property on adverse terms, i.e., for
gross proceeds that exceed the depreciated book value of the property
by an amount significantly greater than the net proceeds after payment
of the remaining principal amount of the related mortgage or deed of
trust, (ii) the sale or transfer of a property pursuant to foreclosure
of a mortgage, deed of trust or other financing instrument or (iii)
the sale of a property for proceeds that include illiquid assets, such
as promissory notes of the purchaser.
Any gain or loss on the sale or other disposition of (a) property that
is held by the Fund as a "dealer" or (b) property that is neither a
capital asset nor a Section 1231 asset will be taxed as ordinary
income or loss, as the case may be. A taxpayer is required to hold a
capital asset for more than one year to be entitled to long-term
capital gain treatment.
Losses from the Fund that Partners have been unable to deduct due to
application of the passive loss limitation rules (see "Personal Tax
Consequences--Losses and Credits from Passive Activities.") may be
applied against gains subsequently realized from sales of the
properties of the Fund or Units. Any losses remaining after such
application in the event of a complete liquidation of a Partner's
interest in the Fund may be applied against other income of the
Partner, whatever the source.
Sale of Units
</PAGE> 89
<PAGE>
LIMITED PARTNERS MUST RECOGNIZE THAT NO PUBLIC MARKET FOR UNITS MAY
EXIST AT SUCH TIME AS A LIMITED PARTNER WISHES TO SELL HIS UNITS.
Any gain or loss realized by a Limited Partner who is not a "dealer"
upon the sale, exchange or assignment of Units (including contribution
to a charitable organization) generally will be treated as capital
gain or loss. However, under present law, the portion of the sales
proceeds attributable to the Limited Partner's share of the Fund's
unrealized receivables and inventory items that have appreciated
substantially in value will give rise to ordinary income. For this
purpose, unrealized receivables of the Fund include depreciation
recapture property to the extent that any gain realized if the Fund
had sold such property at its fair market value would have been taxed
as ordinary income (as described above, with respect to depreciation
recapture) and inventory items include all items of the Fund that, if
sold by the Fund or if held by the selling Limited Partner and sold by
him, would have been taxed as ordinary income either because the
property was neither a capital asset nor a "Section 1231 asset" or
because the Fund or the selling Limited Partner would be a "dealer" in
such property. Furthermore, in determining the amount received upon
the sale or exchange of a Unit, a Limited Partner must take into
account his share of any reduction of the nonrecourse partnership
liabilities. Accordingly, a Limited Partner's gain on the sale or
exchange of Units may substantially exceed the cash proceeds
therefrom, and the income taxes payable with respect to such gain also
may exceed such cash proceeds.
A gift of Units by a Limited Partner may result in the imposition of
income tax on such Limited Partner if the gift is made at a time when
his share of the Fund's nonrecourse liabilities exceeds the basis of
the Units that are the subject of the gift. The taxable income
resulting from a gift of Units would be equal to the amount by which
the Limited Partner's share of nonrecourse partnership liabilities
exceeds his basis in the Units given. Such a gift also may result in
a federal gift tax being imposed upon the donor.
In the event of a transfer of all or part of the Units of any Partner,
the Fund may elect pursuant to Section 754 of the Code to adjust the
transferee's share of the basis of the assets of the Fund. Pursuant
to the Partnership Agreement, the Managing General Partner has sole
discretion to determine whether such adjustment to the basis of the
assets of the Fund shall be made. Because of the complexities and
added expense of the tax accounting required to implement such an
election, the Managing General Partner does not intend to cause the
Fund to make the Section 754 election. Therefore, any benefit that
might be available to the Limited Partners by reason of such an
election probably will not be available. Moreover, a Limited Partner
may have greater difficulty in selling his Units or may realize a
lower sales price since the purchaser will obtain no current tax
benefits from his investment to the extent that his cost of such
investment exceeds his allocable share of the Fund's basis in its
assets.
</PAGE> 90
<PAGE>
Liquidation of the Fund
Upon the liquidation of the Fund, a Limited Partner will recognize
taxable gain to the extent that any money distributed to the Limited
Partner exceeds the adjusted basis of such Limited Partner's interest
in the Fund. A Limited Partner will recognize a loss upon liquidation
of his partnership interest only if he or she receives liquidation
distributions from the Fund consisting solely of money, unrealized
receivables or inventory items and then only to the extent that the
adjusted basis of his or her interest in the Fund exceeds the basis of
the items distributed to him. In the event other property is
distributed to a Partner as a liquidation distribution, the basis of
such other property in the hands of the Partner shall be equal to the
adjusted basis of such Partner's interest in the Fund reduced by any
money distributed to such Limited Partner in the same transaction.
Tax Shelter Registration
Section 6111 of the Code requires tax shelters, as defined therein, to
register with the Service. The Managing General Partner has
determined, however, that the Fund does not fall within the Code's
definition of a tax shelter, and, therefore, the Managing General
Partner does not intend to register the Fund as such.
Partnership Tax Audit, Returns and Penalties
The Managing General Partner will arrange for the preparation and filing
of all necessary tax returns for the Fund. The Managing General
Partner also will serve as the "tax matters partner" pursuant to
Section 6231 of the Code. This Section of the Code grants the
Managing General Partner certain discretion and authority regarding
extensions of time for assessment of additional tax against Limited
Partners related to Fund income, deductions or credits and settlement
or litigation of controversies involving such items. This is
significant because controversies regarding determination of
partnership taxable income will be resolved, under regulations,
through settlement or litigation at the partnership level. Limited
Partners are required to report any item of income, gain or loss
consistently with the reporting of such item by the Fund, unless a
specific explanation of the inconsistency is included with the
affected income tax return.
Each Limited Partner whose interest in revenues of the Fund is one
percent or more will receive notice of any tax controversy from the
Service. Each Limited Partner will have the right to participate in
settlement or litigation of any tax controversy if such right is
exercised timely. Limited Partners who do not reserve their right to
reject settlements accepted by the Managing General Partner will be
bound by the settlement. All Limited Partners will be bound by the
outcome of any litigation that may result.
</PAGE> 91
<PAGE>
A penalty is imposed under Section 6662 of the Code for substantial
understatement of tax liabilities in certain cases. Provided the
principal purpose of the investment is not evasion or avoidance of
tax, the penalty does not apply if either there was "substantial
authority" for treatment of the item that is later adjusted or the
relevant facts regarding such item were disclosed in the return. In
the case of a partnership item, the disclosure is to be made in the
partnership return, but may also be made in the individual Partner's
return after satisfaction of additional procedural requirements.
Should it be determined that the Fund constitutes a "tax shelter," a
penalty for substantial understatement of tax, if otherwise
appropriate, would not be avoided by disclosure. In such case, the
tax treatment of the item in question would require support of
substantial authority and, in addition, the individual Partner's
belief that his or her treatment was "more likely than not" the proper
treatment. There is little guidance available on the interpretation
of the term "tax shelter" for purposes of Section 6662 and it is
unclear whether the Fund constitutes a tax shelter. Should an
adjustment be sustained to the partnership returns where proper
disclosures were not made and there was not "substantial authority"
supporting the position taken, a penalty could be assessed against
each Limited Partner for 20% of any underpayment of taxes by such
Limited Partner exceeding the greater of 10% of such Partner's correct
tax or $5,000 for individuals and $10,000 for corporations.
With respect to Limited Partners who are individuals, closely held
corporations or personal service corporations, Section 6662 of the
Code imposes a penalty of 20% on all underpayments of tax attributable
to a "valuation overstatement." A valuation overstatement results
when the value or basis of property or a depreciable component thereof
is represented for income tax purposes to be 200% or more of its
actual value or basis. Furthermore, the penalty increases to 40% of
the underpayment in the case where the value or basis of property is
represented to be 400% or more of its actual value or basis.
Generally, the period during which the Service can assess an income tax
deficiency is three years. The statute of limitations for adjusting
partnership items of partnerships registered under federal securities
laws (such as the Fund) extends until the later of three years after
the partnership's return is filed or one year after the name and
address of a partner against whom the deficiency is assessed is
provided to the Service if such name and address does not appear on
the partnership's return. In the case of fraud by others or a
substantial omission of gross income from a partnership's return, the
period for assessment for a limited partner can be extended to six
years. The running of the applicable assessment period is suspended
during the pendency of an audit proceeding and for one year
thereafter.
Personal Tax Consequences
The provisions of the Code discussed below may have tax consequences to
investors beyond their investment in the Fund, and the applicability
of such provisions to an investment in the Fund must be considered
with regard to the total individual tax situation of the investor,
which is beyond the scope of the tax discussion contained in this
Prospectus.
</PAGE> 92
<PAGE>
1. Investment by Qualified Plans. Qualified Plans, although generally
exempt from federal income taxation under Section 501(a) of the
Internal Revenue Code, nevertheless are subject to tax to the extent
that their unrelated business taxable income ("UBTI") exceeds $1,000
during any tax year. An allocable portion of income from property
that is "debt financed property" will constitute UBTI. Debt financed
property is generally defined to mean any property as to which there
is "acquisition indebtedness." Acquisition indebtedness includes
indebtedness incurred in acquiring or improving a property,
indebtedness incurred before acquisition or improvement if such
indebtedness would not have occurred but for the acquisition or
improvement, and indebtedness incurred after acquisition or
improvement if reasonably foreseeable at the time of acquisition or
improvement. The General Partners anticipate that all properties will
be acquired with cash. There are no current plans to refinance
properties or to finance properties after they are acquired.
Therefore, the General Partners believe that Qualified Plans will not
be subject to UBTI under the Code because of investment in the Fund.
In considering an investment in the Fund of a portion of the assets of a
Qualified Plan, a fiduciary should consider (i) whether the investment
is in accordance with the documents and instruments governing the
Qualified Plan, (ii) whether the investment satisfies the
diversification requirements of Section404(a)(1)(C) of the Employee
Retirement Income Security Act of 1974 ("ERISA") and (iii) whether the
investment is prudent, since there will not be a market in which to
sell or otherwise dispose of the Units.
ERISA requires that the assets of a Qualified Plan be valued at their
fair market value at least annually. As of the close of each fiscal
year of the Fund, each Qualified Plan that is a Limited Partner will
be provided with an annual statement of estimated value of each Unit
based on the estimated value of the properties and other Fund assets.
2. Limitation on Investment Interest Deductions. The Code imposes
limitations with respect to the deduction of interest on investment
indebtedness. For individuals, the amount of investment interest (as
defined below) otherwise allowable as a deduction in any taxable year
will be limited to the amount of net investment income. Investment
interest is interest paid or accrued on indebtedness incurred or
continued to purchase or carry property held for investment. However,
interest on liabilities on Fund properties and on debt incurred to
acquire Units will not be considered "investment interest" under the
Code with respect to Limited Partners, but will be considered a
deduction attributable to a passive investment activity subject to the
passive loss limitations discussed below.
3. Deductibility of Interest Incurred to Purchase or Carry Tax-Exempt
Obligations. In the case of a Limited Partner who holds tax-exempt
securities and plans to borrow money to purchase his Units, it is
possible that the Service may seek to disallow the deductibility of
all or a portion of such investor's expenses incurred in connection
with such borrowing, claiming that the indebtedness was incurred to
"purchase or carry" tax-exempt securities under Section 265(2) of the
Code. Such risk would substantially increase for an investor whose
tax-exempt obligations were used as security for the debt incurred to
purchase Units.
</PAGE> 93
<PAGE>
4. Losses and Credits from Passive Activities. Under Section 469 of
the Code, losses from a "passive activity" are deductible only to the
extent of the income from such activity and other passive activities.
Passive activity losses that are not deductible because of inadequate
passive activity income are carried forward and become deductible
against future passive activity income or upon complete liquidation of
the taxpayer's interest in the activity. Credits from passive
activities are, in general, limited to the tax attributable to income
from passive activities. Passive activities include trade or business
activities in which the taxpayer does not materially participate and
presumptively include holders of a limited partnership interest such
as Units in the Fund. Accordingly, to the extent losses or deductions
from passive activities of the Fund, when combined with deductions
from all other passive activities of such Partner, exceed the
Partner's income from passive activities, the excess losses or
deductions will be suspended and carried forward to future years until
applied.
On final disposition of all of the Units held by a Limited Partner or
liquidation of the Fund, any losses attributable to the Fund not
previously deducted by the Limited Partner due to application of
Section 469 of the Code, together with any losses recognized as a
result of such final disposition or liquidation, will be allowed as a
deduction against income in the following order: (i) passive income
or gain from the Fund, (ii) net income or gain from all passive
activities and (iii) any other income or gain (subject to limitations
on the deductibility of capital items). But see "Income Tax Aspects--
Publicly Traded Partnerships."
Gross income from interest, dividends, annuities or royalties not
derived in the ordinary course of a trade or business, expenses
allocable to such gross income, and gain or loss attributable to the
disposition of property producing such gross income or property (other
than an interest in a passive activity) held for investment, are not
taken into account in computing income or loss from passive activity
but, instead, are considered "portfolio income items." If a limited
partnership holds assets producing portfolio income items in addition
to the assets used in its trade or business, the gross income (and
gain or loss) from and expenses allocable to such portfolio assets are
considered to arise from an activity which is separate from any
passive activity engaged in by the limited partnership. Also, that
portion of any gain from the sale of a partnership interest in such a
limited partnership will be considered a portfolio income item to the
extent the underlying partnership assets determined on an applicable
date generate portfolio income items. Income, gain or loss
attributable to an investment of working capital is treated as a
portfolio income item.
The taxpayer's net aggregate loss and net aggregate credit from passive
activities are to be allocated to activities, and within activities,
on a pro rata basis as prescribed by Treasury Regulations. Whether a
particular property constitutes a single activity or part of a larger
activity is relevant in determining the amount of suspended passive
losses (if any) for the activity and whether suspended passive losses
(if any) are deductible upon disposition of such property.
</PAGE> 94
<PAGE>
Under IRS regulations, the Fund will have some discretion as to whether
to treat each of the properties that it acquires and leases as a
separate "activity" for purposes of the passive activity loss rules,
or to aggregate some or all of its properties as a single "activity."
If the Fund chose to treat the operation of different properties as a
single activity, the Partners would be required to adopt the same
treatment on their own tax returns. The aggregation or separation of
the Fund's operations with respect to different properties as a single
"activity" or as multiple "activities" can have tax consequences to
the Partners when the Fund finally disposes of a property. Upon
complete disposition of an interest in a passive activity, previously
suspended passive losses attributable to that activity, as well as any
losses sustained from the operation of the activity during the year of
disposition and any loss realized on the disposition, can be used to
offset income from other sources, including non-passive income.
Because it is likely that the administrative burdens at the
partnership level and to Partners of accounting for each property
separately for tax purposes would be more costly than any tax
advantages, and because it is anticipated that the Fund will generate
net income against which losses can be offset, the General Partners do
not currently intend to treat each property as a separate entity. If
it appears more favorable in the future to account separately for
properties, the General Partners will take all steps possible to
obtain such treatment.
The Managing General Partner intends to conduct the Fund's affairs in a
manner so that a Limited Partner's distributive share of Fund income
derived from the Fund's real estate rental activities will constitute
passive activity income which may be utilized by such Limited Partner
as an offset against passive activity losses. In the opinion of
counsel for the Fund, and subject to Treasury Regulations which may be
adopted in the future, it is more likely than not that the real estate
rental activities of the Fund, from which the Fund does not derive the
equivalent of a guaranteed return or portfolio income or other item
not allocable thereto, will constitute passive activities with respect
to a Limited Partner, and therefore that a Limited Partner's
distributive share of Fund income or loss (computed without taking
into account portfolio income items and other non-passive activity
items, if any) will constitute income or loss from passive activities.
Interest income earned on the proceeds of the offering of Units prior
to the investment of such proceeds in real property and income (or
loss) attributable to working capital investments will be treated as
portfolio income items, and losses from passive activities will not
offset a Limited Partner's share of income derived from such portfolio
income items.
</PAGE> 95
<PAGE>
Investors should note that any passive activity income derived from
investment in the Fund may reduce a passive activity loss of an
investor which is an individual (or under certain circumstances an
estate) attributable to a rental real estate activity with respect to
which the individual actively participated that might otherwise be
deducted against non-passive activity income under a special rule
permitting qualified individuals (with adjusted gross income below a
specified level) to deduct up to $25,000 of losses from such rental
real estate activities. Furthermore, Section 469 of the Code provides
the Service with broad authority to prescribe regulations to carry out
the provisions of Section 469 in addition to those regulations
discussed above, and there can be no assurance as to the content of
any such regulations.
5. Individual and Corporate Tax Rates. For individuals, long-term
capital gains are subject to a maximum tax rate of 28% while ordinary
income is subject to a maximum effective rate of 39.6% (resulting from
a combination of a top marginal rate of 36% (applicable to taxable
income in excess of $147,700 for joint returns) and a 10% surtax
(applicable to taxable income in excess of $263,750 for joint
returns)). Effective tax rates may be slightly higher after phase-out
of personal exemptions and disallowance of itemized deductions for
higher-income taxpayers. The maximum rate on the taxable income of
corporations (including net capital gains) is 35%.
6. Minimum Tax. Taxpayers are subject to an "alternative minimum tax"
in addition to the regular income tax. The alternative minimum tax
for noncorporate taxpayers is the excess of (i) 26% of the first
$175,000 of the amount by which the alternative minimum taxable income
exceeds the applicable exemption amount ($45,000 for surviving spouses
and married persons filing joint returns, $33,750 in the case of
single taxpayers, and $22,500 in the case of estates, trusts, and
married taxpayers filing separate returns) plus 28% of the taxable
excess that is greater than $175,000, over (ii) the taxpayer's regular
federal income tax. For corporate taxpayers, the alternative minimum
tax is the excess of (i) 20% of the amount by which the alternative
minimum taxable income exceeds the exemption amount of $40,000, over
(ii) the corporation's regular federal income tax. Such exemption
amount is reduced by 25% of the amount by which alternative minimum
taxable income exceeds $150,000 (for corporations, surviving spouses
and married persons filing jointly), $112,500 (for single taxpayers)
and $75,000 (for estates, trusts and married taxpayers filing separate
returns).
Alternative minimum taxable income, generally, is the taxpayer's
adjusted gross income increased by the amount of tax preference items
and decreased by deductions for certain charitable contributions,
medical expenses, casualty losses, certain home mortgage interest, and
other interest expense to the extent of qualified net investment
income. Minimum tax paid with respect to certain preferences may be
carried forward indefinitely as a credit against regular tax
liability. Each Partner must include his allocable share of the
Fund's income and tax preference items in computing his alternative
minimum tax liability.
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Passive losses, such as operating losses from the Fund, if any, are not
allowed in determining alternative minimum taxable income to the
extent they exceed alternative minimum taxable income from passive
activities. In applying these limitations, minimum tax rules apply to
the measurement and allowability of all relevant items of income,
deduction and credit. The amount of any passive loss that is subject
to disallowance is determined after computing all preferences and
making all other adjustments to income that apply for minimum tax
purposes. Thus, the amount of suspended losses attributable to
passive activities may differ for minimum and regular tax purposes.
Prospective investors are urged to consult their tax advisors with
respect to the effect of the alternative minimum tax on their specific
situations.
7. Activities Not Engaged in for Profit. Section 183 of the Code
provides that certain deductions attributable to any activity not
engaged in for profit will be disallowed to the extent that such
claimed deductions exceed the gross income from the activity. This
section does not limit the deductibility of expenses that would be
allowable without regard to whether the activity is engaged in for
profit, such as real estate taxes and certain amounts of interest. If
the gross income from an activity for two or more of five consecutive
years exceeds the deductions attributable to such activity, then such
activity shall be presumed to be an activity engaged in for profit
unless the Service establishes otherwise. Where the deductions
claimed exceed the gross income (which may be the case in the Fund's
first several years) for more than two of five taxable years, there is
a possibility that the Service will claim that the activity was not
engaged in for profit and, therefore, will limit the amount of the
deduction allowed. The provisions of Section 183 may be applied by
the Service to Limited Partners individually, even though the Fund may
be considered to have the requisite profit objective. If such a
position was asserted successfully against either the Fund or an
individual Limited Partner, a significant advantage of investing in
the Fund would be lost.
In determining whether an activity is engaged in for profit, Treas. Reg.
1.183-2 provides that the Service will consider objective standards,
taking into account all the facts and circumstances of each case.
Included among the factors that are normally taken into account in
making such determination are an indication that the taxpayer carried
on the activity as a business, the expectation that assets used in the
activity may appreciate in value, the financial status of the
taxpayer, and the absence of elements of personal pleasure or
recreation. In the past the Service has applied Section 183 primarily
to investment in activities that have elements of personal benefit or
recreation, such as hobby farms or vacation homes, and tax shelters
that have very substantial tax benefits combined with little
likelihood of any economic return other than those benefits. The Fund
does not appear to fall within any of those categories. Counsel for
the Fund has expressed no opinion with respect to this issue because
of the inherently factual nature of the issues involved in proposed
operations of the Fund, and because the individual circumstances and
judgment of each Limited Partner are essential determinants.
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8. Foreign Investors. Although this discussion is not intended to
describe foreign or federal tax consequences of an investment in the
Fund by foreign investors, it should be noted that the Foreign
Investment in Real Property Tax Act of 1980 ("FIRPTA") taxes
nonresident aliens and foreign corporations on gains from the
disposition of United States real property interests as if such
taxpayers were engaged in a trade or business in the United States.
If the Fund disposes of properties or if a foreign Limited Partner
disposes of an interest in the Fund, the foreign Limited Partner may
be subject to tax and withholding as a result of the disposition.
The Technical and Miscellaneous Revenue Act of 1988 amended the
provision of the Code dealing with a partnership's withholding
requirements with respect to foreign partners. The required
withholding is now based on amounts of income allocable to foreign
partners, rather than amounts actually distributed to them.
Furthermore, the rates of withholding are now 35% of the amount of
income allocable to a foreign partner that is a corporation and 39.6%
of the amount of income allocable to any other foreign partner. The
Fund is obliged to make estimated quarterly withholding payments based
on annualized taxable income.
9. Carryover Basis and Estate Planning Considerations. The tax basis
of inherited property is its fair market value at the date of death
(or the date of alternate valuation if that date is elected for estate
tax return purposes). The fair market value of a Limited Partner's
Units will be includable in his gross estate for federal estate tax
purposes and could cause estate tax to be paid even though the Units
are illiquid assets that may not be able to be sold to generate cash
to pay such estate tax. Each prospective investor should consult with
his personal tax advisers concerning the impact of an investment in a
Unit on his personal estate planning.
State Income Taxes
This Prospectus does not summarize the state income tax consequences of
owning a Unit in the various states in which investors may reside or
of owning property in the various states in which the Fund may acquire
properties. An investor is advised to consult with his own tax
counsel as to the state income tax consequences in his particular
state of residence.
The foregoing discussion is general in nature and by no means is
intended to cover all of the tax issues that might affect any
investment in the Fund. IN VIEW OF THE COMPLEXITY OF THE TAX ASPECTS
OF THE OFFERING, PARTICULARLY IN LIGHT OF CHANGES IN THE LAW AND THE
FACT THAT CERTAIN OF THE TAX ASPECTS OF THE OFFERING WILL NOT BE THE
SAME FOR ALL INVESTORS, PROSPECTIVE INVESTORS ARE STRONGLY ADVISED TO
CONSULT THEIR TAX ADVISERS WITH SPECIFIC REFERENCE TO THEIR OWN TAX
SITUATION PRIOR TO INVESTMENT IN THE FUND.
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RESTRICTIONS ON TRANSFER
It is anticipated that there will never be a public market for the Units
and, therefore, a Limited Partner should not expect to readily
liquidate his investment or to use the Units as collateral for a loan.
If a Limited Partner wishes to transfer his Units, or any portion
thereof, he or she might not be able to find a buyer for such Units
due to market conditions or the general illiquidity of the Units.
Moreover, if a Limited Partner was able to sell his Units, depending
upon the price he or she negotiated, he or she might receive less than
the amount of his original investment. No representation is made that
the Units could be resold for their original purchase price.
The Partnership Agreement allows transfers, other than Permitted
Transfers, only to the extent that they comply with certain safe
harbors created by the Service from treatment as a "publicly traded
partnership" for tax purposes. See "Income Tax Aspects--Publicly
Traded Partnerships." Counsel for the Fund has advised the General
Partners that such limitations are necessary to fall within the safe
harbor provisions from treatment as a publicly traded partnership for
tax purposes.
Under presently applicable "Blue Sky" guidelines, except in the case of
a transfer by gift, inheritance, intra-family transfer, or marital
dissolution, each transferee of Units must generally satisfy minimum
investment and investor suitability standards similar to those that
were applicable to the original offering of Units, and following a
transfer of less than all his Units, each transferor must retain a
sufficient number of Units to satisfy the minimum investment standards
applicable to his initial purchase of Units. Pursuant to the Limited
Partnership Agreement, any substituted Limited Partner must, as a
condition of receiving any interest in the Fund, agree in the
instrument of assignment to become a Limited Partner and pay
reasonable legal fees and filing costs in connection with his
substitution as a Limited Partner. Transfer of Units will be
recognized by the Fund only as of the last day of the month in which
written evidence respecting the assignment is received by the Fund in
form satisfactory to the General Partners.
SUMMARY OF RESTATED PARTNERSHIP AGREEMENT
The Partnership Agreement to be executed by each investor pursuant to a
power of attorney is included as Exhibit A hereto and it is
recommended that each prospective investor and his advisors carefully
review the entire document. The following summarizes certain
provisions of the Partnership Agreement. All statements made below
and elsewhere in this Prospectus relating to the Partnership Agreement
are qualified in their entirety by reference to the Partnership
Agreement.
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Certain provisions of the Partnership Agreement are described in other
sections of this Prospectus. For a discussion of compensation and
payments to the General Partners and their Affiliates, see
"Compensation to General Partners and Affiliates"; for a discussion of
the distribution of cash by the Fund and the allocation of profits and
losses for tax purposes, see "Cash Distributions and Tax Allocations";
for a discussion of the Fund's investment objectives and policies, see
"Investment Objectives and Policies"; for a discussion of the
liability of the General Partners to the Fund for their acts or
omissions and of the indemnification of the General Partners by the
Fund, see "General Partners--Fiduciary Responsibility"; for a
discussion of the reports to be received by the Limited Partners from
the Fund, see "Reports to Limited Partners."
Term and Dissolution
The Partnership Agreement provides that the Fund will be dissolved and
liquidated on December 31, 2046, or upon the election of Limited
Partners holding a majority of the Units, the sale or disposition of
the final partnership asset, the final decree of a court that such
dissolution is required under law, or in the event that the General
Partners withdraw without a successor either being appointed by the
withdrawing General Partners or being elected by Limited Partners
holding a majority of the Units.
Return of Capital
Prior to the dissolution and subsequent liquidation of the Fund, no
Limited Partner will have the right to demand the return of his
capital contribution except in the event the Fund is unable to fully
utilize the offering proceeds, either by purchasing properties or
through joint ventures with other similar Funds, or in the event the
Fund agrees to repurchase such Partner's Units.
Repurchase of Units
Commencing in 1998, and subject to certain conditions discussed in the
Partnership Agreement, the Fund will repurchase a Limited Partner's
Unit(s) upon the written request of the Limited Partner. During 1998
and 1999 the repurchase price will be equal to 80% of the tendering
Limited Partner's Adjusted Capital Contribution. Starting in 2000 and
in each year thereafter the repurchase price will be equal to the 90%
of the net value of the Fund's assets, as estimated by the General
Partner, divided by the number of Units outstanding. For such
purposes, the General Partner will base the net value of the Fund's
assets on the discounted present value of the rental income from Fund
properties, on the most recent price at which Units have been
purchased by third parties, or such other method as it believes is
reasonable. Commencing in the year 2000, the General Partners will
calculate and make available to Limited Partners on the first business
day of January and July of each year the price at which Units may be
presented for repurchase. The Fund's obligation to repurchase Unit(s)
is limited in any year to five percent of the number of Units
outstanding at the beginning of the year of repurchase.
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Limited Partners will be allowed to present their Units for repurchase
during two different periods in each year. Limited Partners desiring
to have their Units repurchased will be required to submit to the
Managing General Partner notification on a form supplied by the
Managing General Partner of the number of Units for which they are
requesting repurchase. The notification must be postmarked after
January 1 but before January 31, or after July 1 but before July 31 of
the year of repurchase. If Units totaling more than five percent are
tendered, repurchase requests with the earliest postmarks will be
honored first. Units will be repurchased on March 31 and September 30
of each year and any Limited Partner who tenders Units that are not
repurchased must retender the Units in succeeding periods if he or she
wants the request reconsidered. The Fund is not obligated to
repurchase any Unit(s) if doing so would, in the discretion of the
General Partners, impair the Fund's ability to continue operations.
Repurchases will be funded out of either (i) Fund revenues otherwise
distributable to Limited Partners or (ii) Fund borrowings. No
assurances can be given that such revenues or borrowings will be
available or that the Fund will be able to repurchase any or all of
the Units tendered. A repurchase will result in less Net Cash Flow or
Net Proceeds of Sale being distributed to remaining Limited Partners
in the year of repurchase, but will not result in a reduction of
taxable income or gains to such Limited Partners. In addition, a
repurchase may result in certain adverse tax consequences to the
tendering Limited Partner. See "Income Tax Aspects--Sale of Units."
Distribution Reinvestment Plan
The General Partners have established a Distribution Reinvestment Plan
(the "Plan") to enable Limited Partners who so elect in writing
("Participants") to have their distributions of Net Cash Flow
("Distributions") from the Fund reinvested in additional Units of the
Fund during the period of the offering pursuant to this Prospectus.
The General Partners, in their discretion, may determine not to
provide such a reinvestment plan or to terminate the Plan at any time.
The Plan provides for the direct purchase by the reinvesting Limited
Partner of Units at the public offering price per Unit ($1,000).
No Distributions accrued to a Participant prior to release of funds from
escrow and execution of the Restated Limited Partnership Agreement
will be reinvested in the Plan. Instead, such Distributions will be
distributed in cash to Participants.
All other Distributions to Participants will be reinvested promptly, but
in any event within 30 days after the date of the Distribution, in
additional Units or fractional Units at the public offering price per
Unit ($1,000), provided that:
(1) the sale of Units continues to be registered or qualified for sale
under federal and applicable state securities laws;
(2) each continuing Participant has received a current prospectus
relating to the Fund, including any supplements thereto, and executed
a confirmation within one year of such reinvestment indicating such
Participant's intention to purchase units in the Fund and confirming
that the Participant continues to satisfy the investor suitability
requirements; and
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(3) there has been no distribution of Net Proceeds of Sale or
Refinancing.
The Plan will terminate upon completion of the public offering of the Units
pursuant to this Prospectus. If at any time one of the requirements
set forth above is not satisfied, Distributions will be paid in cash
to Participants as of the Distribution date.
EACH LIMITED PARTNER PARTICIPATING IN THE PLAN AGREES THAT, IF AT ANY TIME
SUCH LIMITED PARTNER FAILS TO MEET THE FUND's INVESTMENT SUITABILITY
STANDARDS OR CANNOT MAKE THE OTHER INVESTOR REPRESENTATIONS OR
WARRANTIES SET FORTH IN THE THEN CURRENT FUND PROSPECTUS, THE
SUBSCRIPTION AGREEMENT, OR THE PARTNERSHIP AGREEMENT RELATING THERETO,
HE OR SHE WILL PROMPTLY NOTIFY THE GENERAL PARTNERS IN WRITING.
Investors should note that affirmative action is required to change or
withdraw from participation in the Plan. Change in or withdrawal from
participation in the Plan shall be effective only with respect to
distributions made 30 days following receipt by the General Partners
of written notice of such change or withdrawal. In the event a
Limited Partner transfers his or her Units, such transfer will
terminate such Limited Partner's participation in the Plan as of the
first day of the quarter in which such transfer is effective.
Selling commissions may be paid by the Fund in amounts not to exceed
eight percent with respect to any Units purchased with reinvested
Distributions. Each Participant is permitted to identify, change or
eliminate the name of his or her account executive at a participating
dealer. Identification of such account executive may be changed or
eliminated for subsequent Distributions. In the event no account
executive is identified, or in the event that the account executive is
not employed by a broker-dealer having a dealer agreement with the
Fund or a subsequent partnership, no selling commission will be paid
with respect to Distributions which are then reinvested, and the Fund
will retain for additional investment in real estate any amounts
otherwise payable as commissions. All holders of Units, based on the
number of Units outstanding, will receive the benefit of the savings
realized by the Fund from investors who do not identify account
executives.
No reinvestment fee or charge will be offset against any reinvested
distributions pursuant to the Plan. The cost of administering the
Plan will be considered an organization and offering cost of the Fund
and the actual cost of administering such Plan may be reimbursed to
the General Partners in accordance with the limitations on
reimbursements for Organization and Offering Expenses.
Following each reinvestment pursuant to the Plan, each Participant will
be sent a statement showing the distributions received and the number
and price of Units issued to such Participant. TAXABLE PARTICIPANTS
WILL INCUR TAX LIABILITY FOR FUND INCOME ALLOCATED TO THEM EVEN THOUGH
THEY HAVE ELECTED NOT TO RECEIVE THEIR DISTRIBUTIONS IN CASH BUT
RATHER TO HAVE THEIR DISTRIBUTIONS REINVESTED IN UNITS OR IN INTERESTS
IN A SUBSEQUENT PARTNERSHIP.
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The Fund reserves the right to amend any aspect of the Plan, or to
terminate the Plan, with respect to any Distribution subsequent to
notice of such amendment or termination, provided that notice is sent
to all Participants at least 10 days prior to the record date for the
Distribution. The General Partners also reserve the right to assign
the administrative duties of the Plan to a reinvestment agent who may
hold Units on behalf of participants, provide reports to Participants,
and satisfy other record keeping requirements.
Limited Partners may also be given the opportunity to reinvest
distributions from the Fund in interests of a limited partnership
having substantially identical investment objectives as the Fund, if
affiliates of the General Partners publicly offer such limited
partnership interests after the termination of the offering of Units
pursuant to this Prospectus. Limited Partners would be allowed to
reinvest distributions from the Fund in a subsequent limited
partnership only if (i) the subsequent program is registered under
federal and applicable state securities laws, (ii) the subsequent
program has substantially identical investment objectives, (iii)
reinvesting limited partners are afforded the revocation rights
described above with respect to such reinvestments and the payment of
commissions on such reinvestments, and (iv) each participating Limited
Partner receives the prospectus relating to such subsequent program
and satisfies the investment qualifications, including minimum
investment requirements, for such subsequent offering.
Nothing herein shall be construed as obligating the General Partners or
any Affiliate to continue the offering of Units or to offer units in
any subsequent real estate limited partnerships or permit reinvestment
therein.
Liabilities of Limited Partners
Unless he or she takes part in the management or control of the Fund, no
Limited Partner will be liable for any obligations of the Fund in
excess of the capital contribution he has agreed in the Partnership
Agreement to make by signing a Subscription Agreement plus his share
of undistributed net income; except that a Limited Partner receiving a
return of his capital contribution will be liable to the Fund, for a
period of one year if such capital contribution was returned in
accordance with the Limited Partnership Agreement and for a period of
six years if it was not, for any sum, not in excess of such returned
capital contribution with interest, necessary to discharge the
liabilities to all creditors who extended credit, or whose claims
arose, before such capital contribution was returned. Limited
Partners will not have the right to a return of their capital
contributions except in accordance with the distribution and
repurchase provisions of the Partnership Agreement.
Rights, Power and Duties of the General Partners
The General Partners will have the exclusive right to manage the
business of the Fund. The General Partners will be responsible for
the selection, acquisition, sale, financing, refinancing and leasing
of the properties. The rights, powers and duties of the General
Partners may be delegated or contracted to an Affiliate of the General
Partners at Cost. AEI Fund Management XXI, Inc. will initially serve
as Managing General Partner.
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Withdrawal or Removal of a General Partner
Neither of the General Partners may withdraw from the Fund without
providing a substitute General Partner to the Fund. Any substitute
General Partner must be accepted by the vote of a majority, by
interest, of the Limited Partners at a special meeting called by the
Managing General Partner for such purpose. A General Partner shall be
expelled or replaced upon its bankruptcy or insolvency or upon a
finding of fraud or breach of its management duties or upon the vote
of a majority, by interest, of the Limited Partners at a special
meeting called for the purpose of replacing such General Partner.
Substituted Limited Partners; Assignees
No Limited Partner will have the right to substitute a Limited Partner
in his place unless such substituted Limited Partner has agreed in the
instrument of assignment to become a Limited Partner and has paid all
expenses in connection with admission as a substituted Limited
Partner. An assignee who does not become a substitute Limited Partner
as provided above will only have the right to receive the
distributions of the Fund to which the assigning Limited Partner would
have been entitled if no such assignment had been made. Such assignee
will have no right to require any information or account of the Fund's
transactions or to inspect the Fund's books.
Appointment of General Partners as Attorneys-in-Fact
Each Limited Partner will irrevocably constitute and appoint the General
Partners, and each of them individually, to be his true and lawful
attorney-in-fact, with full power to execute such documents as may be
necessary or appropriate to carry out the provisions of the
Partnership Agreement.
Amendments
Partners holding a majority of the Units may amend the Partnership
Agreement. Any amendment will not, without the consent of the General
Partners, alter the allocation of economic interests to the Partners
or alter the allocation of management responsibilities and control.
Meetings
No regular or periodic meeting of the Fund is required or contemplated.
Upon delivery of proper notification, the General Partners may at any
time call a meeting of the Limited Partners. In addition, Limited
Partners holding at least 10% of the Units may cause the General
Partners to call a meeting.
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Roll-ups
The Partnership Agreement prohibits certain transactions in which Units
are required to be exchanged for securities of another entity (as
defined in the Partnership Agreement as a "Roll-Up") unless certain
rights of the limited partners are maintained in the Roll-Up Entity
and unless a vote of the majority of the Limited Partners is obtained.
The Partnership Agreement defines a Roll-Up to include certain
transactions involving the acquisition, merger, conversion, or
consolidation, either directly or indirectly, of the Fund and the
issuance of securities from another entity. This definition comports
with requirements under certain state securities laws but differs
slightly from definitions used by the Securities and Exchange
Commission ("SEC") and may differ from definitions contained in rules
or legislation promulgated in the future. The determination of
whether a transaction constitutes a Roll-Up will, in the first
instance, be made by the General Partners.
The Partnership Agreement provides, in material part, that the Fund may
not participate in any Roll-Up which would reduce the democracy rights
of Limited Partners, which would impede the ability of the equity
owners of the resulting entity to purchase the securities of that
entity, which would limit the voting rights of the Limited Partners as
equity owners of the resulting entity, which would limit rights to
access to records of the resulting entity, or which would provide,
without the consent of Limited Partners, that the costs of the Roll-Up
are to be borne by the Fund. Further, the Partnership Agreement
requires the Fund to obtain an appraisal by a competent independent
expert of its assets, based on all available information and assuming
an orderly liquidation of the Fund's assets, in connection with any
Roll-Up and to provide a summary of that appraisal to Limited
Partners. If the appraisal is included in a prospectus to offer
securities of the Roll-Up Entity, it must be filed with applicable
securities authorities and the Fund will have liability for
misrepresentations or omissions therein.
Any Roll-Up requires the vote of holders of not less than a majority of
the Units. The Partnership Agreement provides that a Limited Partner
who votes against the amendments must be given the option of (a)
accepting securities in the Roll-Up Entity or (b) one of (i) cash for
such Limited Partner's Units at the pro rata appraised value of the
assets or (ii) retention of such Limited Partner's interest in the
Fund on the same terms and conditions as existed previously.
REPORTS TO LIMITED PARTNERS
The books and records of the Fund will be maintained at the principal
offices of the Fund and will be open for examination and inspection by
the Partners or by their duly authorized representatives during
reasonable business hours. The Fund will furnish a list of names and
addresses of, and number of Units held by, all Partners to any
Partners who request such a list in writing, with costs of
photocopying and postage to be borne by the requesting Partners. The
assignee of a Partner does not have a right to receive any reports
unless such assignee is admitted to the Fund as a substitute partner
in accordance with the Limited Partnership Agreement.
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The General Partners will distribute to each Partner, within 75 days
after the close of each taxable year of the Fund, all partnership
information necessary for the preparation of Partners' federal income
tax returns. A separate report will be issued, solely for purposes of
asset evaluation by certain Qualified Plans, that will contain the
General Partners' estimate of the fair market value of the Units.
The General Partners will also distribute to the Partners, within 120
days after the end of each fiscal year, an annual report containing a
balance sheet and statements of operations, changes in partners'
equity and cash flows (which will be prepared on a GAAP basis of
accounting and will be examined and reported upon by an independent
public accountant) and a report of the Fund's activities during the
period reported upon. Such annual report will describe all
reimbursements to the General Partners and their Affiliates and all
distributions to Partners, including the source of such payments.
The General Partners will also distribute to the Partners, within 60
days after the end of each quarter, a report containing a condensed
balance sheet, condensed statements of operation, and a related cash
flow statement, together with a detailed statement describing all real
properties acquired (including the geographic locale and the plan of
operation, the appraised value and purchase price and all other
material information), setting forth all fees, if any, received by the
General Partners or their Affiliates and describing the services
rendered for such fees.
Finally, when and if required by applicable SEC rules, the Fund will
make available to Limited Partners, upon request, the information set
forth in SEC Form 10-Q within 45 days after the close of each quarter
and SEC Form 10-K within 90 days after the close of each fiscal year.
The General Partners are permitted to combine such reports so long as
they are distributed in a timely manner.
PLAN OF DISTRIBUTION
The Fund is offering, through AEI Incorporated, as Dealer-Manager,
$24,000,000 of its limited partnership interests in the form of 24,000
Units of $1,000 each (the "Units"). The minimum investment required
of each investor is two and one-half Units ($2,500), except that an
Individual Retirement Account, Keogh Plan or other Qualified Plan will
be permitted (subject to the requirements of certain states--see
Exhibit C) to purchase two Units ($2,000). The offering period will
commence on the date hereof. No Units will be sold unless the Fund
receives subscriptions for at least 1,500 Units by the date one year
after the date of this Prospectus.
Each investor purchasing Units will be required to accept and adopt the
provisions of the Partnership Agreement attached to this Prospectus as
Exhibit A and to complete and execute a Subscription Agreement, which
includes a power of attorney (Exhibit D). At the time the prospective
investor submits such Subscription Agreement, he or she must tender a
check to the Fund in the amount of $1,000 for each Unit being
purchased. Checks should be made payable to "Fidelity Bank--AEI Real
Estate Escrow." Units will only be sold to an investor who represents
in writing that, at the time the investor executes the Subscription
Agreement, he or she meets the applicable suitability requirements.
See "Who May Invest."
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All funds received from subscribers will be deposited in an escrow
account with the Fidelity Bank, Edina, Minnesota until $1,500,000 has
been deposited therein. In the event the required $1,500,000 has not
been deposited by the date one year after the date of this Prospectus,
all subscriptions will be canceled and all funds will be promptly
returned to investors with interest actually earned thereon and
without any deduction therefrom. Under the terms of the escrow
agreement, a subscriber may not withdraw his funds from the escrow
account. When subscriptions for the minimum number of Units have been
received, the General Partners may remove funds from escrow and
instruct the escrow agent to pay accrued selling commissions. Upon
admission to the Fund, each investor will receive his pro rata share
of any interest earned on escrowed funds based on the date of deposit
of his subscription payment. Escrow funds will be invested in insured
deposits with a financial institution and will earn interest at short-
term deposit rates. Following first admission, the Fund will admit
additional investors as Limited Partners on or before the first
business day of each month until the termination of the offering.
Only subscribers whose subscriptions have been received and accepted
at least three days prior to each admittance date will be admitted as
Limited Partners on such date.
The General Partners have complete discretion to reject any subscription
agreement executed by any investor within thirty days of its
submission and funds from a rejected subscriber will be returned
within 10 days thereafter. It is anticipated that subscriptions would
be rejected for an investor's failure to meet the suitability
requirements, an over-subscription of the offering, or for other
reasons determined to be in the best interest of the Fund.
The Units are being offered on a "best efforts" basis by AEI
Incorporated (an Affiliate of the General Partners) as Dealer-Manager
and by other selected broker-dealers that are members of the National
Association of Securities Dealers, Inc. and that enter into
Participating Dealer Agreements. Participating Dealers in the
offering will offer and sell Units in the Fund on the same terms and
conditions as the Dealer-Manager. Subject to the volume discounts
described below, the Dealer-Manager will receive selling commissions
and a nonaccountable expense allowance totalling to 10% of the gross
proceeds from the sale of Units, all or a portion of which will be
reallowed to Participating Dealers. The Dealer-Manager may also
receive up to 1/2 of 1% of the gross offering proceeds for the
reimbursement of bona fide due diligence expenses of the Participating
Dealers, all of which will be paid by the Dealer-Manager to such
Participating Dealers.
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<PAGE>
A registered principal or representative of the Dealer-Manager, or a
Participating Dealer, may purchase Units net of commissions at $920
per Unit. In addition, the selling commission and accountable expense
allowance payable to the Dealer-Manager, any portion of which may
reallowed to Participating Dealers, will be reduced on sales of 250 or
more Units in accordance with the following schedule:
Investor's Commissions and Expense
Purchase Price Allowance Per Unit
Dollar Amount Purchased Per Unit Percent Dollar Amount
$1,000 - $250,000 $1,000 10.0% $100.00
$250,001 - $500,000 $ 990 9.0% $ 90.00
$500,001 - $750,000 $ 980 8.0% $ 80.00
$750,001 - $1,000,000 $ 970 7.0% $ 70.00
$1,000,001 and above $ 960 6.0% $ 60.00
The purchaser of such Units will be credited with such reduced commission
and the net proceeds to the Fund will not be affected by the discount.
Subscriptions may be combined for the purpose of determining the
volume discount applicable to subscriptions from a "purchaser."
"Purchaser" for purposes of these discounts is defined in section 6.12
of the Partnership Agreement. Units may be purchased by the General
Partner or its Affiliates. Any such purchases will be for investment
and not for distribution and no such purchases will be included in
subscriptions received for purposes of calculating the minimum number
of Units which must be sold.
The Participating Dealers and their controlling persons, will be
indemnified by the General Partners against certain liabilities,
including liabilities under the Securities Act of 1933. As of the
date hereof, no broker-dealers have entered into a Participating
Dealer Agreement. The General Partners will receive reimbursement of
certain expenses incurred by them in connection with the supervision
and monitoring of the organizational and pre-sale activities of the
Fund.
SALES MATERIALS
Sales material may be used in connection with this offering only when
accompanied or preceded by the delivery of this Prospectus. The only
written sales material that may be disseminated to prospective
investors is a brochure prepared by the General Partners describing
the Fund and its proposed activities and a brochure attached to a
folder in which this Prospectus will be placed. In certain states
such sales material may not be available. In addition, audio-visual
materials may be used in connection with this offering in certain
states. With the aforementioned exceptions, sales materials have not
been authorized for use by the General Partners and should be
disregarded.
The offering is made only by means of this Prospectus. Although the
information contained in the supplemental sales material does not
conflict with the information contained in this Prospectus, such sales
material does not purport to be complete and should not be considered
part of this Prospectus or as forming the basis of the offering of the
Units.
</PAGE> 108
<PAGE>
LEGAL PROCEEDINGS
Neither the Fund nor the General Partners are parties to any pending
legal proceedings that are material to the Fund. Neither AEI Fund
Management XXI, Inc. nor Robert P. Johnson, who is the general partner
of other investment programs (see "General Partners"), is an adverse
party in any legal proceedings with limited partners in such other
limited partnerships.
EXPERTS
The balance sheets of AEI Income & Growth Fund XXII Limited
Partnership and AEI Fund Management XXI, Inc. as of July 31, 1996 and
December 31, 1995, respectively, included in this Prospectus have been
examined by Boulay, Heutmaker, Zibell & Co., P.L.L.P., independent
public accountants, as indicated in their report with respect thereto,
and are included herein in reliance on the authority of said firm as
experts in giving such report.
The statements concerning federal taxes under the headings "Income Tax
Aspects" and "Risks and Other Important Factors" have been reviewed by
Dorsey & Whitney LLP, counsel for the Fund, and have been included
herein, to the extent they constitute matters of law, in reliance upon
the authority of said firm as experts thereon. Counsel for the Fund
believes that such material constitutes a full and fair general
disclosure of the material tax risks associated with an investment in
the Units.
LEGAL OPINION
The legality of the Units being offered hereby will be passed upon
for the Fund by its counsel, Dorsey & Whitney LLP.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED
IN THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR
SOLICITATION IN ANY STATE OR OTHER JURISDICTION TO ANY PERSON TO WHOM
IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE FUND'S AFFAIRS SINCE THE DATE HEREOF. IF, HOWEVER, ANY MATERIAL
CHANGE IN THE FUND'S AFFAIRS OCCURS AT ANY TIME WHEN THIS PROSPECTUS
IS REQUIRED TO BE DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR
SUPPLEMENTED ACCORDINGLY.
</PAGE> 109
<PAGE>
TABLE OF CONTENTS
SUMMARY OF THE OFFERING
WHO MAY INVEST
RISK FACTORS
CAPITALIZATION
ESTIMATED USE OF PROCEEDS
INVESTMENT OBJECTIVES AND POLICIES
PROPERTIES
GENERAL PARTNERS
PRIOR PERFORMANCE
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES
CONFLICTS OF INTEREST
CASH DISTRIBUTIONS AND TAX ALLOCATIONS
INCOME TAX ASPECTS
RESTRICTIONS ON TRANSFER
SUMMARY OF RESTATED PARTNERSHIP AGREEMENT
REPORTS TO LIMITED PARTNERS
PLAN OF DISTRIBUTION
SALES MATERIALS
LEGAL PROCEEDINGS
EXPERTS
LEGAL OPINION
FINANCIAL STATEMENTS
Limited Partnership Agreement Exhibit A
Prior Performance Tables Exhibit B
Certain State Suitability Requirements Exhibit C
Subscription Agreement Exhibit D
PROSPECTIVE INVESTORS ARE NOT TO CONSTRUE THE CONTENTS OF THIS PROSPECTUS
AS LEGAL OR TAX ADVICE. EACH PROSPECTIVE INVESTOR SHOULD CONSULT HIS
OR HER OWN COUNSEL, ACCOUNTANT AND OTHER FINANCIAL ADVISORS (AND BE
RESPONSIBLE FOR THEIR FEES) REGARDING THE LEGAL, TAX AND INVESTMENT
ASPECTS OF THIS OFFERING.
</PAGE> 110
<PAGE>
24,000 Units
AEI INCOME & GROWTH
FUND XXII
Limited Partnership
PROSPECTUS
AEI Incorporated
</PAGE> 111
<PAGE>
EXHIBIT A
RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
TABLE OF CONTENTS
Article
I. Formation of Partnership
II. Definitions
III. Purpose and Character of Business
IV. Capital
V. Allocation of Profits, Gains and Losses; Distributions to Partners
VI. Rights, Powers and Duties of General Partners
VII. Provisions Applicable to Limited Partners
VIII. Books of Account; Reports and Fiscal Matters
IX. Assignment of Limited Partner's Interest
X. Death Withdrawal, Expulsion and Replacement of the General Partners
XI. Amendment of Agreement and Meetings
XII. Dissolution and Liquidation
XIII. Miscellaneous Provisions
</PAGE> 112
<PAGE>
RESTATED
LIMITED PARTNERSHIP AGREEMENT
OF
AEI INCOME & GROWTH FUND XXII LIMITED PARTNERSHIP
THIS RESTATED LIMITED PARTNERSHIP AGREEMENT is entered into
as of this day of , 1996, by and among AEI Fund
Management XXI, Inc. (the "Managing General Partner"), a Minnesota
corporation, RobertP. Johnson (the "Individual General Partner"),
and all other parties comprising the Limited Partners, who shall
execute this agreement and whose addresses appear at the end of
this agreement.
I. Formation of the Partnership
The parties hereto do hereby confirm the formation of a
limited partnership (the "Partnership") pursuant to the provisions
of the Minnesota Revised Uniform Limited Partnership Act, as
codified in Chapter 322A, Minnesota Statutes (the "Limited
Partnership Act") by the filing of a Certificate of Limited
Partnership on July 31, 1996 and agree that such Partnership shall
be governed by the terms of this Agreement. The parties agree
that they shall promptly file any additional or supplemental
amended certificates of limited partnership that may be required
in the appropriate office in the State of Minnesota and in such
other offices as may be required, and that the parties shall
comply with the other provisions and requirements of the Limited
Partnership Act as in effect in Minnesota, which Act shall govern
the rights and liabilities of the Partners, except as herein or
otherwise expressly stated.
1.1 Name. The business of the Partnership is conducted
under the firm name and style of: AEI INCOME & GROWTH FUND XXII
LIMITED PARTNERSHIP.
1.2 Principal Place of Business/Agent for Service. The
agent for service of process is the Individual General Partner.
The location of the principal place of business, principal office
and agent for service of process of the Partnership shall be at
the offices of the Managing General Partner, 1300 Minnesota World
Trade Center, 30 East Seventh Street, Saint Paul, Minnesota 55101.
The Partnership may also maintain offices at such other place of
business as the Managing General Partner may from time to time
determine.
1.3 Names and Addresses. The name and address of the
Managing General Partner is AEI Fund Management XXI, Inc., 1300
Minnesota World Trade Center, 30 East Seventh Street, Saint Paul,
Minnesota 55101. The name and address of the Individual General
Partner is Robert P. Johnson, 1300 Minnesota World Trade Center,
30 East Seventh Street, Saint Paul, Minnesota 55101. The names
and addresses of the Limited Partners are set forth on Schedule A
at the end of this agreement.
</PAGE> 113
<PAGE>
1.4 Term. The Partnership shall commence business on the
date hereof, and shall continue until December31, 2046, unless
dissolved, terminated and liquidated prior thereto under the
provisions of Article XIII.
II. Definitions
As used in this agreement, the following terms shall have the
following meanings:
2.1 "Acquisition Expenses" means expenses including, but not
limited to, legal fees and expenses, travel and communication
expenses, costs of appraisals, non-refundable option payments on
properties not acquired, accounting fees and expenses, title
insurance and miscellaneous expenses related to selection and
acquisition of properties, whether or not acquired.
2.2 "Acquisition Fees" means the total of all fees and
commissions paid by any party in connection with making or
investing in mortgage loans or the purchase, development or
construction of Properties, whether designated as a real estate
commission relating to the purchase of Properties, selection fee,
Development Fee, Construction Fee, nonrecurring management fee,
loan fees or points paid by borrowers to the General Partner if
the Partnership invests in mortgage loans, or any fee of a similar
nature, however designated or however treated for tax or
accounting purposes. Acquisition Fees shall not include
Development Fees and Construction Fees paid to any person or
entity not Affiliates of the General Partners in connection with
the actual development and construction of a project.
2.3 "Adjusted Capital Contributions" means the aggregate
original capital contribution of a Limited Partner reduced, from
time to time, by (i) any return of capital contributions pursuant
to Section 4.5, and (ii) to the extent the Partnership has paid a
cumulative (but not compounded) 6% per annum return on Adjusted
Capital Contributions, by total cash distributed from Net Proceeds
of Sale with respect to the Units; and increased from time to time
by the product of (i) the Adjusted Capital Contribution of any
Limited Partner whose Units are repurchased and (ii) the ratio of
each remaining Limited Partner's Units to the total Units
outstanding after such repurchase. Adjusted Capital Contributions
shall not be reduced by distributions of Net Cash Flow.
</PAGE> 114
<PAGE>
2.4 "Administrative Expenses" means expenses incurred by the
General Partners and their Affiliates during the operation of the
Partnership directly attributable to rendering the following
services to the Partnership: (i) administering the Partnership
(including agency type services, partner relations and
communications, financial and tax reporting , accounting and
payment of accounts, payment of distributions, payment of unit
redemptions, staffing and processing other investor requests);
(ii) property management (including collecting, depositing and
monitoring rental payments and penalties, monitoring compliance
with leases, monitoring the maintenance of property and liability
insurance and the payment of taxes, maintenance of lease insurance
(if applicable), monitoring and negotiating other forms of tenant
security and financial condition, ongoing site inspections and
property reviews and reviewing tenant reports); (iii) property
and lease workout (including enforcing lease provisions in
default, filing lease insurance claims, enforcing guarantees,
collecting letters of credit or foreclosing other collateral, if
applicable, eviction of tenants in default, re-leasing of
properties, and monitoring tenant disputes and foreclosures); and
(iv) partnership dissolution and liquidation (accounting, final
payment to creditors, administrative filings and other costs).
2.5 "Affiliate" means (i) any person directly or indirectly
controlling, controlled by or under common control with another
person, (ii) any person owning or controlling 10% or more of the
outstanding voting securities of such other person, (iii) any
officer, director or partner of such person and (iv) if such other
person is an officer, director or partner, any such company for
which such person acts in such capacity.
2.6 "Competitive Real Estate Commissions" means real estate
or brokerage commissions paid for the purchase or sale of a
Property that are reasonable, customary and competitive in light
of the size, type and location of such Property and which do not,
in any event, exceed 6% of the contract price for the sale of such
Property.
2.7 "Construction Fee" means a fee or other remuneration
for acting as general contractor and/or construction manager to
construct improvements, supervise and coordinate projects or to
provide Major Repairs or Rehabilitation of Partnership Property.
</PAGE> 115
<PAGE>
2.8 "Cost" means, when used with respect to services
furnished by the General Partners or their Affiliates to, or on
behalf of, the Partnership, the lesser of (i) the actual expenses
incurred by such General Partners and Affiliates in providing
services necessary to the prudent operation of the Partnership,
including salaries and expenses paid to officers, directors,
employees and consultants, depreciation and amortization, office
rent, travel and communication expenses, employee benefit
expenses, supplies and other overhead expenses directly
attributable to the furnishing of such services; or (ii) the price
that would be charged by unaffiliated parties rendering similar
services in the same geographic location. Overhead expenses shall
be charged only if directly attributable to such services and
shall be allocated based upon the amount of time personnel
actually spend providing such services, or such other method of
allocation as is acceptable to the Partnership's independent
public accountant.
2.9 "Development Fee" means a fee for packaging the
Partnership's Property, including negotiating and approving plans,
and undertaking to assist in obtaining zoning and necessary
variances and necessary financing for a specific Property, either
initially or at a later date.
2.10 "Front-End Fees" means fees and expenses paid by any
party for services rendered during the Partnership's
Organizational or acquisition phase, including Organizational and
Offering Expenses, Acquisition Fees, Acquisition Expenses,
interest on deferred fees and expenses and other similar fees,
however designated by the Managing General Partner.
2.11 "General Partners" means the Managing General Partner,
the Individual General Partner and any substitute General Partner
as provided in Article X.
2.12 "Individual General Partner" means Robert P. Johnson,
and any substitute as provided in Article X.
2.13 "Investment in Properties" means the amount of capital
contributions actually paid or allocated to the purchase of
Properties, including working capital reserves allocable thereto
(except that working capital reserves in excess of 5% will not be
included) and other cash payments such as interest and taxes, but
excluding Front-End Fees.
2.14 "Limited Partners" means all parties who shall execute,
either personally or by an authorized attorney-in-fact, this
agreement as Limited Partners and comply with the conditions in
Section 4.2, and any and all assignees of the Limited Partners,
whether or not such assignees are admitted to the Partnership as
substitute Limited Partners; provided, however, that an assignee
of the interest of any Limited Partner shall not be considered a
"Limited Partner" for purposes of Articles X and XI hereof unless
such assignee is admitted as a substitute Limited Partner as
provided in Article IX.
</PAGE> 116
<PAGE>
2.15 "Limited Partnership Act" means the Minnesota Revised
Uniform Limited Partnership Act, as codified in Chapter 322A,
Minnesota Statutes.
2.16 "Limited Partnership Unit" or "Unit" means the
Partnership interest and appurtenant rights, powers and privileges
of a Limited Partner and represents the stated capital
contributions with respect thereto, all as set forth elsewhere in
this agreement.
2.17 "Major Repairs or Rehabilitation" means the repair,
rehabilitation or reconstruction of a Property where the aggregate
costs exceed 10% of the fair market value of the Property at the
time of such services.
2.18 "Managing General Partner" means AEI Fund Management
XXI, Inc., and any substitute as provided in Article X.
2.19 "Net Value" means the aggregate value of the
Partnership's assets less the Partnership's liabilities, as
determined by the Managing General Partner, after taking into
account (i) the present value of future net cash flow from rental
income on the Fund's properties, (ii) the price at which Units of
the Partnership have last been purchased, and (ii) such other
factors as the General Partners deem relevant.
2.20 "Net Cash Flow" means Partnership cash funds provided
from operations, including lease payments on net leases from
builders and sellers without deduction for depreciation, but after
deducting cash funds used to pay all other expenses, debt
payments, capital improvements and replacements and less the
amount set aside for restoration or creation of reserves.
2.21 "Net Proceeds of Sale" means the excess of gross
proceeds from any sale, refinancing (including the financing of a
Property that was initially purchased debt-free) or other
disposition of a Property over all costs and expenses related to
the transaction, including fees payable in connection therewith,
and over the payments made or required to be made on any prior
encumbrances against such Property in connection with such
transaction.
2.22 "Partners" means the Managing General Partner, the
Individual General Partner and the Limited Partners.
2.23 "Organization and Offering Expenses" means those
expenses incurred in connection with and in preparing the
Partnership for registration and subsequently offering and
distributing it to the public, including any sales commissions,
nonaccountable expense allowances or reimbursement of due
diligence expenses paid to broker-dealers in connection with the
distribution of the Partnership and all advertising expenses.
2.24 "Partnership" means the limited partnership formed by
this agreement.
</PAGE> 117
<PAGE>
2.25 "Permitted Transfer" means, with respect to the
transfer of Units in any fiscal year of the Partnership (i)
transfers in which the basis of the Unit in the hands of the
transferee is determined, in whole or in part, by reference to its
basis in the hands of the transferor, or is determined under
Section 732 of the Internal Revenue Code of 1986, as amended (the
"Code"), (ii) transfers of Units upon the death of a Limited
Partner, (iii) transfers of Units between members of a family (as
defined in Section 267(c)(4) of the Code), (iv) transfers of Units
at original issuance and sale, (v) transfers of Units pursuant to
distribution under a Qualified Plan, and (vi) block transfers of
Units by a single partner in one or more transactions during any
thirty calendar day period representing in the aggregate more than
five percent (5%) of the total interest of all Partners in
partnership capital and profits.
2.26 "Properties" or "Property" means real properties or any
interest therein acquired directly or indirectly by the
Partnership and all improvements thereon and all repairs,
replacements or renewals thereof, together with all personal
property acquired by the Partnership that from time to time is
located thereon or specifically used in connection therewith.
2.27 "Prospectus" means that certain prospectus of the
Partnership dated , 1996.
2.28 "Qualified Matching Service" means a listing system
operation, provided either through the General Partners or through
any unrelated third party (including any dealer in the Units), in
which Limited Partners contact the operator to list Units they
desire to transfer and through which the operator attempts to
match the listing Limited Partner with a customer desiring to buy
Units without (i) regularly quoting prices at which the operator
stands ready to buy or sell interests, (ii) making such quotes
available to the public, or (iii) buying or selling interests for
its own account.
</PAGE> 118
<PAGE>
2.29 "Qualified Matching Service Transfer" means a transfer
of Units through a Qualified Matching Service in which (i) at
least a fifteen (15) calendar day delay occurs between the day
(the "Contact Date") a Limited Partner provides written
confirmation to the Qualified Matching Service that his or her
Units are available for sale and the earlier of (A) the day
information is made available to potential buyers that such Units
are available for sale, or (B) the day information is made
available to the selling Limited Partner regarding the existence
of outstanding bids to purchase Units, (ii) the closing of the
transfer does not occur until at least forty five (45) days after
the Contact Date, (iii) the Limited Partner's offer to sell is
removed from the Qualified Matching Service within one hundred and
twenty (120) days of the Contact Date, and (iv) no Units of such
Limited Partner are entered for listing by the Qualified Matching
Service for at least sixty (60) days after the removal of the
Limited Partner's information from such Qualified Matching
Service; provided, however, that no transfer shall be a Qualified
Matching Service Transfer if, after giving effect to such
transfer, the aggregate of (a) Qualified Matching Service
Transfers, (b) transfers pursuant to the repurchase provisions
contained in section 7.7 of this Agreement of Limited Partner
interests and (c) all other transfers of Limited Partner interests
except Permitted Transfers since the beginning of the fiscal year
in which such transfer is made would exceed ten percent (10%) of
the Partnership interests outstanding.
2.30 "Qualified Plans" means Keogh Plans and pension/profit-
sharing plans that are qualified under Section 401 of the Internal
Revenue Code.
2.31 "Roll-Up" means a transaction involving the acquisition,
merger, conversion, or consolidation, either directly or
indirectly, of the Partnership and the issuance of securities of a
Roll-Up Entity; provided, however, that a Roll-Up shall not
include a transaction involving the conversion to corporate, trust
or association form of only the Partnership if, as a consequence
of such transaction, there will be no significant adverse change
in any of the following:
(i) voting rights of Limited Partners;
(ii) the term of existence of the surviving entity beyond
that of the Partnership;
(iii) compensation to the General Partners or their Affiliates;
(iv) the investment objectives of the Partnership or the
surviving entity.
2.32 "Roll-Up Entity" means a partnership, real estate
investment trust, corporation, trust or other entity that would be
created or would survive after successful completion of a proposed
Roll-Up Transaction.
</PAGE> 119
<PAGE>
2.33 "Sponsor" means any person, partnership, corporation,
association or other entity which is directly or indirectly
instrumental in organizing, wholly or in part, the Partnership or
any person, partnership, corporation, association or other entity
which will manage or participate in the management of the
Partnership, and any Affiliate of such person, partnership,
corporation, association or other entity, but does not include a
person, partnership, corporation, association or other entity
whose only relation with the Partnership is as that of an
independent property manager, whose only compensation is as such.
"Sponsor" does not include wholly independent third parties such
as attorneys, accountants, and underwriters whose only
compensation is for professional services rendered in connection
with the offering of Partnership interests. A person, partnership,
corporation, association or other entity may also be a Sponsor of
the Partnership by: (i) taking the initiative, directly or
indirectly, in founding or organizing the business or enterprise
of the Partnership, either alone or in conjunction with one or
more other persons, partnerships, corporations, associations or
other entities; (ii) receiving 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; (iii) having a
substantial number of relationships and contacts with the
Partnership; (iv) possessing significant rights to control
Partnership Properties; (v) receiving fees for providing services
to the Partnership which are paid on a basis that is not customary
in the industry; (vi) providing goods or services to the
Partnership on a basis which was not negotiated at arm's length
with the Partnership.
III. Purpose and Character of the Business
The purpose and character of the business of the Partnership
shall be to acquire an interest in the Properties upon such terms
and conditions as the Managing General Partner, in its absolute
discretion, shall determine, including, without limitation, taking
title to the Properties; to own, lease, operate and manage the
Properties for income-producing purposes; to furnish services and
goods in connection with the operation and management of the
Properties; to enter into agreements pertaining to the operation
and management of the Properties; to borrow funds for such
purposes and to mortgage or otherwise encumber any or all of the
Partnership's assets or Properties to secure such borrowings; to
sell or otherwise dispose of the Properties and the assets of the
Partnership; and to undertake and carry on all activities
necessary or advisable in connection with the acquisition,
ownership, leasing, operation, management and sale of the
Properties.
</PAGE> 120
<PAGE>
IV. Capital
4.1 General Partners. The Managing General Partner and the
Individual General Partner shall be obligated to make capital
contributions to the Partnership, to the extent not previously
made, in the amounts of $600 and $400, respectively. The General
Partners shall not be obligated to make any other contributions to
the capital of the Partnership, except that, in the event that the
General Partners have negative balances in their capital accounts
after dissolution and winding up of, or withdrawal from, the
Partnership, the General Partners will contribute to the
Partnership an amount equal to the lesser of (a) the deficit
balances in their capital accounts or (b) 1.01% of the total
capital contributions of the Limited Partners' over the amount
previously contributed by the General Partners hereunder.
4.2 Limited Partner Capital Contributions.
(a) Initial Contribution. There shall initially be
available for subscription by prospective Limited Partners an
aggregate of 24,000 Limited Partnership Units. The purchase
price of each Unit shall be $1,000, provided that a subscriber
may be credited for reduced commissions on volume purchases in
accordance with Section 6.12. Except as provided in section
4.10, each subscriber must subscribe for a minimum purchase of
two and one-half Units, with the exception of Qualified Plans and
Individual Retirement Accounts, which must subscribe for a
minimum purchase of two Units and subscribers may purchase
fractional Units above such minimums.
(b) Requirements for Limited Partner Status. Upon the
initial closing of the sale of Units, the purchasers will be
admitted as Limited Partners not later than 15 days after the
release from impound of the purchasers' funds. Thereafter, an
investor will be admitted to the Partnership not later than the
first day of each month provided that his or her subscription for
Units has been received at least three days prior to such date.
The Partners shall not be obligated to make any additional
contributions to the capital of the Partnership.
</PAGE> 121
<PAGE>
4.3 Capital Accounts. A separate capital account shall be
maintained by the Partnership for each Partner. It is intended
that the capital account of each Partner will be maintained in
accordance with the capital accounting rules of Treas. Reg.
Section 1.704-1(b)(2)(iv). In general this will mean that the
capital account of each Partner shall be initially credited with
the amount of his or her cash contribution to the capital of the
Partnership. The capital account of each Partner shall further be
credited by the amount of any additional contributions to the
capital of the Partnership made by such Partner from time to time,
shall be debited by the amount of any cash distributions made by
the Partnership to such Partner and shall be credited with the
amount of income and gains and debited with the amount of losses
of the Partnership allocated to such Partner. In all instances
the capital accounting rules in Treas. Reg. Section 1.704-
1(b)(2)(iv) will determine the proper debits or credits to each
Partner's capital account. The Managing General Partner may, at
its option, increase or decrease the capital accounts of the
Partners to reflect a revaluation of Partnership Property on the
Partnership's books at the times when, pursuant to Treas. Reg.
Section 1.704-1(b)(2)(iv), such adjustments may occur. The
adjustments, if made, will be made in accordance with such
Regulation, including allocating taxable items, as computed for
book purposes, to the capital accounts as prescribed in such
Regulation. In the case of the transfer of all or a part of an
interest in the Partnership, the capital account of the transferor
Partner attributable to the transferred interest will carry over
to the transferee Partner. In the case of termination of the
Partnership pursuant to Section 708 of the Code, the rules of
Treas. Reg. Section 1.704-1(b)(2)(iv) shall govern adjustments to
the capital accounts. If there are any adjustments to Partnership
property as a result of Sections 732, 734, or 743, the capital
accounts of the Partners shall be adjusted as provided in Treas.
Reg. Section 1.701-1(b)(2)(iv)(m). Except as provided in Section
4.1 of this Agreement, in the event that any Partner has a
negative capital account balance after dissolution and winding up
of the Partnership, such Partner will not be obligated to
contribute capital in the amount of such deficit.
4.4 No Right to Return of Contribution. The Limited
Partners shall have no right to withdraw or to receive a return of
their contributions to the capital of the Partnership, as
reflected in their respective capital accounts from time to time,
except upon presentment of Units in accordance with Section 7.7 or
upon the dissolution and liquidation of the Partnership pursuant
to Article XII.
</PAGE> 122
<PAGE>
4.5 Return of Unused Net Offering Proceeds. In the event
that any portion of the Limited Partners' capital contributions is
not invested or committed for investment in real property before
the later of two years after the date of the Prospectus or six
months after the date of the offer and sale of Units pursuant to
the Prospectus is terminated (except for amounts utilized to pay
operating expenses of the Partnership and to establish reasonable
working capital reserves as determined by the Managing General
Partner), such portion of the capital contributions shall be
distributed, without interest but with any Front-End Fees,
including without limitation commissions or other Organization and
Offering Costs, paid thereon, by the Partnership to the Limited
Partners as a return of capital. All of such capital contributions
will be available for the general use of the Partnership during
such period and may be expended in operating the Properties that
have been acquired. For the purpose of the foregoing, funds will
be deemed to have been committed to investment, and will not be
returned to the Limited Partners to the extent written contractual
agreements have been executed prior to the expiration of the
preceding period, regardless of whether any such investment is
ultimately consummated pursuant to the written contractual
agreement. To the extent any funds have been reserved to make
contingent payments in connection with any Property pursuant to a
written contractual agreement in connection with such Property or
pursuant to a reasonable decision of the General Partners that
additional reserves are necessary in connection with any Property,
regardless of whether any such payment is ultimately made,
subscription funds will not be returned to the Limited Partners.
4.6 Loans to Partnership; No Interest on Capital. The
Partners may make loans to the Partnership from time to time, as
authorized by the Managing General Partner, in excess of their
contributions to the capital of the Partnership, and any such
loans shall not be treated as a contribution to the capital of the
Partnership for any purpose hereunder, nor shall any such loans
entitle such Partner to any increase in his or her share of the
profits and losses and cash distributions of the Partnership, nor
shall any such loans constitute a lien against the Properties.
The amount of any such loans with interest thereon at a rate
determined by the Managing General Partner, in its absolute
discretion, but not to exceed the rate that otherwise would be
charged by unaffiliated lending institutions on comparable loans
for the same purpose, shall be an obligation of the Partnership to
such Partner. The General Partners or their Affiliates may loan
funds to the Partnership during the offering period for the
purpose of acquiring a Property. Interest on such loans shall not
be in excess of the rate that either would be charged by an
unrelated lending institution on comparable loans for the same
purpose in the same locality of the Properties or represents the
cost of funds of the General Partners or their Affiliates. No
interest shall be paid by the Partnership on the contributions to
the capital of the Partnership by the Partners.
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4.7 Purchase of Limited Partnership Units by General
Partners. The General Partners and their Affiliates may subscribe
for and acquire Units for their own account; provided, however,
that any Units acquired by the General Partners or their
Affiliates will be acquired for investment and not with a view to
the distribution thereof and that the aggregate amount of Units so
purchased by the General Partners will not exceed five percent
(5%) of the Units offered. With respect to such Units, the
General Partners and their Affiliates shall have all the rights
afforded to Limited Partners under this agreement, except as may
be expressly provided in this agreement.
4.8 Nonrecourse Loans. A creditor who makes a nonrecourse
loan to the Partnership will not have or acquire, at any time as a
result of making the loan, any direct or indirect interest in the
profits, capital or property of the Partnership other than as a
secured creditor.
4.9 Working Capital Reserve. The General Partners shall use
their best efforts to maintain a working capital reserve of one
percent (1%) of the aggregate Adjusted Capital Contributions and
to restore such reserve if depleted.
4.10 Distribution Reinvestment Plan.
(a) A limited partner may elect to participate in a program
for the reinvestment of his or her distributions of Net Cash Flow
(the "Distribution Reinvestment Plan") and have his or her
distributions of Net Cash Flow from operations reinvested in
Units of the Partnership. Limited Partners participating in the
Distribution Reinvestment Plan may purchase fractional Units and
there shall be no minimum purchase amount with respect to such
participants. Each Limited Partner electing to participate in
the Distribution Reinvestment Plan shall receive, at the time of
each distribution of Net Cash Flow, a notice advising such
Limited Partner of the number of additional Units purchased with
such distribution and advising such Limited Partner of his or her
ability to change his or her election to participate in the
Distribution Reinvestment Plan.
(b) If a Limited Partner withdraws from the Distribution
Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt
by the Partnership of written notice of such withdrawal. In the
event of a transfer by a Limited Partner of Units, such transfer
shall terminate the Limited Partner's participation in the plan
as of the first day of the quarter in which the transfer is
effective.
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(c) Distributions may be reinvested only if (i) the sale of
Units continues to be registered or qualified for sale under
federal and applicable state securities laws; (ii) each
continuing Participant has received a current prospectus relating
to the Partnership, including any supplements thereto, and
executed a confirmation within one year of such reinvestment
indicating such Participant's intention to purchase units in the
Fund through the Plan and confirming that the Participant
continues to satisfy the investor suitability requirements; (iii)
there has been no distribution of Net Proceeds of Sale or
Refinancing. If (A) any of the foregoing conditions are not
satisfied at the time of any distribution, or (B) no interests
are available to be purchased, such distributions shall be paid
in cash.
(d) Each Limited Partner electing to participate in the
Distribution Reinvestment Plan hereby agrees that his or her
investment in this Partnership constitute his or her agreement to
be a limited partner of the Partnership and to be bound by the
terms and conditions of this Agreement and, if at any time he or
she fails to meet applicable investor suitability guidelines or
cannot make the other investor representations required or set
forth in the then current partnership agreement prospectus or
subscription agreement, he or she will promptly notify the
General Partners in writing.
(e) The Partnership shall pay a commission in connection
with any reinvestment pursuant to the plan to any broker-dealer
designated by the Participant in the plan. If no broker-dealer
is designated or the limited partner has advised the Partnership
that he or she desires that such commissions not be paid, or if
the designated broker-dealer has not signed a dealer agreement
with respect to the Partnership, or if the broker-dealer is no
longer qualified under applicable law to engage in the
solicitation of the sale of such Partnership interests, then no
commission shall be paid and all limited partners in the
Partnership shall be credited with a pro rata portion of the
commission not so paid. No fees shall be paid to the Partnership
or the General Partners at the time of any such reinvestment, but
the General Partners of the Partnership may be reimbursed for the
Cost incurred in making such reinvestment, in accordance with the
provisions of this Agreement.
(f) The General Partners may, at their option, elect to
terminate the Distribution Reinvestment Plan at any time without
notice to Limited Partners.
V. Allocation of Profits, Gains and Losses; Distributions to
Partners
The Partners agree that the income, profits, gains and losses
of the Partnership shall be allocated and that cash distributions
of the Partnership shall be made as follows:
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5.1 Allocation of Income, Profits, Gains and Losses. For
income tax purposes, income, profits, gains and losses of the
Partnership for each fiscal year, other than any gain or loss
realized upon the sale, exchange or other disposition of any
Property, using such methods of accounting for depreciation and
other items as the Managing General Partner determines to use for
federal income tax purposes, shall be allocated as of the end of
each fiscal year to each Partner based on his or her varying
interest in the Partnership during such fiscal year. The
Partnership shall determine, in the discretion of the Managing
General Partner and as recommended by the Partnership auditors,
whether to prorate items of income and deduction according to the
portion of the year for which a Partner was a member of the
Partnership or whether to close the books on an interim basis and
divide such fiscal year into segments. Subject to Section 5.6,
for income tax purposes, income, profits, gains and losses, other
than any gain or loss realized upon the sale, exchange or other
disposition of any Property, shall be allocated as follows:
(a) Net loss shall be allocated 99% to the Limited Partners,
.6% to the Managing General Partner and .4% to the Individual
General Partner; and
(b) Net income, profits and gains shall be allocated first
in the ratio in which, and to the extent, Net Cash Flow is
distributed to the Partners for such year, and any additional
income, profits and gains for such year will be allocated in the
same ratio as the last dollar of Net Cash Flow is distributed.
5.2 Distributions of Net Cash Flow. Net Cash Flow from
operations, if any, with respect to a fiscal year will first be
distributed 97% to the Limited Partners and 3% to the General
Partners. Any amounts distributed to the Limited Partners in
accordance with this Section 5.2 shall be allocated among the
Limited Partners pro rata based on the number of Units held by
each Limited Partner and the number of days such Units were held
during such fiscal year.
5.3 Allocation of Gain or Loss Upon Sale, Exchange or Other
Disposition of a Property.
(a) Subject to Section 5.6, for income tax purposes, the
gain realized upon the sale, exchange or other disposition of any
Property shall be allocated as follows:
(i) First, to and among the Partners in an amount equal
to the negative balances in their respective capital accounts
(pro rata based on the respective amounts of such negative
balances).
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(ii) Next, 99% to the Limited Partners and 1% to the
General Partners until the balance in each Limited Partner's
capital account equals the sum of such Limited Partner's
Adjusted Capital Contribution plus an amount equal to a 9%
per annum return on such Limited Partner's Adjusted Capital
Contribution, cumulative but not compounded, to the extent
not previously distributed pursuant to Section 5.2 and
Section 5.4(a).
(iii) The balance of any remaining gain will then be
allocated 90% to the Limited Partners and 10% to the General
Partners.
(b) Subject to Section 5.6, any loss on the sale, exchange
or other disposition of any Property will be allocated 98% to the
Limited Partners and 2% to the General Partners.
5.4 Distribution of Net Proceeds of Sale. Upon financing,
refinancing, sale or other disposition of any of the Properties,
Net Proceeds of Sale may be reinvested in additional properties;
provided, however, that sufficient cash is distributed to the
Limited Partners to pay state and federal income taxes (assuming
Limited Partners are taxable at a marginal rate of 7% above the
federal capital gains rate applicable to individuals) created as a
result of such transaction. Except for distributions upon
liquidation of the Partnership (which are governed by Section 12.3
of this agreement), Net Proceeds of Sale that are not reinvested
in additional properties will be distributed as follows:
(a) First, 99% to the Limited Partners and 1% to the General
Partners until the Limited Partners have received an amount from
Net Proceeds of Sale equal to the sum of (i) an amount equal to a
9% per annum return on their Adjusted Capital Contributions,
cumulative but not compounded, to the extent such 9% return has
not been previously distributed to them pursuant to Section 5.2
and this Section 5.4(a), plus (ii) their Adjusted Capital
Contributions.
(b) Any remaining balance will be distributed 90% to the
Limited Partners and 10% to the General Partners.
In no event will the General Partners receive more than 10% of Net
Proceeds of Sale.
5.5 Cumulative Return. The Partnership shall pay a
cumulative, but not compounded, 6% per annum return on Adjusted
Capital Contributions before applying Net Proceeds of Sale to a
reduction of Adjusted Capital Contributions. The cumulative (but
not compounded) return on Adjusted Capital Contributions with
respect to each Unit shall commence on the first day of the
calendar quarter following the date on which such Unit is
initially held by a Limited Partner.
5.6 Special Allocations. The following special allocations
shall be made in the following order:
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(a) In the event a Partner unexpectedly receives any
adjustments, allocations or distributions described in Treas.
Reg. 1.704-1(b)(2)(ii)(d)(4), (5) or (6), items of Partnership
income and gain shall be specially allocated to each such Partner
in an amount and manner sufficient to eliminate, to the extent
required by the Treasury Regulations, the deficit balance in such
Limited Partner's capital account as of the end of the relevant
fiscal year; provided that an allocation pursuant to this Section
5.6(a) shall be made only if and to the extent that such Limited
Partner would have a deficit balance in such capital account
after all other allocations provided in this Section 5.6 have been
tentatively made as if this Section 5.6(a) were not in this
Agreement. This Section 5.6(a) is intended, and shall be so
construed, to provide a "qualified income offset" as defined in
Treas. Reg. 1.704-1(b)(2)(ii)(d).
(b) Any losses of the Partnership (whether from operations
or arising in connection with the sale, exchange or other
disposition of any Property) shall not be allocated to a Limited
Partner if such allocation would cause such Limited Partner to
have a negative balance in its capital account. All losses in
excess of the limitation set forth in this Section 5.6(b) shall be
allocated to the General Partners.
5.7 Qualified Income Offset. It is intended that this
Section 5.7 shall meet the requirement that this Agreement contain
a "qualified income offset" as defined in Section 1.704-
1(b)(2)(ii)(d) of the Treasury Regulations. Notwithstanding
anything in this Article V, if a Partner unexpectedly receives an
adjustment, allocation, or distribution described in Treas. Reg.
Section 1.704-1(b)(2)(ii)(d)(4), (5), or (6), and such unexpected
adjustment, allocation, or distribution puts such Partner's
capital account into a deficit balance, such Partner will be
allocated items of income and gain in an amount and manner
sufficient to eliminate such deficit balance as quickly as
possible.
5.8 Allocation Among General Partners. Any allocations or
distributions to the General Partners shall be made in the
following ratio: 60% to the Managing General Partner and 40% to
the Individual General Partner.
VI. Rights, Powers and Duties of General Partners
The Partners agree that the General Partners, acting through
the Managing General Partner, shall have the following rights,
powers and, where provided, duties in connection with the conduct
of the business of the Partnership.
The Managing General Partner shall manage the affairs of the
Partnership in a prudent and business-like fashion and shall use
its best efforts to carry out the purposes and character of the
business of the Partnership. The Managing General Partner shall
devote such of its time as it deems necessary to the management of
the business of the Partnership and may enter into agreements with
an Affiliate to provide services for the Partnership, provided
that such services are furnished at Cost.
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6.1 Appointment of Managing General Partner. Subject to the
limitations herein, and to the express rights afforded Limited
Partners herein, including, without limitation, the rights set
forth in Articles VII and XI herein, the Individual General
Partner and the Limited Partners delegate to the Managing General
Partner the sole and exclusive authority for all aspects of the
conduct, operation and management of the business of the
Partnership, including making any decision regarding the sale,
exchange, lease or other disposition of the Properties; provided,
however, that the Managing General Partner shall be required to
obtain the prior consent of the Individual General Partner and a
majority of the Limited Partners, by interest, to the sale of all
or substantially all of the assets of the Partnership. In the
event the Managing General Partner proposes to cause the
Partnership to enter into a transaction requiring the consent of
the Individual General Partner, the Managing General Partner shall
forthwith notify the Individual General Partner of its intentions
in writing. The Individual General Partner shall be considered to
have consented to such proposal if he fails to notify the Managing
General Partner of his objection thereto within 20 days of the
date of notice of such proposal, such notification to include a
brief statement of each reason for the Individual General
Partner's opposition to such proposal. With the exceptions stated
above, the Managing General Partner shall have the exclusive
authority to make all decisions affecting the Partnership and to
exercise all rights and powers granted to the General Partners.
Nothing in this section shall limit the liability of the
Individual General Partner.
6.2 Reimbursement of Expenses.
(a) Subject to the limitations set forth in Section 6.2(b),
the Partnership shall reimburse the General Partners and their
affiliates at their Cost: (i) for any expenditures of their own
funds for purposes of organizing the Partnership and arranging
for the offer and sale of Units (including commissions); (ii) for
all Acquisition Expenses incurred by them, (iii) for the services
they provide in the sales effort of the Properties, and (iv) for
the expenses of controlling persons and overhead expenses
directly attributable to the forgoing services or attributable to
Administrative Services (which overhead expenses shall be
allocated based upon the amount of time personnel actually spend
providing such services, or such other method of allocation as is
acceptable to the Partnership's independent public accountant).
In addition, the Partnership shall reimburse the General Partners
and their affiliates at their Cost for Administrative Expenses
necessary for the prudent operation of the Partnership, provided
that any expenses of controlling persons and overhead expenses
included in such Administrative Expense reimbursements shall be
subject to the limitations set forth in Section 6.2(b).
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(b) The aggregate cumulative reimbursements pursuant to
Section 6.2(a)(i) to (iv) to the General Partners and their
Affiliates, will not exceed, at the end of any fiscal year, the
sum of (i) the Front-End Fees of up to 20% of gross offering
proceeds, (ii) property management fees of up to 5% of Net Cash
Flow, (iii) real estate commission of 3% of Net Proceeds of Sale
of properties on which the General Partners or Affiliates furnish
a substantial amount of sales efforts, and (iv) 10% of Net Cash
Flow less the Net Cash Flow actually distributed to the General
Partners. The General Partners will review the reimbursements
that they and their Affiliates receive at the end of each fiscal
year of the Partnership. If the General Partners and their
Affiliates receive reimbursement for items set forth in Section
6.2(a)(i) to (iv) in excess of the limitations set forth in this
section, they will refund the difference to the Partnership
within 30 days of discovery of such excess. Such review shall
not take into account any of the fees that might be paid in years
after the fiscal year for which the calculation is made.
(c) The Partnership's annual report to Limited Partners will
contain information concerning reimbursements made to the
Managing General Partner and its Affiliates. Within the scope of
the annual audit, an independent certified public accountant
shall verify the allocation of costs to the Partnership. 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 that the Managing General Partner's independent
certified public accountants consider appropriate in the
circumstances. Such methods of verification shall at a minimum
provide: (i) a review of the time records of employees and
control persons, the costs of whose services were reimbursed and
(ii) a review of the specific nature of the work performed by
each such employee and control person. The additional cost of
such verification will be itemized by such accountant on a
program-for-program basis, and the General Partners will be
reimbursed for such additional cost only to the extent that the
cost of such verification, when added to all reimbursements to
the General Partners for services rendered to the Partnership,
does not exceed the competitive price for such services which
would be charged by non-affiliated persons rendering similar
services in the same or comparable geographic location.
(d) The General Partners and their Affiliates will not be
reimbursed or otherwise paid for any services except as set forth
in Section 6.2(a).
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6.3 Net Worth of Individual General Partner. The Individual
General Partner represents that he has a net worth in excess of
$2,400,000 (determined without regard to the value of his Units);
the Individual General Partner represents and agrees that he now
and hereafter shall maintain net worth, or make available to the
Partnership (subject to the approval of the Limited Partners as
required by this agreement) another general partner or general
partners with combined net worth, not less than the amount then
required, in the opinion of counsel for the Partnership, to
satisfy the requirements of Revenue Procedure 89-12 for a
favorable revenue ruling as to taxability for federal income tax
purposes as a partnership and not as an association taxable as a
corporation; provided, however, that such obligation of the
Individual General Partner shall not apply to conditions other
than net worth conditions in Revenue Procedure 89-12 and shall not
be construed in any way as a guaranty or assurance that the
Partnership will be taxed as a partnership for federal income tax
purposes and not as an association taxable as a corporation.
6.4 Other Activities of General Partners. The General
Partners, during the term of this Partnership, may engage in and
possess an interest for their own account in other business
ventures of every nature and description, independently or with
others, including, but not limited to, the ownership, financing,
leasing, operation, management, syndication, brokerage, investment
in and development of real estate; and neither the Partnership nor
any Partner, by virtue of this agreement, shall have any right in
and to said independent ventures or any income or profits derived
therefrom. Nothing in this section shall be deemed to diminish
the General Partner's overriding fiduciary obligation to the
Partnership, or to constitute a waiver of any right or remedy the
Partnership or Limited Partners may have in the event of a breach
by a General Partner of such obligation.
6.5 Indemnification and Liability of General Partners.
(a) The Partnership shall indemnify each of the General
Partners and their Affiliates (other than an Affiliate that is
acting in the capacity of a Broker-Dealer selling Units) against
any claim or liability incurred or imposed upon such General
Partner or such Affiliates provided such General Partner or
Affiliate was acting on behalf of or performing services for the
Partnership and the General Partner has determined, in good
faith, that the course of conduct which caused the loss or
liability was in the best interests of the Partnership, and such
conduct of the General Partner or Affiliate did not constitute
misconduct or negligence. The General Partners or Affiliates
shall not be liable to the Partnership or any Partner by reason
of any act or omission of such General Partner or Affiliate
provided the General Partner has determined, in good faith, that
the course of conduct which caused the loss or liability was in
the best interests of the Partnership, and such conduct of the
General Partner or Affiliate did not constitute misconduct or
negligence. Solely for purposes of this Section 6.5, but for all
such purposes, the term "Affiliate" shall mean only those
Affiliates, as defined in Section 2.5, that furnish services to
the Partnership within the scope of the General Partners'
authority.
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(b) No General Partner or Affiliate or any Broker-Dealer
selling Units shall be indemnified for any liability imposed by
judgment, or costs associated therewith, including attorneys'
fees, arising from or out of a violation of state or federal
securities laws. The General Partners and such Affiliates, and
such Broker-Dealers, shall be indemnified for settlements and
related expenses of lawsuits alleging securities law violations,
and for expenses incurred in successfully defending such
lawsuits, provided that the party seeking indemnification places
before the court the position of the Massachusetts Securities
Division, of the Missouri Securities Division, of the
Pennsylvania Securities Commission, of the administrator of other
relevant state securities laws and of the Securities and Exchange
Commission on indemnification for securities law violations, and
the court thereafter either:
(i) approves the settlement and finds that indemnification
of the settlement and related costs should be made, or
(ii) approves indemnification of litigation costs if a
successful defense is made.
Any indemnification pursuant to this Section 6.5, or otherwise,
shall be recoverable only from the assets of the Partnership and
not from any of the Limited Partners. No General Partner or
Affiliate shall be entitled to advances for legal expenses and
other costs incurred as a result of legal action initiated against
the General Partners or Affiliate unless (1) the action relates to
the performance of the duties of such General Partner or Affiliate
on behalf of the Partnership, (2) the action is not initiated by a
Limited Partner, and (iii) the General Partner or Affiliate
undertakes to repay such advances in cases in which it is
determined they are not entitled to indemnification.
(c) The Managing General Partner shall have fiduciary
responsibility for the safekeeping and use of all funds and
assets of the Partnership, whether or not in its immediate
possession or control, and the Managing General Partner shall not
employ, or permit another to employ, such funds or assets in any
manner except for the exclusive benefit of the Partnership. The
General Partners and the Partnership may not permit the Limited
Partners to contract away the fiduciary duty owed to the Limited
Partners by the General Partners under the common law.
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6.6 Prohibited Transactions. Notwithstanding anything to
the contrary contained herein, the General Partners and Affiliates
of the General Partners (i) may not receive interest and other
financing charges or fees on loans made to the Partnership in
excess of the amounts that would otherwise be charged by
unaffiliated lending institutions on comparable loans for the same
purpose and in the same locality of the Property if the loan is
made in connection with a particular Property, (ii) may not
require a prepayment charge or penalty on any loan from the
General Partners to the Partnership, (iii) may not provide
financing to the Partnership that is payable over a period
exceeding 48 months or for which more than 50% of the principal is
due in more than 24 months, (iv) may not grant to themselves an
exclusive listing for the sale of any Property, (v) may not
directly or indirectly pay or award any commissions or other
compensation to any person engaged by a potential investor for
investment advice as an inducement to such adviser to advise the
purchaser of the Units, provided, however, that this provision
shall not prohibit the normal sales commissions payable to a
registered broker-dealer or other properly licensed person for
selling the Units, (vi) may not commingle Partnership funds with
the funds of any other person, (vii) may not sell property to,
purchase property from, or lease property to or from the
Partnership, provided that the Partnership may purchase real
property from the General Partners or their Affiliates (but not
from affiliated programs unless the interest purchased by the
Partnership from the affiliated program is equal to or smaller
than the interest retained by the affiliated program and the joint
venture so created complies with section 6.7 of this Agreement) if
the General Partners or their Affiliates purchased the property in
their own name and temporarily held title thereto for a period not
in excess of twelve months for the purpose of facilitating the
acquisition of the property, the borrowing of money, the obtaining
of financing for the Partnership or any other purpose related to
the business of the Partnership, and the property is purchased by
the Partnership for a price no greater than the price paid by the
General Partners or their Affiliates plus Acquisition Expenses in
accordance with the provisions of this agreement, and any profit
or loss on such property during such period is paid to or charged
against the Partnership, and there is no other benefit arising out
of such transaction to the General Partners or their Affiliates
apart from compensation otherwise permitted by this agreement (the
prohibitions of this Section 6.6(vii) shall also apply to any
program in which the General Partners have an interest), (viii)
may not receive a commission or fee in connection with the
reinvestment or distribution of the proceeds of the resale,
exchange or refinancing of the Properties (ix) may not cause the
Partnership to incur indebtedness directly or indirectly related
to the purchase of properties, incur indebtedness from any source,
aggregating in excess of 10% of the purchase price of all
Partnership Properties, incur indebtedness with an initial term in
excess of one year, incur indebtedness specifically to pay
distributions, or incur indebtedness secured by Partnership
Property except as may be necessary or desirable to finance the
cash flow requirements of the Partnership, including without
limitation, cash flow necessary to repurchase Units or to
facilitate the sale or reletting of Partnership Properties, (x)
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may not cause the Partnership to invest in other limited
partnerships, provided that joint venture arrangements set forth
in Section 6.7 shall not be prohibited, (xi) may not cause the
Partnership to acquire property in exchange for Units, (xii) may
not cause the Partnership to pay a fee to the General Partners or
their Affiliates for insurance coverage or brokerage services,
(xiii) may not cause the Partnership to make loans or investments
in real property mortgages other than in connection with the
purchase or sale of the Partnership's properties, (xiv) may not
cause the Partnership to operate in a manner as to be classified
as an "investment company" for purposes of the Investment Company
Act of 1940, (xv) may not cause the Partnership to underwrite or
invest in the securities of other issuers, except as specifically
discussed in Section 6.7 and in the Prospectus, (xvi) may not
cause the Partnership to incur the cost of that portion of
liability insurance that insures the General Partners or their
Affiliates for any liability as to which such General Partners or
their Affiliates are prohibited from being indemnified under
Section 6.5., (xvii) may not receive a real estate commission in
connection with the purchase, sale or financing of a Property and
will not permit aggregate compensation to others in connection
with the sale of any Property to exceed a Competitive Real Estate
Commission, (xviii) may not receive an Acquisition Fee (including,
without limitation, Development Fee or Construction Fee) or permit
such Acquisition Fees, together with Acquisition Expenses paid to
any party, by the Partnership to exceed 18% of the total capital
contributions of Limited Partners pursuant to Section 4.2 of this
Agreement, (xix) will not cause the Partnership to incur Front-End
Fees to the extent that such fees would cause the Partnership's
Investment in Properties to be less than 80% of contributions to
capital pursuant to Section 4.2(a), and (xx) may not receive
reimbursement for Organization and Offering Expenses (including,
without limitation, marketing expenses, commissions, expense
allowances, incentive compensation or other expenses incurred in
offering the units for sale) in excess of, or cause the aggregate
of such expenses paid by the Partnership to exceed, 15% of the
contributions to capital pursuant to Section 4.2 of this Agreement
(any Organization and Offering Expenses in excess of such amount
being the responsibility of the General Partners and not the
Partnership). No General Partner shall receive any rebate or give-
up nor may any General Partner participate in any reciprocal
business arrangement in circumvention of the NASAA Guidelines, nor
shall any General Partner participate in any reciprocal business
arrangement that would circumvent the restrictions of such NASAA
Guidelines against dealing with affiliates or promoters. No loans
or advances may be made at any time by the Partnership to the
General Partners or their Affiliates.
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6.7 Investments in Other Programs. The Partnership may not
invest in limited partnership interests of another program. The
Partnership may, however, invest (a) in general partnerships or
ventures that own and operate a particular property provided the
Partnership, either alone or together with any publicly-registered
Affiliate, acquires a controlling interest in such other ventures
or general partnerships, and such general partnership or joint
venture does not result in duplicate fees, or (b) in joint venture
arrangements with another publicly-registered program sponsored
by the General Partners or their Affiliates. For purposes of
Section 6.7(a), "controlling interest" means an equity interest
possessing the power to direct or cause the direction of the
management and policies of the partnership or joint venture,
including the authority to:
(i) review all contracts entered into by the general
partnership or joint venture that will have a material effect on
its business or property;
(ii) cause a sale or refinancing of the property or the
Partnership's interest therein subject in certain cases where
required by the partnership or joint venture agreement, to limits
as to time, minimum amounts and/or a right of first refusal by
the joint venture partner or consent of the joint venture
partner;
(iii) approve budgets and major capital expenditures,
subject to a stated minimum amount;
(iv) veto any sale or refinancing of the property, or,
alternatively, to receive a specified preference on sale or
refinancing proceeds; and,
(v) exercise a right of first refusal on any desired sale or
refinancing by the joint venture partner of its interest in the
property except for transfer to an Affiliate of the joint venture
partner.
For purposes of 6.7(b), the Partnership shall be permitted to
invest in joint venture arrangements with another publicly-
registered program or programs sponsored by the General Partners
or their Affiliates for the purpose of acquiring a property from
unaffiliated parties only if all the following conditions are met:
(a) The two programs have substantially identical investment
objectives;
(b) There are no duplicate property management or other fees;
(c) The General Partners' compensation is substantially identical
in each program;
(d) In the event of a proposed sale of property held in the
joint venture by the other joint venture partner, the Partnership
will have a right of first refusal to purchase the other party's
interest; and
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(e) The investment by each of the partnerships in the joint
venture must be on substantially the same terms and conditions.
6.8 Unimproved or Non-Income Producing Property/Property
Under Construction.
(a) The Partnership may not acquire unimproved or non-income
producing property except in amounts and upon terms which can be
financed by the Limited Partners' capital contributions or from
funds provided from operations. In no event shall the
Partnership acquire unimproved or non-income producing property
exceeding 10% of the total capital contributions of Limited
Partners pursuant to Section 4.2 of this Agreement. For purposes
of this Section 6.8, properties that are expected to produce
income within two years shall not be considered unimproved or non-
income producing properties.
(b) The Partnership may not acquire property which is under
construction unless completion is guaranteed at the purchase
price contracted for by (i) a completion bond, (ii) a written
guarantee by a person who, or entity that, has provided financial
statements demonstrating sufficient net worth and collateral, or
(iii) retention of a reasonable portion of the purchase price as
an offset in the event the seller does not perform.
6.9 Investments in Junior Trust Deeds. The Partnership may
not invest in junior trust deeds and other similar obligations
except to the extent such investments arise upon sale of
Properties. In no event shall such investments exceed 10% of the
gross assets of the Partnership.
6.10 Requirement for Real Property Appraisal. All Property
acquisitions by the Partnership will be supported by an appraisal
prepared by a competent, independent appraiser. The appraisal
will be maintained in the Partnership's records for at least five
years and will be available for inspection and duplication by any
Limited Partner.
6.11 Balloon Payments.
(a) Indebtedness of the Partnership (which shall, in any
event, be subject to the limitations contained in Section 6.6(ix)
of this Agreement) shall be fully amortized in equal payments
over a period of not more than 30 years; provided, however, that
this Section 6.11(a) shall not limit the ability of the
Partnership to finance Properties using adjustable rate
mortgages.
(b) The Partnership may not incur indebtedness of any kind,
including all-inclusive and wrap-around loans and interest-only
loans, in connection with the purchase of a Property.
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(c) The provisions of this Section 6.11 shall not apply (but
the provisions of section 6.6(ix) shall apply) to indebtedness
representing, in the aggregate, 25% or less of the total purchase
price of the Properties acquired, or to interim financing,
including construction financing, with a full take-out
commitment.
6.12 Selling Commissions.
(a) Except as otherwise provided in this Section 6.12, the
Partnership shall pay any and all Selling Commissions and expense
allowances in the amount of $100 per Unit sold in accordance with
the Dealer Manager Agreement with AEI Incorporated. The
Partnership shall also reimburse the Dealer Manager for the bona
fide due diligence expenses of dealers selling Units to the
extent the aggregate of such reimbursements do not exceed $5.00
per Unit sold.
(b) A registered principal or representative of AEI
Incorporated or any other broker-dealer may purchase Units net of
commissions, at a per Unit purchase price of $920. For purchases
of 250 or more Units by a single "Purchaser" (as defined below in
this Section 6.12), the Partnership shall pay the Dealer-Manager
reduced commissions in accordance with the following schedule:
Investor's Aggregate Expense Allowance and
Purchase Price Selling Commission Per Unit
Dollar Amount Purchased Per Unit Percent Dollar Amount
$1,000 - $250,000 $1,000 10.0% $100.00
$250,001 - $500,000 $ 990 9.0% $ 90.00
$500,001 - $750,000 $ 980 8.0% $ 80.00
$750,001 - $1,000,000 $ 970 7.0% $ 70.00
$1,000,001 and above $ 960 6.0% $ 60.00
(c) Any such reduction in Selling Commissions will be
credited to the "purchaser" (as defined in Section 6.12(f) below)
by reducing the total purchase price otherwise payable by the
purchaser. The net proceeds to the Partnership will not be
affected by the volume discount.
(d) 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 in Article
6.12(f) below, provided all such Units are purchased through the
same soliciting dealer.
(e) Any request to combine more than one subscription must
be made in writing on a form to be supplied by the Partnership
and must set forth the basis for such request. Any such request
will be subject to verification by AEI Incorporated that all of
such subscriptions were made by a single purchaser.
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(f) For purposes of the volume discounts provided for in
this Section 6.12, "purchaser" includes (i) an individual, his
or her spouse, and their children under the age of 21, who
purchase the Units for his or her or their own accounts, and all
pension or trust funds established by each such individual; (ii)
a corporation, partnership, association, joint-stock company,
trust fund, or any organized group of persons, whether
incorporated or not (provided that the entities described in this
clause (ii) must have been in existence for at least six months
before purchasing the Units and must have formed such group for a
purpose other than to purchase the Units at a discount); (iii) an
employee's trust, pension, profit sharing or other employee
benefit plan qualified under Section 401 of the Code; and (iv)
all pension, trust, or other funds maintained by a given bank.
In addition, the General Partners, in their sole discretion, may
aggregate and combine separate subscriptions for Units received
during the offering period from (i) AEI Incorporated or the same
soliciting dealer, (ii) investors whose accounts are managed by a
single investment adviser registered under the Investment
Advisers Act of 1940, (iii) investors over whose accounts a
designated bank, insurance company, trust company, or other
entity exercises discretionary investment responsibility, or (iv)
a single corporation, partnership, trust association, or other
group of persons, whether incorporated or not, and whether such
subscriptions are by or for the benefit of such corporation,
partnership, trust association, or group. Except as provided in
this Section 6.12, subscriptions will not be cumulated, combined,
or aggregated.
(g) Any reduction in commissions will reduce the effective
purchase price per Unit to the investor involved, but will not
alter the net proceeds payable to the Partnership as a result of
such sale.
6.13 Roll-Up Transactions
(a) The Partnership shall not participate in any Roll-Up (i)
which would result in Limited Partners having democracy rights in
the Roll-Up Entity which are less than those provided in this
Partnership Agreement (provided that, if the form of the Roll-Up
entity is other than a Partnership, the democracy rights shall
conform to those provided in this Partnership Agreement to the
greatest extent possible); (ii) which includes provisions that
would act to materially impede or frustrate the accumulation of
shares of any purchaser of the securities of the Roll-Up entity
(except to the extent required to preserve the tax status of the
Roll-Up Entity); (iii) which would limit the rights of Limited
Partners to exercise voting rights in the securities of the Roll-
Up entity on the basis of the number of equity interests held by
such Limited Partners; (iv) which would result in a Roll-Up
Entity which would have rights to access of records less than
those of the Partnership; or (v) which provides for the costs of
the Roll-Up to be borne by the Partnership and which is not
approved by Limited Partners.
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(b) No Roll-Up shall be conducted unless an appraisal of all
material Partnership assets has been obtained from a competent
person or entity that has no material relationship with the
General Partners or their Affiliates and who is engaged to a
substantial extent in rendering opinions on the value of assets
held by the Partnership and is qualified to perform such
appraisal. The appraisal shall be based on an evaluation of all
relevant information, assuming an orderly liquidation of the
Partnership's assets over a 12-month period, and shall indicate
the value of the Partnership's material assets as of a date
immediately preceding announcement of the proposed Roll-Up. A
summary of the appraisal shall be included in a report to the
Limited Partners in connection with the Proposed Roll-Up and if
such report is a part of a prospectus used to offer securities in
the Roll-Up Entity, the appraisal shall be filed with the SEC and
the states in connection with the registration statement for the
offering.
(c) Any Limited Partner who votes against a Roll-Up that is
completed, shall be given the option to (i) accept the securities
in the Roll-Up Entity in the Roll-Up, or (ii) either one of (x)
remaining a Limited Partner in the Partnership or (y) receiving
cash in the amount of the appraised value of the assets of the
Partnership.
VII. Provisions Applicable to Limited Partners
The following provisions shall apply to the Limited Partners,
and the Limited Partners hereby agree thereto.
7.1 Liability. Except as otherwise provided by Minnesota
Statutes 322A.26 or any amended or successor section, the Limited
Partners shall be liable with respect to the Partnership only to
the extent of the amount of the contribution to capital made by
such Limited Partners as provided in Section 4.2. The Units are
nonassessable.
7.2 No Participation in Management. No Limited Partner
shall take any part or participate in the conduct of, or have any
control over, the business of the Partnership, and no Limited
Partner shall have any right or authority to act for or to bind
the Partnership; provided, however, that the Partnership may not
sell all or substantially all of the assets of the Partnership
without the prior written consent of a majority of the Limited
Partners, by interest.
7.3 No Withdrawal or Dissolution. No Limited Partner shall
at any time withdraw from the Partnership except as provided in
this agreement. No Limited Partner shall have the right to have
the Partnership dissolved or to have his or her contribution to
the capital of the Partnership returned except as provided in this
agreement. The death or bankruptcy of a Limited Partner shall not
dissolve or terminate the Partnership.
7.4 Consent. To the fullest extent permitted by law, each
of the Limited Partners hereby consents to the exercise by the
Managing General Partner of all the rights and powers conferred on
the Managing General Partner by this agreement.
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7.5 Power of Attorney. Each of the Limited Partners and the
Individual General Partner hereby irrevocably constitute and
appoint the Managing General Partner his or her or its true and
lawful attorney, in his or her or its name, place and stead to
make, swear to, execute, acknowledge and file:
(a) this Limited Partnership Agreement and any and all
certificates of limited partnership of the Partnership, and any
amendments thereto that may be required by the Limited
Partnership Act, including amendments required for the reflection
of return of capital to any Partner or the contribution of any
additional capital, and the continuation of the business of the
Partnership by a substitute and/or additional General Partner;
(b) any certificate or other instrument and any amendments
thereto that may be required to be filed by the Partnership in
order to accomplish the business and the purposes of the
Partnership, including any business certificate, fictitious name
certificate or assumed name certificate;
(c) any cancellation of such certificates of limited
partnership, this Limited Partnership Agreement and any and all
other documents and instruments that may be required upon the
dissolution and liquidation of the Partnership;
(d) new certificates of limited partnership and any and all
documents and instruments that may be required to effect a
continuation of the business of the Partnership as provided in
this agreement; and
(e) any amended limited partnership agreement or certificate
of limited partnership that has been duly adopted hereunder or
authorized hereby.
It is expressly intended that the foregoing power of attorney
is (1) coupled with an interest and shall survive the bankruptcy,
death, incompetence or dissolution of any person hereby giving
such power and (2) does not affect the Limited Partners' rights to
approve or disapprove any amendments to this agreement or other
matters as provided elsewhere herein.
If a Limited Partner assigns his or her interest in the
Partnership, as provided in Article IX, the foregoing power of
attorney shall survive the delivery of the instruments effecting
such assignment for the purpose of enabling the Managing General
Partner to sign, swear to, execute and acknowledge and file any
and all amendments to the certificates of limited partnership of
the Partnership and other instruments and documents necessary to
effectuate the substitution of the assignee as a Limited Partner.
7.6 Limitation of Acquisition of Equity Securities of the
General Partners. The Limited Partners (excluding the General
Partners or their Affiliates who purchase Limited Partnership
Units) shall not own, directly or indirectly, individually or in
the aggregate, more than 20% of the outstanding equity securities
of either of any General Partner or its Affiliates.
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The phrase "own, directly or indirectly" used herein shall
have the meaning set forth in Section 318 of the Internal Revenue
Code of 1954, as currently in effect or as hereafter amended. As
of the date hereof, such term includes ownership by a Limited
Partner, his or her spouse, children, grandchildren, parents, any
partnership of which the Limited Partner or any of the foregoing
is a member, any estate or trust of which the Limited Partner or
any of the foregoing is the beneficiary and any corporation at
least 50% owned in the aggregate by said Limited Partner or any of
the foregoing.
7.7 Right to Present Units for Purchase.
(a) Beginning in calendar year 1998, each Limited Partner
shall have the right, subject to the provisions of this Section
7.7, to present his or her Units to the Partnership for purchase
by submitting notice on a form supplied by the Partnership to the
Managing General Partner specifying the number of Units he or she
wishes repurchased. Such notice must be postmarked after January
1 but before January 31, and after July 1 but before July 31 of
each year. On March 31 and September 30 of each year, and
subject to the limitations set forth below, the Managing General
Partner shall cause the Partnership to purchase the Units of
Limited Partners who have tendered their Units to the
Partnership. The purchase price shall be equal to the tendering
Limited Partner's Adjusted Capital Contribution on January 1 or
July 1, as the case may be, of the year of purchase multiplied by
eighty percent (80%) for purchases in calendar year 1998 and
1999. For purchases in 2000 and in each year thereafter, the
purchase price shall be equal to ninety percent (90%) of the Net
Value of the Partnership's assets divided by the number of Units
outstanding. Starting in the year 2,000, the General Partners
shall publish the repurchase price offered for Units based on the
Net Value of the Partnership's assets on the first business day
of January and July of each year. The Partnership will not be
obligated to purchase in any year any number of Units such that
such Units, when aggregated with all other transfers of Units
that have occurred since the beginning of the same calendar year
(excluding Permitted Transfers) would exceed five percent (5%) of
the total number of Units outstanding on January 1 of such year.
In the event requests for purchase of Units received in any given
year exceed the five percent (5%) limitation, the Units to be
purchased will be determined based on the postmark date of the
written notice of Limited Partners tendering Units. Any Units
tendered but not selected for purchase in any given year will be
considered for purchase in subsequent years only if the Limited
Partner retenders his or her Units. In no event shall the
Partnership be obligated to purchase Units if, in the sole
discretion of the Managing General Partner, such purchase would
impair the capital or operation of the Partnership nor shall the
Partnership purchase any Units in violation of applicable legal
requirements.
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<PAGE>
(b) For purposes of all calculations pursuant to Article V
of this agreement, any Net Cash Flow or Net Proceeds of Sale used
to repurchase Units or to repay borrowings that were used to
repurchase Units shall be deemed distributed to the remaining
Limited Partners pro rata based on the ratio of the number of
Units owned to all Units outstanding after such repurchase.
7.8 Voting Rights. To the extent permitted under the
Minnesota Revised Uniform Limited Partnership Act, as amended, the
Limited Partners may, by vote of a majority of the outstanding
Units (excluding Units held by the General Partners for their own
accounts), and without the concurrence of the General Partners:
(1) amend this Limited Partnership Agreement in
accordance with the provisions of Article XI;
(2) remove the Managing General Partner and elect a new
Managing General Partner in accordance with Section 10.4
of this Agreement;
(3) approve or disapprove the sale of all or
substantially all of the assets of the Partnership;
(4) dissolve the Partnership in accordance with Section
12.1(g).
VIII. Books of Account; Reports and Fiscal Matters
8.1 Books; Place; Access. The Managing General Partner
shall maintain accurate books of account and each and every
transaction shall be entered therein. The Partnership records
shall contain the names and addresses of all Partners. The books
of account and the records shall be kept at the office of the
Partnership in St. Paul, Minnesota, and any Partner or his or her
legal counsel may inspect and copy the Partnership books and
records at any time during ordinary business hours. The Managing
General Partner shall have no obligation to deliver or mail to
Limited Partners copies of certificates of limited partnership or
amendments thereto.
8.2 Method. The books of account shall be kept in
accordance with generally accepted accounting principles.
8.3 Fiscal Year. The fiscal year of the Partnership shall
end on December 31 of each year.
8.4 Annual Report. At the Partnership's expense, the books
of account shall be audited at the close of each fiscal year by a
firm of independent public accountants selected by the Managing
General Partner, and a copy of its report shall be transmitted
within 120 days after the close of such fiscal year to the
Partners and to such state securities commissioners as may be
required by the rules and regulations of the various states.
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The annual report shall contain (a) a balance sheet as of
year end, a statement of operations for the year then ended, a
statement of partners' equity, and statement of cash flows, all of
which shall be audited with a report containing an unqualified
opinion expressed thereon, or an opinion containing no material
qualification of an independent public accountant, (b) a report of
the activities of the Partnership during the period covered by the
report and (c) the amount of any fees or other reimbursements to
the General Partners or any Affiliates of the General Partners
during the fiscal year to which such annual report relates,
including information required by Section 6.2. Such report shall
set forth distributions to Limited Partners for the period covered
thereby and shall separately identify distributions from (i)cash
flow from operations during the period, (ii) cash flow from
operations during a prior period that had been held as reserves,
(iii) proceeds from the disposition of property and investments
and (iv)reserves from the gross proceeds of the offering
originally obtained from the Limited Partners. The financial
information contained in the annual report will be prepared on the
GAAP basis. The Managing General Partner also shall make
available to each Limited Partner, upon request, a copy of any
annual reports that the Partnership may be required to file with
the Securities and Exchange Commission within 90 days after the
close of the period to which such reports relate.
8.5 Quarterly Reports. During the life of the Partnership,
the Managing General Partner shall prepare and distribute to all
Partners within 60 days after the end of each quarter and to such
state securities commissioners as may be required by the rules and
regulations of the various states, a quarterly summary of
Partnership financial results. Such quarterly reports shall
contain (a) a current condensed balance sheet, which may be
unaudited, (b) a condensed operating statement for the quarter
then ended, which may be unaudited, (c) a condensed cash flow
statement for the quarter then ended, which may be unaudited, and
(d) other pertinent information regarding the Partnership and its
activities during the quarter covered by the report. Such
quarterly reports shall also contain a detailed statement setting
forth the services rendered, or to be rendered, by the General
Partners or their Affiliates and the amount of the fees received.
The Managing General Partner also shall make available to each
Limited Partner, upon request, a copy of any reports that the
Partnership may be required to file with the Securities and
Exchange Commission within 45 days after the close of the period
to which such reports relate.
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8.6 Special Reports. The Managing General Partner shall
have prepared, as of the end of each quarter in which a Property
is acquired, a special report of real property acquisitions within
the quarter. Such special reports shall be distributed to the
Limited Partners for each quarter in which a Property is acquired
until all proceeds available from the offering of Units are
invested or returned to the Limited Partners as provided in
Section 4.5. Such special reports shall describe the Properties
acquired and shall include a description of the geographic
location and the market upon which the Managing General Partner is
relying. The special report shall include all facts that
reasonably appear to materially influence the value of the
Property, including, but not limited to, the date and amount of
the appraised value, the purchase price and terms of the purchase,
the amount of proceeds in the Partnership that remain unexpended
or uncommitted and any Acquisition Expenses paid by the
Partnership to the General Partners or their Affiliates in
connection with real property acquisitions within the quarter.
8.7 Tax Returns; Tax Information. Within 75 days after the
close of each fiscal year, all necessary tax information shall be
transmitted to all Partners and to such state securities
commissioners as may be required by the rules and regulations of
the various states.
8.8 Bank Accounts. Except as otherwise described in the
Prospectus, the Managing General Partner shall select a bank
account or accounts for the funds of the Partnership, and all
funds of every kind and nature received by the Partnership shall
be deposited in such account or accounts. The Managing General
Partner shall designate from time to time the persons authorized
to withdraw funds from such accounts. The funds of the
Partnership will not be commingled with funds of any other person
or entity.
8.9 Tax Elections. In the event of a transfer of all or
part of the Partnership interest of any Partner, the Partnership,
in the sole discretion of the Managing General Partner, may elect
pursuant to Section 754 of the Internal Revenue Code of 1986 (or
any successor provisions) to adjust the basis of the assets of the
Partnership. The Managing General Partner shall be the "tax
matters partner" for the Partnership as that term is defined in
Section 6231 of the Internal Revenue Code of 1986, as amended.
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8.10 Investor List. In addition to the other records
maintained by the Partnership, the Partnership shall maintain at
all times, in alphabetical order and on white paper with printing
in not less than 10 point type, a list of Limited Partners,
including the names, addresses and business telephone numbers of
the Limited Partners and the number of Units held by each, which
shall be updated at least quarterly to reflect changes in the
information contained therein. The list of Limited Partners shall
be available for inspection by any Limited Partner or such Limited
Partner's designated agent at the office of the Partnership upon
request of such Limited Partner. In addition, a copy of the
Limited Partner list shall be mailed to any Limited Partner
requesting the same within ten (10) days of the receipt of a
written request. The Partnership may charge a reasonable fee to
such Limited Partner to cover the costs of reproduction and
postage. The purposes for which such list may be requested by the
Limited Partners shall include, without limitation, matters
relating to voting rights of the Limited Partners and the exercise
of rights of the Limited Partners under federal proxy laws. If the
Managing General Partner neglects or refuses to exhibit, produce
or mail a copy of the Limited Partner list as requested, the
Managing General Partner shall be liable for the costs, including
attorneys' fees, incurred by the Limited Partner in compelling the
production of the list and for the 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 the request for
inspection or for a copy of the Limited Partner list is to secure
such list or other information for the purpose of selling such
list or copies thereof, or 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 Managing
General Partner may require that the Limited Partner requesting
such list to represent that the list is not requested for a
commercial purpose unrelated to the Limited Partner's interest in
the Partnership. The remedies set forth in this section 8.10
shall be in addition to, and not by way of limitation of, remedies
available to Limited Partners under federal law, or the laws of
any state.
IX. Assignment of Limited Partner's Interest
The Partnership interest of a Limited Partner shall be
represented by a Certificate of Participation. The form and
content of the Certificate of Participation shall be determined by
the Managing General Partner. The Partnership interest of a
Limited Partner may not be assigned, pledged, mortgaged, sold or
otherwise disposed of, and no Limited Partner shall have the right
to substitute an assignee in his or her place, except as provided
in this Article IX.
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9.1 Limited Partners.
(a) Other than pursuant to a Permitted Transfer, no Limited
Partner shall transfer or assign any part of his or her interest
in the Partnership, and no such transfer or assignment shall be
recognized by the Partnership but shall be null and void, if such
transfer or assignment, when added to all other transfers or
assignments made during the same fiscal year, other than (A)
Permitted Transfers, (B) Qualified Matching Service Transfers, or
(C) transfers pursuant to the repurchase provisions of section
7.7 of this Agreement, would constitute transfers of in excess of
two percent (2%) of Partnership interests outstanding. The
Managing General Partner may request such information from a
transferring Limited Partner as is necessary to determine whether
a transfer is a Permitted Transfer or a Qualified Matching
Service Transfer. The Managing General Partner may refuse to
affect any transfer if the transferring Limited Partner is
unable, or refuses, to demonstrate that the transfer is a
Permitted Transfer or Qualified Matching Service Transfer or if
the Managing General Partner is not able to verify, to its
satisfaction, that the transfer will qualify for a safe harbor
under Treasury Regulation 1.7704-1(e) or (g).
(b) Except as provided in Section 9.1(a), each Limited
Partner may transfer or assign all or part of his or her interest
in the Partnership as provided in the Limited Partnership Act;
provided, however, that no transfer or assignment shall be
effective until written notice thereof is received by the
Managing General Partner and the Managing General Partner
approves such transfer or assignment. Such approval shall be
granted unless the Managing General Partner determines that the
transfer will cause a violation of the provisions of this
Agreement, including the percentage limitations referred to in
Section 9.1(a) above. In any case that a transfer is not
permitted for any reason other than pursuant to the limitations
set forth in section 9.1(a), the decision to prohibit the
transfer shall be supported by an opinion of counsel. All
transfers or assignments of interests in the Partnership
occurring during any month shall be deemed effective (i.e., the
transferee shall become a Limited Partner of record) on the last
day of the calendar month in which written notice thereof is
received by the Managing General Partner.
(c) No assignee of all or part of the Partnership interests
of any Limited Partner shall have the right to become a
substitute Limited Partner unless (i) his or her assignor has
stated such intention in the instrument of assignment, (ii) such
assignee shall pay all expenses in connection with such admission
as a substitute Limited Partner, as described in Section 9.2 and
(iii) such the transfer to such assignee has been made in
compliance with Section 9.1(a).
(d) No purported sale, assignment or transfer by a Limited
Partner of less than two and one-half Units (two Units for
transfers by Qualified Plans and Individual Retirement Plans)
will be permitted or recognized, except by gift, inheritance,
intra-family transfers, family dissolutions, transfers to
Affiliates or by operation of law.
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(e) If a Limited Partner dies, his or her executor,
administrator or trustee, or if he or she is adjudged incompetent
or insane, his or her committee guardian or conservator, or if he
or she becomes bankrupt, the receiver or trustee of his or her
estate, shall have the rights of a Limited Partner for the
purpose of settling or managing his or her estate and such power
as the decedent or incompetent possessed to assign all or any
part of his or her Units and to join with the assignee thereof in
satisfying conditions precedent to such assignee becoming a
substitute Limited Partner. The death, dissolution or
adjudication of incompetency or bankruptcy of a Limited Partner
shall not dissolve the Partnership.
(f) By executing and adopting this agreement, each Limited
Partner hereby consents to the admission of additional or
substitute Limited Partners by the Managing General Partner and
to any assignee of his or her Units becoming a substitute Limited
Partner.
9.2 Documents and Expenses. As a condition to admission as
a substitute Limited Partner, an assignee of all or part of the
Partnership interest of any Limited Partner or the legatee or
distributee of all or any part of the Partnership interest of any
Limited Partner shall execute and acknowledge such instruments, in
form and substance satisfactory to the Managing General Partner,
as the Managing General Partner shall deem necessary or advisable
to effectuate such admission and to confirm the agreement of the
person being admitted as such substitute Limited Partner to be
bound by all of the terms and provisions of this agreement. Such
assignee, legatee or distributee shall pay all reasonable
expenses, not exceeding $100, in connection with such admission as
a substitute Limited Partner.
9.3 Acquit Partnership. In the absence of written notice to
the Partnership of any assignment of a Partnership interest, any
payment to the assigning Partner or his or her executors,
administrators or representatives shall acquit the Partnership of
liability to the extent of such payment to any other person who
may have an interest in such payment by reason of an assignment by
the Partner or by reason of such Partner's death or otherwise.
9.4 Restriction on Transfer. Notwithstanding the foregoing
provisions of this Article IX, no sale or exchange of a
Partnership interest may be made if the interest sought to be sold
or exchanged, when added to the total of all other Partnership
interests sold or exchanged within the period of 12 consecutive
months prior thereto, would result in the termination of the
Partnership under section 708 of the Internal Revenue Code of 1986
(or any successor section).
9.5 Endorsement on Certificate. The foregoing provisions
governing the assignment of the Partnership interest of a Limited
Partner shall be indicated by an endorsement on the certificate
evidencing such Limited Partner's interest in the Partnership, in
the form as determined from time to time by the Managing General
Partner.
</PAGE> 147
<PAGE>
X. Death, Withdrawal, Expulsion and Replacement of the General
Partners
10.1 Death. In the event of the death of the Individual
General Partner, the estate of the Individual General Partner
shall assume all of his obligations under this agreement and be
responsible for their discharge. The estate may elect to withdraw
from the Partnership only upon satisfaction of the conditions in
Section 10.2 applicable to the Individual General Partner.
10.2 Withdrawal. The Managing General Partner may not
withdraw from the Partnership without first providing 90 days'
written notice to the Limited Partners of its intent to so
withdraw and providing a substitute Managing General Partner to
the Partnership that shall be accepted by a vote of not less than
a majority, by interest, of the Limited Partners (excluding any
Limited Partnership Units held by any General Partner for its own
account); provided, however, that nothing in this agreement shall
be deemed to prevent the merger, consolidation or reorganization
of the Managing General Partner into or with a successor entity
controlled by, or under common control with, a General Partner,
and such successor entity shall be deemed to be the Managing
General Partner of the Partnership for all purposes and effects
and shall succeed to and enjoy all rights and benefits and bear
all obligations and burdens conferred or imposed hereunder upon
the Managing General Partner. The Limited Partners shall vote to
accept or reject the proposed substitute Managing General Partner
in person or by proxy at a meeting called by the Managing General
Partner for such purpose in accordance with Section 11.1 of this
agreement.
The Individual General Partner may not withdraw from the
Partnership prior to December 31, 1997, and thereafter may
withdraw only upon providing a substitute Individual General
Partner, after demonstrating to the Managing General Partner's
reasonable satisfaction that such proposed substitute Individual
General Partner has a satisfactory business reputation and has a
net worth of not less than $1,000,000, and having such substitute
Individual General Partner accepted by a vote of not less than a
majority, by interest, of the Limited Partners (excluding any
Limited Partnership Units held by any General Partner for its own
account).
10.3 Expulsion. A General Partner shall be expelled without
further action for "cause," which means (1) final judicial
determination or admission of its bankruptcy or insolvency, (2)
withdrawal from the Partnership without providing a substitute
General Partner in accordance with Section 10.2 or (3) final
judicial determination that it (i) was grossly negligent in its
failure to perform its obligations under this agreement, (ii)
committed a fraud upon the Partners or upon the Partnership, (iii)
committed a felony in connection with the management of the
Partnership or its business or (iv) was in material breach of its
obligations under this agreement. This section does not limit the
right of the Limited Partners to remove the General Partners upon
a majority vote of the Limited Partners.
</PAGE> 148
<PAGE>
10.4 Removal and Replacement of General Partners. In the
event of (i) the wrongful withdrawal of a General Partner or the
expulsion of a General Partner under circumstances that the
Partnership lacks a general partner or (ii) the written proposal
of Limited Partners holding 10% or more of the issued and
outstanding Limited Partnership Units, and upon providing not less
than 10 nor more than 60 days' written notice by certified mail to
all Partners, the Limited Partners may call a meeting of the
Partnership for the purpose of removing or replacing any or all of
the General Partners. At such meetings, any of the General
Partners may be removed or replaced without cause by a vote
(rendered in person or by proxy) of a majority, by interest, of
the Limited Partners (excluding Units held by the General Partners
for their own accounts).
10.5 Liability of Withdrawing General Partner. Any General
Partner who effectively ceases to be a General Partner, either
voluntarily or involuntarily, shall be and remain liable for all
obligations and liabilities incurred by it as General Partner
prior to the time that such withdrawal, sale, transfer, or
assignment shall become effective, but it shall be free of any
obligation or liability incurred because of Partnership activities
from and after the time that such withdrawal, sale, transfer or
assignment shall become effective.
10.6 Payment for Removed General Partner's Interest. Upon
the expulsion, withdrawal or removal of a General Partner, the
Partnership shall pay to the terminated General Partner all
amounts then accrued and owing to the terminated General Partner
and an amount equal to the then present fair market value of the
terminated General Partner's interest in the Partnership
determined by agreement of the terminated General Partner and the
Partnership, or, if they cannot agree, by arbitration in
accordance with the then current rules of the American Arbitration
Association. The expense of arbitration shall be borne equally by
the terminated General Partner and the Partnership. The fair
market value of the terminated General Partner's interest shall be
the amount the terminated General Partner would receive upon
dissolution and termination of the Partnership assuming that such
dissolution or termination occurred on the date of the terminating
event and the assets of the Partnership were sold for their then
fair market value without any compulsion on the part of the
Partnership to sell such assets. In the case of a voluntary
withdrawal, the withdrawing General Partner shall be paid the fair
market value of its or his interest by the issuance by the
Partnership of a non-interest bearing unsecured promissory note
providing for payment of principal from distributions that the
withdrawing General Partner otherwise would have been entitled to
receive under this agreement had such General Partner not
withdrawn. In the case of an involuntary termination, the
terminated General Partner shall be paid the fair market value of
its or his interest by the issuance by the Partnership of a
promissory note with a five year maturity payable in five equal
installments of principal and interest at the prevailing market
rate of interest.
</PAGE> 149
<PAGE>
10.7 Failure to Admit Substitute General Partner. In the
event that a substitute General Partner has not been appointed and
admitted as provided in Section 10.4 so that there is no General
Partner acting, the Partnership shall then be dissolved,
terminated and liquidated.
XI. Amendment of Agreement and Meetings
11.1 General. Either General Partner may, at any time,
propose an amendment to this agreement and shall notify all
Partners thereof in writing, together with a statement of the
purpose(s) of the amendment and such other matters as the General
Partner deems material to the consideration of such amendment. If
such proposal does not adversely affect the rights of the Limited
Partners, such proposal shall be considered adopted and this
agreement deemed amended. At any time, Limited Partners holding
not less than 10% of the issued and outstanding Units may propose
an amendment to this agreement, or a meeting of Limited Partners
to consider any other proposal for which the Limited Partners may
vote hereunder, including the sale of all or substantially all of
the assets of the Partnership. Upon the request in writing to the
Managing General Partner of any person entitled to call a meeting,
or in the event a proposal of a General Partner adversely effects
the rights of Limited Partners, or in the event of objection by
10% of Limited Partners by interest to such a proposal, the
Managing General Partner shall call a special meeting of all
Partners, in each case at a location convenient to Limited
Partners, to consider the proposal at the time requested by the
person requesting the meeting which shall be not less than 15 nor
more than 60 days after receipt of such request. Written notice
of the meeting shall be given to all Partners either personally or
by certified mail not less than 10 nor more than 60 days before
the meeting, but in any case where a meeting is duly called by
request of Limited Partners, not more than 10 days after receipt
of such request. Included in the notice shall be a detailed
statement of the action proposed, including a verbatim statement
of the wording of any resolution or amendment proposed. The
notice shall provide that Limited Partners may vote in person or
by proxy. The affirmative vote of a majority, by interest, of the
Limited Partners (excluding any Units held by the General Partners
for their own accounts) shall decide the matter, without the
consent of the General Partners. In any event, however, no such
amendment shall affect the allocation of economic interests to the
Partners or alter the allocation of Partnership management
responsibilities and control without the approval of each General
Partner and a majority by interest, of the Limited Partners,
except as otherwise provided in Article X.
11.2 Alternative to Meetings. As an alternative to voting
at meetings of the Partnership pursuant to this and other Articles
of this agreement, the Limited Partners may consent to and approve
by written action any matter that the Limited Partners may consent
to and approve by vote at a meeting. In order to consent to and
approve the matter, the same percentage of Limited Partners, by
interest, must sign the written action as is required by vote at a
meeting; provided, however, that written notice is given to all
Partners at least 15 days before solicitation of signatures is
begun.
</PAGE> 150
<PAGE>
XII. Dissolution and Liquidation
12.1 Events Causing Dissolution. The Partnership shall be
dissolved only upon the occurrence of one or more of the following
events:
(a) the expiration of the term set forth in Section 1.4;
(b) the occurrence of any event that, under the laws of the
jurisdictions governing the Partnership shall dissolve
the Partnership;
(c) the bankruptcy of the Partnership or any of the General
Partners;
(d) the withdrawal or the expulsion of a General Partner if
a substitute General Partner has not been timely admitted
as provided in Article X, with the result that there is no
General Partner acting;
(e) the decree of court that other circumstances render a
dissolution of the Partnership equitable or required by law;
(f) the sale or other disposition of all or substantially
all of the assets of the Partnership; and
(g) at any time by the affirmative vote of a majority, by
interest, of the Limited Partners (excluding Units held
by the General Partners for their own accounts) at a
meeting called in accordance with Section 11.1 of this
agreement.
12.2 Continuation of Business. Except as provided in
Section 12.3, upon the dissolution of the Partnership for any
reason, the business of the Partnership and title to the property
of the Partnership shall be vested in the Partnership continuing
the business. Upon any such dissolution no Partner, nor his or
her legal representatives, shall have the right to an account of
his or her interest as against the Partnership continuing the
business, and no Partner, nor his or her legal representatives, as
against the Partnership continuing the business, shall have the
right to have the value of his or her interest as of the date of
dissolution ascertained nor have any right as a creditor or
otherwise with respect to the value of his or her interest.
</PAGE> 151
<PAGE>
12.3 Liquidation and Winding Up. If dissolution of the
Partnership should be caused by reason of (a) an event that makes
it unlawful for the business of the Partnership to be carried on
or for the Partners to carry it on in the Partnership, (b) the
bankruptcy of the Partnership, (c) the withdrawal or expulsion of
a General Partner and no substitute General Partner has been
timely admitted as provided in Article X, with the result that
there is no General Partner acting, (d) a decree of court that
other circumstances render a dissolution and winding up of the
affairs of the Partnership equitable or required by law, (e) the
sale of all or substantially all of the assets of the Partnership,
(f) the express will of Limited Partners as provided in Section
12.1(g) above, the Partnership shall be liquidated and the
Managing General Partner (or the person or persons selected by a
decree of court to carry out the winding up of the affairs of the
Partnership) shall wind up the affairs of the Partnership.
The Managing General Partner or the person winding up the
affairs of the Partnership shall promptly proceed to liquidate the
Partnership. No distribution upon liquidation in kind of property
and assets shall be made to Limited Partners. In settling the
accounts of the Partnership, the assets and the property of the
Partnership shall be distributed in the following order of
priority:
(a) To the payment of all debts and liabilities of the
Partnership, including loans by Partners that are secured by
mortgages, but excluding any other loans or advances that may
have been made by the Partners to the Partnership, in the order
of priority as provided by law;
(b) To the establishment of any reserves deemed necessary by
the Managing General Partner or the person winding up the affairs
of the Partnership for any contingent liabilities or obligations
of the Partnership;
(c) To the repayment of any unsecured loans or advances that
may have been made by any Partners to the Partnership in the
order of priority as provided by law;
(d) Any remaining balance will be distributed to the
Partners pro rata based on each Partner's positive capital
account balance, after giving effect to allocations pursuant to
Sections 5.1 and 5.3 and after taking into account all capital
account adjustments for the Partnership taxable year during which
liquidation occurs (other than those made pursuant to this
Section 12.3(d)).
XIII. Miscellaneous Provisions
13.1 Interpretation. The terms and provisions of this
agreement shall be governed by and construed in accordance with
the laws of the State of Minnesota. All references herein to
Articles and Sections refer to Articles and Sections of this
agreement. All Article and Section headings are for reference
purposes only and shall not affect the interpretation of this
agreement.The use of the masculine gender, for all purposes of this
agreement, shall be deemed to refer to both male and female Partners.
</PAGE> 152
<PAGE>
13.2 Notice. Any notice given in connection with the
business of the Partnership shall be duly given if mailed, by
certified or registered mail, postage prepaid: if to the
Partnership, to the principal office of the Partnership set forth
in Section 1.2 or to such other address as the Partnership may
hereafter designate by notice to the Partners; if to the Managing
General Partner or the Individual General Partner, to the address
set forth in Section 1.3 or such other address as such General
Partners may hereafter designate by notice to the Partnership; if
to the Limited Partners, to the addresses set forth in the
subscription agreement executed by each Limited Partner or to such
other address as such Limited Partners may hereafter designate by
notice to the Partnership.
13.3 Successors and Assigns. Except as herein otherwise
provided to the contrary, this agreement shall be binding upon and
inure to the benefit of the parties hereto and their personal
representatives, assigns and successors.
13.4 Counterparts. This agreement may be executed in
several counterparts, and all so executed shall constitute one
agreement, binding on all parties hereto, notwithstanding that all
of the parties are not signatory to the original or the same
counterpart.
13.5 Severability. In the event that any provision of this
agreement shall be held to be invalid, the same shall not affect
the validity of the remainder of this agreement or the validity or
the formation of the Partnership as a limited partnership under
the Limited Partnership Act.
IN WITNESS WHEREOF, this agreement has been executed as of
the day of ,199 .
LIMITED PARTNERS GENERAL PARTNERS
By AEI Fund Management XXI, Inc., AEI Fund Management XXI, Inc.
attorney-in-fact Managing General Partner
By By
Robert P. Johnson, President Robert P. Johnson, President
Robert P. Johnson,
Individual General Partner
</PAGE> 153
<PAGE>
EXHIBIT B
PRIOR PERFORMANCE TABLES
The information presented in the following tables updates the
tables included at pages B-1 through B-10 of the Prospectus.
Such information represents the historical experience of all
public real estate programs organized by the General Partners or
their Affiliates during the periods indicated. Investors in the
Fund should not assume that they will experience returns, if any,
comparable to those experienced by investors in such prior real
estate programs.
Additional information relating to the performance of prior
programs is contained in Part II of the Registration Statement,
of which this Supplement and the Prospectus are a part, that has
been filed with the Securities and Exchange Commission. Such
information may be obtained by contacting Mr. Robert P. Johnson,
President, AEI Fund Management XXI, Inc., 1300 Minnesota World
Trade Center, 30 East Seventh Street, Saint Paul, Minnesota
55101.
The programs included in the following tables have investment
objectives similar to those of the Partnership, including
protection of capital, distribution of partially "tax sheltered"
cash flow from operations, and capital appreciation.
Table Index Description
I Experience in Raising and Investing Funds
II Compensation to Sponsors
III Operating Results of Prior Partnerships
IV Results of Completed Programs
V Sales or Disposals of Properties
</PAGE> 154
<PAGE> TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(Unaudited)
The following table provides information at December 31, 1997,
as to the experience of the General Partners and their Affiliates
in raising and investing funds with respect to all prior public
programs closed in the last five years.
AEI AEI
Net Lease Net Lease AEI
Income & Income & Income &
Growth Growth Growth
Fund XIX Fund XX Fund XXI
Dollar Amount Offered $ 30,000,000 $ 24,000,000 $ 24,000,000
Dollar Amount Raised $ 21,151,928 $ 24,000,000 $ 24,000,000<F17>
Percentage of Amount
Raised 100.0% 100.0% 100.0%
Less Offering Expenses:
Selling Commissions
and Discounts 7.0 8.0 8.0
Organizational
Expenses 7.3 5.7 5.6
Other <F1> 4.2 2.2 4.3
Less Reserves 0.1 0.1 0.1
------------ ------------ ------------
Percent Available
for Investment 81.4% 84.0% 82.0%
============ ============ ============
Acquisition Costs:
Prepaid Items and
Fees Related
to Purchase of
Property 0.0% 0.0% 0.0%
Investment in
Properties <F2> 81.4 84.0 73.2<F3>
Acquisition Fees 0.0 0.0 0.0
------------ ------------ ------------
Total Acquisition Cost 81.4% 84.0% 73.2%
============ ============ ============
Percent Leverage 0.0% 0.0% 0.0%
Date Offering Began Feb. 91 Jan. 93 Feb. 95
Length of Offering
(months) 24 24 24
Months to Invest 90% of
Amount Available for
Investment (measured
from beginning of
offering) 34 38 36
<F1> Represents distributions in excess of net cash flow (return of
capital).
<F2> Includes cash down payments and capitalized costs and expenses
related to the purchase of properties, including the cost of
appraisals, attorney's fees, expenses of personnel in
investigating properties, and overhead allocated to such activities.
<F3> Acquisitions are in process.
</PAGE> 155
<PAGE>
TABLE II
COMPENSATION TO SPONSORS
(Unaudited)
The following table provides information as to the compensation paid to
the General Partners and their Affiliates during the period from February,
1991 to December 31, 1997 for all prior public programs closed in the last
five years.
AEI AEI
Net Lease Net Lease AEI
Income & Income & Income &
Growth Growth Growth
Type of Compensation Fund XIX Fund XX Fund XXI
Date Offering Commenced Feb. 91 Jan. 93 Feb. 95
Dollar Amount Raised $ 21,151,928 $ 24,000,000 $ 24,000,000
Amount Paid to Sponsors
From Proceeds of Offering:
Underwriting Fees <F1> 407,378 471,307 466,013
Acquisition Expenses
- purchase option on
property 0 0 0
- real estate
commission 0 0 0
- expense
reimbursement 931,909<F3> 793,843<F3> 516,519<F3>
Organization Offering
Expenses 345,490 227,451 359,605
Dollar Amount of Cash
Generated From
Operations Before
Deducting Payments
to Sponsors 10,317,099 7,164,836 2,968,812
Amount Paid to Sponsors
From Operations:
Property Management
Fees <F2> 0 0 0
Partnership
Management Fees <F2> 0 0 0
Reimbursements 1,623,883 1,099,934 625,158
Leasing Commissions 0 0 0
Participation in Cash Distributions 98,322 66,085 33,800
Dollar Amount of Property
Sales and Refinancing
Before Deducting
Payments to Sponsors:
- cash 8,607,297 3,548,896 520,790
- notes 2,216,982 0 0
Amount Paid to Sponsors
From Property Sales
and Refinancing:
Real Estate
Commissions 0 0 0
Incentive Fees 0 0 0
Participation in Cash
Distributions 9,537 7,109 3,520
</PAGE> 156
<PAGE>
<F1> Does not include fees paid to AEI Incorporated which were
reallowed to participating dealers.
<F2> Although not paid a fixed fee for property management and
partnership management, the General Partners and Affiliates
were reimbursed at their Cost for the provision of such
services. Such reimbursements are reflected under the line
item "Amount Paid to Sponsors From Operations-Reimbursements."
<F3> The Partnerships received reimbursements from the lessees
in the form of financing fees, commitment fees and expense
reimbursements to offset these costs. The reimbursements
received by Fund XIX and Fund XX and Fund XXI totaled
$627,692, $355,010 and $342,001, respectively.
</PAGE> 157
<PAGE>
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
The following tables provide information as to the results of all
prior programs closed in the past five years for each year of the
five years (or from inception if formed after January 1, 1992)
ended December 31, 1997.
<CAPTION>
AEI NET LEASE INCOME & GROWTH FUND XIX
Year Ended December 31
<S> <C> <C> <C> <C> <C>
1993 1994 1995 1996 1997
Gross Revenues from
Operations $1,837,921 $2,407,235 $2,282,282 $2,124,542 $1,792,599
Profit on Sale of
Properties 155,035 431,484 969,054 571,927 77,703
Less:
Operating Expenses 291,635 291,636 292,268 352,591 360,253
Depreciation 194,173 373,799 369,226 340,721 313,146
Minority Interest in
Net Operating Income 58,188 165,801 311,287 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $1,448,960 $2,007,483 $2,278,555 $2,003,157 $ (113,581)
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $1,210,836 $1,470,087 $1,206,527 $1,500,668 $ 952,997
-from gain on sale 157,420 438,278 933,622 588,768 93,755
=========== =========== =========== =========== ===========
Cash Generated (Deficiency)
From Operations $1,158,331 $2,099,865 $1,466,120 $1,929,889 $1,423,151
Cash Generated From Sales 574,859 1,765,130 5,367,636 1,334,525 675,838
Cash Generated From
Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 1,733,190 3,864,995 6,833,756 3,246,414 2,098,989
Less: Cash Distributions
to Investors
-from operating cash flow 1,158,331 1,915,568 1,466,120 1,799,923 1,423,151
-from sales and refinancing 0 165,972 419,246 121,458 247,028
-from cash reserves <F1> 735,571 0 224,365 0 109,996
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (160,712) 1,783,455 4,724,025 1,325,033 318,814
Less: Special Items (Not
Including Sales and
Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions
and Special Items $ (160,712) $1,783,455 $4,724,025 $1,324,787 $ 318,814
=========== =========== =========== =========== ===========
</PAGE> 158
<PAGE>
Tax and Distribution Data
Per $1,000 Invested <F2>
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 58 69 57 70 45
-from recapture 8 7 23 4 1
Capital Gain (Loss) 0 13 20 24 3
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 69 94 99 90 0
-Return of Capital 21 3 0 0 84
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 8 20 6 12
-Refinancing 0 0 0 0 0
-Operations 55 89 69 84 67
-Cash Reserves <F1> 35 0 10 0 5
Amount (in percentage terms)
remaining invested in program
properties at the end of the
last period reported in the
Table 0 0 0 0 100%
</TABLE>
[FN]
<F1> Represents initial capital or cash retained from prior years' cash flow.
<F2> Based on an investment of a weighted average unit outstanding.
</FN>
</PAGE> 159
<PAGE>
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
<TABLE>
AEI NET LEASE INCOME & GROWTH FUND XX
<CAPTION>
Years Ended December 31
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Gross Revenues from Operations $ 139,288 $ 1,046,839 $ 1,852,292 $ 2,359,797 $ 2,003,892
Profit on Sale of Properties 0 0 225,180 87,281 472,575
Less:
Operating Expenses 114,321 297,038 292,122 255,505 354,554
Depreciation 6,008 124,146 251,092 381,794 390,066
Real Estate Impairment 0 0 0 0 626,800
Minority Interest in Net
Operating Income 0 0 19,454 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ 18,959 $ 625,655 $ 1,514,804 $ 1,809,779 $ 1,105,047
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 127,265 $ 809,315 $ 1,275,827 $ 1,720,326 $ 1,274,296
-from gain on sale 0 0 223,456 85,640 469,188
=========== =========== =========== =========== ===========
Cash Generated (Deficiency)
From Operations $ 126,644 $ 637,370 $ 1,583,637 $ 2,145,303 1,604,421
Cash Generated From Sales 0 0 988,838 461,077 2,098,981
Cash Generated From Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 126,644 637,370 2,572,475 2,606,380 3,703,402
Less: Cash Distributions to Investors
-from operating cash flow 64,800 637,370 1,467,084 2,034,864 1,604,421
-from sales and refinancing 0 0 486,375 100,571 124,011
-from cash reserves <F1> 0 216,850 0 0 388,234
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 61,844 (216,850) 619,016 470,945 1,586,736
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 61,844 $ (216,850) $ 619,016 $ 470,945 1,586,736
=========== =========== =========== =========== ===========
</PAGE> 160
<PAGE>
Tax and Distribution Data
Per $1,000 Invested <F2>
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 28 58 53 72 53
-from recapture 0 0 2 1 4
Capital Gain (Loss) 0 0 7 3 15
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 4 45 63 75 46
-Return of Capital 10 16 18 14 43
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 20 4 5
-Refinancing 0 0 0 0 0
-Operations 14 45 61 85 68
-Cash Reserves <F1> 0 16 0 0 16
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 0 98%
</TABLE>
<F1> Represents initial capital or cash retained from prior years' cash flow.
<F2> Based on an investment of a weighted average Unit outstanding.
</PAGE> 161
<PAGE>
<TABLE>
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
AEI INCOME & GROWTH FUND XXI
<CAPTION>
August 31, 1994
(Operations Commenced) Years Ended December 31
to December 31, 1994 1995 1996 1997
<C> <S> <S> <S> <S>
Gross Revenues from Operations $ 0 $ 263,399 $1,341,753 $1,513,094
Profit on Sale of Properties 0 0 0 106,551
Less:
Operating Expenses 2,915 144,180 278,563 348,934
Depreciation 0 11,687 150,958 251,272
Real Estate Impairment 0 0 0 580,200
----------- ----------- ---------- ----------
Net Income (Loss)-GAAP Basis $ (2,915) $ 107,532 $ 912,232 $ 439,239
=========== =========== ========== ==========
Taxable Income (Loss):
-from operations $ 0 $ 245,581 $1,135,292 $ 937,374
-from gain on sale 0 0 0 102,599
=========== =========== ========== ==========
Cash Generated (Deficiency)
From Operations $ (14) $ 171,812 $1,098,924 $ 966,562
Cash Generated From Sales 0 0 0 520,790
Cash Generated From Refinancing 0 0 0 0
----------- ----------- ---------- ----------
Cash Generated From Operations,
Sales and Refinancing (14) 171,812 1,098,924 1,487,352
Less: Cash Distributions to Investors
-from operating cash flow 0 171,812 1,098,924 966,562
-from sales and refinancing 0 0 0 352,009
-from cash reserves <F1> 0 21,611 75,670 720,708
----------- ----------- ---------- ----------
Cash Generated (Deficiency)
After Cash Distributions (14) (21,611) (75,670) (551,927)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0
----------- ----------- ---------- ----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (14) $ (21,611) $ (75,670) $ (551,927)
=========== =========== ==========
</PAGE> 162
<PAGE>
Tax and Distribution Data
Per $1,000 Invested <F2>
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 0 35 64 39
-from recapture 0 0 0 0
Capital Gain (Loss) 0 0 0 4
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 0 15 52 18
-Return of Capital 0 13 14 66
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 0 14
-Refinancing 0 0 0 0
-Operations 0 25 62 40
-Cash Reserves <F1> 0 3 4 30
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 99%
</TABLE>
<F1> Represents initial capital or cash retained from prior years' cash flow.
<F2> Based on an investment of a weighted average Unit outstanding.
</PAGE> 163
<PAGE>
TABLE IV
RESULTS OF COMPLETED PROGRAMS
None of the public partnerships sponsored by the General Partners or
their Affiliates have completed operations.
</PAGE> 164
<PAGE>
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
The following table provides information with respect to
sales or disposals of property by prior programs during the past
three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Taco Cabana
Income & Growth Waco,
Fund XIX Texas <F2> May 92 Jan 95 138,351 0 0 0 138,351 0 95,180 95,180 34,648
AEI Real Estate Hardee's
Fund 85-A Sierra Vista,
Arizona July 86 March 95 296,020 0 0 0 296,020 0 580,050 580,050 710,275
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado<F2> Dec. 92 March 95 141,542 0 0 0 141,542 0 111,589 111,589 30,721
AEI Net Lease SportsTown
Income & Growth Greensboro,
Fund XIX North
Carolina<F3> May 94 April 95 2,942,532 0 341,701 0 3,284,233 0 2,917,284 2,917,284 295,998
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado<F2> Dec.92 June 95 299,759 0 0 0 299,759 0 235,846 235,846 71,105
AEI Net Lease Taco Cabana
Income & Growth Waco,
Fund XIX Texas<F2> May 92 June 95 131,257 0 0 0 131,257 0 93,637 93,637 39,535
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado<F2> Dec.92 June 95 216,443 0 0 0 216,443 0 173,417 173,417 52,344
AEI Real Estate Cheddar's
Fund 86-A Columbus,
Ohio<F4> June 90 July 95 314,826 0 0 0 314,826 0 306,711 306,711 201,737
</TABLE>
</PAGE> 165
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real Estate Cheddar's
Fund XVIII Columbus,
Ohio <F4> June 90 July 95 1,259,320 0 0 0 1,259,320 0 1,306,192 1,306,192 805,116
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky<F2> June 93 July 95 238,320 0 0 0 238,320 0 185,056 185,056 46,450
AEI Real Estate Fair Muffler
Fund 85-A Ashwaubenon,
Wisconsin Oct. 85 July 95 299,874 0 0 0 299,874 0 230,134 230,134 311,572
AEI Net Lease Black-Eyed Pea
Income & Growth Davie,
Fund XIX Florida Aug. 94 July 95 184,971 0 1,556,982 0 1,741,953 0 1,781,075 1,781,075 209,831
AEI Real Estate Applebee's
Fund 86-A Fort Myers,
Florida Feb. 88 July 95 1,646,608 0 0 0 1,646,608 0 1,179,405 1,179,405 1,152,645
AEI Real Estate Applebee's
Fund XVI Columbia,
South
Carolina<F5> May 88 July 95 990,453 0 0 0 990,453 0 723,823 723,823 716,868
AEI Real Estate Applebee's
Fund XVII Columbia,
South
Carolina<F5> May 88 July 95 715,545 0 0 0 715,545 0 534,973 534,793 516,452
AEI Net Lease HomeTown Buffet
Income & Growth Albuquerque,
Fund XX New Mexico<F2>Sept.93 Aug. 95 365,678 0 0 0 365,678 0 309,413 309,413 70,539
</TABLE>
</PAGE> 166
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real Estate Hardee's
Fund 85-A Wayne,
Nebraska Dec. 85 Aug. 95 474,530 0 0 0 474,530 0 447,944 447,944 619,736
AEI Real Estate Applebee's
Fund XVII Hampton,
Virginia July 88 Aug. 95 1,747,127 0 0 0 1,747,127 0 1,287,072 1,287,072 1,326,976
AEI Real Estate Applebee's
Fund XVIII Memphis,
Tennessee Aug. 89 Sept. 95 1,444,822 0 0 0 1,444,822 0 1,126,919 1,126,919 951,090
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida<F2> Oct. 93 Sept. 95 215,211 0 0 0 215,211 0 163,548 163,548 41,808
AEI Net Lease HomeTown Buffet
Income& Growth Albuquerque,
Fund XX New Mexico<F2> Sept.93 Oct. 95 180,622 0 0 0 180,622 0 136,866 136,866 33,862
AEI Net Lease HomeTown Buffet
Income& Growth Albuquerque,
Fund XX New Mexico<F2> Sept.93 Oct. 95 270,352 0 0 0 270,352 0 207,742 207,742 51,603
AEIReal Estate Jiffy Lube
Fund XVI Dallas,
Texas<F5> Dec. 87 Oct. 95 161,218 0 0 0 161,218 0 154,781 154,781 146,941
AEIReal Estate Jiffy Lube
Fund XVII Dallas,
Texas <F5> Mar. 88 Oct. 95 483,653 0 0 0 483,653 0 454,300 454,300 396,126
</TABLE>
</PAGE> 167
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEIReal Estate Jiffy Lube
Fund XVI Garland,
Texas<F5> Dec. 87 Oct. 95 322,443 0 0 0 322,443 0 301,884 301,884 277,244
AEIReal Estate Jiffy Lube
Fund XVII Garland,
Texas <F5> Feb. 88 Oct. 95 322,442 0 0 0 322,442 0 303,108 303,108 265,759
AEIReal Estate Applebee's
Fund XVII Richmond,
Virginia Sept.88 Oct. 95 1,755,975 149,463 0 0 1,905,438 0 1,375,732 1,375,732 1,291,422
AEIReal Estate Applebee's
Fund XVII Virginia Beach,
Virginia Oct. 88 Nov.95 1,496,613 0 0 0 1,496,613 0 1,106,638 1,106,638 1,088,206
AEINetLease HomeTown Buffet
Income&Growth Albuquerque,New
FundXIX Mexico<F2> Sept.93 Dec.95 172,186 0 0 0 172,186 0 138,494 138,494 36,594
AEI Net Lease Applebee's
Income &Growth Temple Terrace,
Fund XIX Florida<F2> Oct. 93 Dec. 95 171,714 0 0 0 171,714 0 126,414 126,414 35,449
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky<F2> Jun. 93 Dec. 95 172,924 0 0 0 172,924 0 134,587 134,587 40,579
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky<F2> Jun. 93 Dec. 95 172,910 0 0 0 172,910 0 134,586 134,586 40,579
</TABLE>
</PAGE> 168
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Lease Auto Max
Income & Growth St. Paul,
Fund 84-A Minnesota May 85 Mar. 96 327,622 0 0 0 327,622 0 302,540 302,540 438,053
AEI Real Estate Super 8
Fund XV Hot Springs,
Arkansas<F6> Apr.88 Mar. 96 663,386 0 0 0 663,386 0 581,541 581,541 635,940
AEI Real Estate Super 8
Fund XVI Hot Springs,
Arkansas<F6> Apr.88 Mar. 96 663,386 0 0 0 663,386 0 583,653 583,653 635,834
AEI Net Lease HomeTown Buffet
Income &Growth Tucson,
Fund XIX Arizona<F2> Jun.93 Apr. 96 201,357 0 0 0 201,357 0 164,251 164,251 55,127
AEI RealEstate Office Building
Fund 86-A Kearney,
Nebraska Dec.86 Apr. 96 329,785 0 0 0 329,785 0 434,623 434,623 251,182
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky<F2> Jun.93 Apr. 96 86,495 0 0 0 86,495 0 63,334 63,334 22,161
AEI RealEstate Taco Cabana
Fund XVIII New Braunfels,
Texas May 92 May 96 962,298 0 0 0 962,298 0 784,045 784,045 431,686
AEI Net Lease Applebee's
Income &Growth Crestview Hills,
Fund XIX Kentucky<F2> Jun.93 May 96 216,781 0 0 0 216,781 0 158,336 158,336 56,433
</TABLE>
</PAGE> 169
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Lease Auto Max
Income& Growth St. Paul,
Fund 84-A Minnesota May 85 May 96 401,778 9,254 0 0 411,032 60,000 340,650 400,650 561,189
AEI Net Lease Applebee's
Income & Growth Temple Terrace,
Fund XIX Florida<F2> Oct.93 Jun.96 87,119 0 0 0 87,119 0 60,500 60,500 21,024
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas<F2> July 91 Aug.96 217,260 0 0 0 217,260 0 158,441 158,441 100,302
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> Apr. 96 Sept.96 123,933 0 0 0 123,933 0 108,418 108,418 3,925
AEI Real Estate Danny's Family
Fund XVII Car Wash
Phoenix,
Arizona Feb. 89 Sept.96 1,690,844 0 0 0 1,690,844 0 1,688,271 1,688,271 1,547,290
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia<F2> May 94 Sept.96 181,496 0 0 0 181,496 0 152,812 152,812 39,599
AEI Real Estate Taco Cabana
Fund XVIII San Antonio,
Texas,<F2> Jul. 91 Oct. 96 173,913 0 0 0 173,913 0 122,467 122,467 80,899
AEI Real Estate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> Apr. 96 Oct. 96 147,152 0 0 0 147,152 0 127,551 127,551 5,677
</TABLE>
</PAGE> 170
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky<F2> June 93 Oct. 96 224,036 0 0 0 224,036 0 172,104 172,104 70,701
AEI Net Lease Taco Cabana
Income & Growth Round Rock,
Fund XIX Texas July 94 Nov. 96 303,049 0 660,000 0 963,049 0 784,210 784,210 437,864
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida<F2> Oct. 93 Nov. 96 215,688 0 0 0 215,688 0 152,674 152,674 62,188
AEI Net Lease Arby's/Mrs. Winner's
Income& Growth Smyrna,
Fund XX Georgia<F2> May 94 Dec. 96 279,580 0 0 0 279,580 0 240,680 240,680 67,468
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas<F2> July 91 Dec. 96 216,663 0 0 0 216,663 0 153,084 153,084 105,337
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida<F2> Nov. 91 Dec. 96 191,781 0 0 0 191,781 0 141,215 141,215 91,618
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida<F2> Nov. 91 Dec. 96 168,333 0 0 0 168,333 0 123,976 123,976 80,435
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> Apr. 96 Jan. 97 176,383 0 0 0 176,383 0 150,060 150,060 11,427
</TABLE>
</PAGE> 171
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida<F2> Oct.93 Jan.97 175,838 0 0 0 175,838 0 122,139 122,139 51,877
AEI Net Lease Arby's/Mrs. Winner's
Income &Growth Smyrna,
Fund XX Georgia<F2> May 94 Jan.97 224,838 0 0 0 224,838 0 196,635 196,635 57,179
AEIReal Estate Sizzler
Fund XVI Kings Island,
Ohio<F7> Jan.90 Jan.97 149,202 0 0 0 149,202 0 468,140 468,140 131,208
AEIReal Estate Sizzler
Fund XVII Kings Island,
Ohio<F7> Jan.90 Jan.97 315,229 0 0 0 315,229 0 1,048,666 1,048,666 301,231
AEIReal Estate Sizzler
Fund XVIII Kings Island,
Ohio<F7> Jan.90 Jan.97 19,867 0 0 0 19,867 0 66,093 66,093 18,900
AEIReal Estate Children's World
Fund XV Moreno Valley,
California May 87 Jan.97 1,301,342 0 0 0 1,301,342 0 963,717 963,717 1,196,605
AEIet Lease Rally's
Income& Growth Brownsville,
Fund XIX Texas July 93 Feb.97 250,000 0 0 0 250,000 0 281,713 281,713 83,200
AEI Net Lease Rally's
Income& Growth Edinburg,
Fund XIX Texas July 93 Feb.97 250,000 0 0 0 250,000 0 281,761 281,761 83,221
</TABLE>
</PAGE> 172
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEIReal Estate Automax
Fund XV Minneapolis,
Minnesota June 86 Feb.97 411,993 0 0 0 411,993 0 388,800 388,800 539,623
AEIReal Estate Taco Cabana
Fund XVIII San Antonio,
Texas<F2> July 91 Feb.97 192,268 0 0 0 192,268 0 133,503 133,503 95,414
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida<F2> Nov. 91 Mar.97 230,971 0 0 0 230,971 0 175,029 175,029 117,929
AEIReal Estate Champps
Fund XVIII Columbus,
Ohio<F2> Aug. 96 Mar.97 220,067 0 0 0 220,067 0 181,887 181,887 10,447
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> Apr. 96 Mar.97 42,331 0 0 0 42,331 0 36,092 36,092 3,449
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida<F2> Nov. 91 Mar.97 231,740 0 0 0 231,740 0 175,028 175,028 118,592
AEIReal Estate Champps
Fund XVIII Columbus,
Ohio<F2> Aug. 96 Mar.97 219,568 0 0 0 219,568 0 181,886 181,886 11,039
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> Apr. 96 Mar.97 219,996 0 0 0 219,996 0 187,574 187,574 18,517
</TABLE>
</PAGE> 173
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia<F2> May 94 Apr. 97 189,017 0 0 0 189,017 0 166,517 166,517 53,623
AEI RealEstate Champps
Fund XVIII Columbus,
Ohio<F2> Aug. 96 July 97 368,142 0 0 0 368,142 0 304,040 304,040 30,138
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia<F2> May 94 Aug 97 174,495 0 0 0 174,495 0 152,812 152,812 54,721
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida <F2> Nov 91 Sept.97 216,157 0 0 0 216,157 0 160,443 160,443 118,263
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida <F2> Nov 91 Sept.97 263,568 0 0 0 263,568 0 198,898 198,898 147,315
AEI RealEstate Sizzler
Fund XVIII Fairfield,
Ohio Mar.91 Sept.97 528,476 0 0 0 528,476 0 1,608,265 1,608,265 208,636
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas <F2> July 91 Sept.97 267,448 0 0 0 267,448 0 180,533 180,533 143,024
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna
Fund XX Georgia <F2> May 94 Sept.97 224,663 0 0 0 224,663 0 180,203 180,203 67,210
</TABLE>
</PAGE> 174
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio <F2> July 94 Sept.97 135,839 0 0 0 135,839 0 107,517 107,517 37,838
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio <F2> Aug. 96 Sept.97 225,622 0 0 0 225,622 0 189,156 189,156 21,417
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas <F2> July 91 Oct. 97 226,316 0 0 0 226,316 0 147,978 147,978 118,031
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia<F2> May 94 Oct. 97 169,721 0 0 0 169,721 0 136,955 136,955 51,473
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio <F2> July 94 Oct. 97 275,421 0 0 0 275,421 0 217,027 217,027 77,008
Net Lease Rio Bravo
Income & Growth St. Paul,
Fund 84-A Minnesota<F2> Feb. 85 Oct. 97 177,504 0 0 0 177,504 0 202,961 202,961 267,864
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas <F2> July 91 Oct. 97 226,315 0 0 0 226,315 0 147,977 147,977 118,888
Net Lease Chi-Chi's
Income & Growth Appleton,
Fund 84-A Wisconsin<F2> Feb. 85 Nov. 97 276,279 0 0 0 276,279 0 246,174 246,174 398,842
</TABLE>
</PAGE> 175
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI RealEstate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> Apr. 96 Nov. 97 296,961 0 0 0 296,961 0 237,846 237,846 38,903
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio <F2> Aug. 96 Nov. 97 295,168 0 0 0 295,168 0 239,850 239,850 29,608
AEI RealEstate Tractor Supply
Fund XVIII Bristol,
Virginia<F2> July 94 Nov. 97 182,816 0 0 0 182,816 0 150,061 150,061 25,256
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio<F2> July 94 Dec. 97 227,960 0 0 0 227,960 0 177,891 177,891 66,211
Net Lease Gingham's
Income & Growth St. Charles,
Fund 84-A Missouri<F2> July 85 Dec. 97 226,762 0 0 0 226,762 0 232,334 232,334 294,169
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio <F2> July 94 Dec. 97 225,225 0 0 0 225,225 0 175,756 175,756 66,207
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio <F2> July 94 Dec. 97 218,596 0 0 0 218,596 0 170,775 170,775 64,386
Net Lease Rio Bravo
Income & Growth St. Paul,
Fund 84-A Minnesota<F2> Feb. 85 Dec. 97 271,675 0 0 0 271,675 0 302,919 302,919 404,755
</TABLE>
</PAGE> 176
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real J.T. McCord's
Estate Fund Irving,
XVI Texas Dec. 87 Dec. 97 741,635 0 0 0 741,635 0 1,147,333 1,147,333 63,822
AEI Net Lease Applebee's
Income & Growth Middletown
Fund XX Ohio<F2> July 94 Jan. 98 226,459 0 0 0 226,459 0 177,891 177,891 68,325
AEI Income & Champps
Growth Fund Columbus
XXI Ohio<F2> Aug. 96 Jan. 98 226,908 0 0 0 226,908 0 189,156 189,156 26,891
Net Lease Chi-Chi's
Income & Growth Appleton
Fund 84-A Wisconsin<F2> Feb. 85 Jan. 98 171,808 0 0 0 171,808 0 153,193 153,193 252,173
AEI Net Lease Champps
Income & Growth Lyndhurst
Fund XX Ohio <F2> Apr. 96 Jan. 98 182,422 0 0 0 182,422 0 149,813 149,813 25,952
AEI Net Lease Champps
Income & Growth Columbus,
Fund XXI Ohio<F2> Aug. 96 Feb. 98 181,525 0 0 0 181,525 0 132,408 132,408 20,482
</TABLE>
</PAGE> 177
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI RealEstate am/pm
Fund 86-A Mini Market
Carson City,
Nevada Aug. 87 Feb. 98 954,000 0 0 0 954,000 0 779,896 779,896 1,101,655
AEI RealEstate am/pm
Fund XVII Mini Market
Carson City,
Nevada Nov. 88 Feb. 98 850,000 0 0 0 850,000 0 703,871 703,871 872,492
</TABLE>
[FN]
<F1> Does not include deduction for partnership general and
administrative expenses not related to the properties.
<F2> Sale of less than a majority interest in the property.
<F3> The Partnership owned a 92.74194% interest in this property.
<F4> This property was owned jointly by AEI Real Estate Funds 86-A and XVIII.
<F5> This property was owned jointly by AEI Real Estate Funds XVI
and XVII.
<F6> This property was owned jointly by AEI Real Estate Funds XV
and XVI.
<F7> This property was owned jointly by AEI Real Estate Funds
XVI, XVII and XVIII.
</FN>
</PAGE> 178
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 24. Indemnification of Directors and Officers.
The Partnership Agreement provides that any losses
sustained by the General Partners arising out of their activities
on behalf of the Fund will be reimbursed by the Fund unless such
losses were the result of their negligence or misconduct.
Reference is made to Section 6.5 of the Partnership Agreement
which is attached to the Prospectus as Exhibit A.
The Registrant will agree to indemnify the non-affiliated
Dealers and their controlling persons, and the Dealers will agree
to indemnify the Registrant and its controlling persons, against
certain liabilities, including liabilities under the Securities
Act of 1933. Reference is made to the Dealer-Manager Agreement
and the Dealer Agreement filed as Exhibits 1.1 and 1.2,
respectively.
For information regarding the Registrant's undertaking to
submit to adjudication the issue of indemnification for violation
of the securities laws, see Item 26 hereof.
Item 25. Other Expenses of Issuance and Distribution.
Other expenses in connection with the registration of the
securities hereunder (other than commissions and dealer expenses),
which will be paid by the Registrant, will be substantially as
follows:
Item Amount
Minimum Maximum
SEC fees $ 8,276 $ 8,276
NASD fees 2,900 2,900
Blue sky expenses 10,000 * 60,000 *
Legal 20,000 * 115,000 *
Printing 7,500 * 75,000 *
Accounting 3,000 * 13,000 *
Literature (printing and mailing) 9,500 * 80,000 *
Postage, etc. 1,000 * 60,000 *
Personnel charges for subscription
processing, etc. 5,324 * 390,000 *
Travel expenses 0 25,000 *
Dealer due diligence reimbursement 7,500 120,000
Miscellaneous 0 10,824 *
--------- ---------
Total $ 75,000 * $ 960,000 *
========= =========
* Estimated.
</PAGE> 179
<PAGE>
Item 26. Recent Sales of Unregistered Securities.
Not applicable.
Item 27. Exhibits.
Exhibit No. Description
* 1.1 Form of Dealer-Manager Agreement.
* 1.2 Form of Dealer Agreement.
* 3.1 Certificate of Limited Partnership.
3.2 Form of Restated Limited Partnership
Agreement included as Exhibit A to Prospectus.
* 5 Opinion of Dorsey & Whitney LLP as to
the legality of the securities being registered,
including consent.
* 8 Opinion of Dorsey & Whitney LLP as to
tax matters, including consent.
* 10 Form of Impoundment Agreement with Fidelity
Bank, Edina, Minnesota. (Incorporated by
reference to Exhibit 10 of the Registrant's
Registration Statement on Form SB-2 filed
with the Commission on September 13, 1996).
*10.1 Sale and Leaseback Financing Commitment dated
May 13, 1997 between AEI Fund Management, Inc.
and Ohio Valley Bistros, Inc. relating to the
sale and leaseback of a TGI Friday's restaurant
at #1507, Rural Route #6, Greensburg,
Pennsylvania (incorporated by reference to
to Exhibit 10.1 of Form 10-QSB filed with the
Commission on November 13, 1997).
*10.2 Assignment of Sale and Leaseback Financing
Commitment dated November 14, 1997, between
the Partnership and AEI Fund Management, Inc.
relating to the sale and leaseback of a TGI
Friday's restaurant at #1507, Rural Route #6,
Greensburg, Pennsylvania (incorporated by
reference to Exhibit 10.2 of Form 10-QSB
filed with the Commission on November 13, 1997).
*10.3 Net Lease Agreement dated December 10, 1997
between the Partnership and AEI Real Estate
Fund XVII Limited Partnership and Ohio Valley
Bistros, Inc. relating to the property at
#1507, Rural Route #6, Greensburg, Pennsylvania
(incorporated by reference to Exhibit 10.1
of Form 8-K filed with the Commission on
December 18, 1997).
*Previously filed 24 Consent of Independent Public Accountants.
</PAGE> 180
<PAGE>
*99 Forward Looking Statements - Cautionary
Statement (incorporated by reference to
Form 10-KSB filed with the Commission on
March 27, 1998).
*Previously filed.
</PAGE> 181
<PAGE>
Item 28. Undertakings.
The Registrant undertakes (a) to file, during the period in
which offers or sales are being made, a post-effective amendment
to this Registration Statement to include any prospectuses
required by Section 10(a)(3) of the Securities Act of 1933 and to
include any material information with respect to the plan of
distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration Statement, (b) that for the purpose of determining
any liability under the Act each such post-effective amendment
may be deemed to be a new registration statement relating to the
securities offered therein and the offering of such securities at
that time may be deemed to be the initial bona fide offering
thereof, (c) that all post-effective amendments will comply with
the applicable forms, rules and regulations of the Commission in
effect at the time such post-effective amendments are filed, and
(d) to remove from registration by means of a post-effective
amendment any of the securities being registered which remain at
the termination of the offering.
The Registrant undertakes to send to each Limited Partner
at least on an annual basis a detailed statement of any
transactions with the General Partners or their Affiliates, and
of fees, commissions, compensation and other benefits paid, or
accrued to the General Partners or their Affiliates for the
fiscal year completed, showing the amount paid or accrued to each
recipient and the services performed.
The Registrant undertakes to provide to the Limited
Partners the financial statements required by Form 10-KSB for the
first full fiscal year of operations of the Partnership.
The Registrant undertakes to file a sticker supplement
pursuant to Rule 424(b)(3) under the Act during the distribution
period describing each property not identified in the prospectus
at such time as there arises a reasonable probability that such
property will be acquired and to consolidate such information in
a post-effective amendment filed at least once every three
months, with the information contained in such supplement or post-
effective amendment provided simultaneously to the existing
Limited Partners. Each sticker supplement shall disclose all
compensation and fees received by the General Partners and their
Affiliates in connection with any such acquisition.
The Registrant also undertakes to file, after the end of
the distribution period, a current report on Form 8-K containing
the financial statements and any additional information required
by Form S-11, to reflect each commitment (i.e., the signing of a
binding purchase agreement) made after the end of the
distribution period involving the use of 10% or more (on a
cumulative basis) of the net proceeds of the offering and to
provide the information contained in such report to the Limited
Partners at least once each quarter after the distribution period
of the offering has ended.
</PAGE> 182
<PAGE>
Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to General Partners
of the Registrant pursuant to the Limited Partnership agreement,
or otherwise, the Registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a General Partner of
the Registrant in the successful defense of any action, suit or
proceeding) is asserted by a General Partner in connection with
the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
</PAGE> 182
<PAGE>
<TABLE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
<CAPTION>
Net Lease
Income & Growth AEI Real Estate AEI Real Estate AEI Real Estate AEI Real Estate AEI Real Estate
Fund 84-A Fund 85-A Fund 85-A Fund XV Fund XV Fund XV
Champps Timber Lodge
Americana Applebee's Tractor Supply Denny's Tractor Supply Steakhoue
Schaumburg, Harlingen, Maryville, Greenville, Maryville, St. Cloud
Name, Location and Illinois Texas Tennessee Texas Tennessee Minnesota
Type of Property Restaurant Restaurant Retail Store Restaurant Retail Store Restaurant
<S> <C> <C> <C> <C> <C>
Gross Leasable Space 11,158 4,994 19,050 4,927 19,050 6,981
Date of Purchase 12/31/97 12/21/95 2/14/96 1/10/96 2/14/96 11/18/97
Mortgage Financing at
Date of Purchase 0 0 0 0 0 0
Cash Down Payment $594,301<F1> $1,360,000 $ 831,600<F1> $ 999,900 $ 214,200<F1> $ 485,005<F1>
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0 0
Other Cash Expenditures
Capitalized 25,619 33,470 5,458 28,532 5,205 25,630
Total Acquisition
Cost $619,920 $1,393,470 $ 837,058 $1,028,432 $ 219,405 $ 510,635
</TABLE>
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
</FN>
</PAGE> 183
<PAGE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
Champps
Americana Applebee's Caribou Coffee
Troy, Victoria, Marietta,
Name, Location and Michigan Texas Georgia
Type of Property Restaurant Restaurant Store
Gross Leasable Space <F2> 4,994 4,254
Date of Purchase 12/23/97 3/22/96 8/15/97
Mortgage Financing at
Date of Purchase 0 0 0
Cash Down Payment $ 393,620<F1> $1,300,860 $1,235,000
Contract Purchase
Price Plus
Acquisition Fee 0 0 0
Other Cash Expenditures
Expensed 0 0 0
Other Cash Expenditures
Capitalized <F3> 34,695 12,571
Total Acquisition Cost $ 0 $1,335,555 $1,247,571
[FN]
<F1> Represents a partial ownership interest in such property. An
Affiliated partnership(s) owns the remaining interest.
<F2> Cash down payment represents purchase of land. Restaurant is
under construction as of December 31, 1997.
<F3> A final allocation of capital costs has not been completed.
</FN>
</PAGE> 184
<PAGE>
<TABLE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
<CAPTION>
AEI REAL ESTATE FUND XVII
Timber Lodge Champps Timber Lodge
Steakhouse TGI Friday's Americana Steakhouse
St. Cloud Greensburg Troy, Rochester
Name, Location and Minnesota Pennsylvania Michigan Minnesota
Type of Property Restaurant Restaurant Restaurant Restaurant
<S> <C> <C> <C> <C>
Gross Leasable Space 6,981 4,510 <F2> <F4>
Date of Purchase 11/18/97 12/10/97 12/23/97 1/15/98
Mortgage Financing at
Date of Purchase 0 0 0 0
Cash Down Payment $ 485,005<F1> $ 990,000<F1> $ 393,620<F1> $ 406,778<F1>
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0
Other Cash Expenditures
Capitalized 11,487 19,045 <F3> <F3>
Total Acquisition Cost $ 493,492 $1,009,045 $ 0 $ 0
</TABLE>
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
<F2> Cash down payment represents purchase of land. Restaurant is
under construction as of December 31, 1997.
<F3> A final allocation of capital costs has not been completed.
<F4> Cash down payment represents purchase of land. Restaurant is
under construction.
</FN>
</PAGE> 185
<PAGE>
<TABLE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI REAL ESTATE FUND XVIII
<CAPTION>
Champps Champps
Tractor Supply Americana Fuddrucker's Americana
Bristol, Columbus, Thornton, Troy,
Name, Location and Virginia Ohio Colorado Michigan
Type of Property Retail Store Restaurant Restaurant Restaurant
<S> <C> <C> <C> <C>
Gross Leasable Space 18,750 8,170 4,977 <F2>
Date of Purchase 4/10/96 8/29/96 7/30/97 12/23/97
Mortgage Financing at
Date of Purchase 0 0 0 0
Cash Down Payment $1,068,849<F4> $ 816,906<F1> $1,380,342 $ 361,889<F1>
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0
Other Cash Expenditures
Capitalized 25,518 9,164 25,429 <F3>
Total Acquisition Cost $1,094,367 $ 826,070 $1,405,771 $ 0
</TABLE>
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
<F2> Cash down payment represents purchase of land. Restaurant is
under construction as of December 31, 1997.
<F3> A final allocation of capital costs has not been completed.
<F4> Represents a partial ownership interest in such property.
The Partnership's Individual General Partner owns the
remaining interest.
</FN>
</PAGE> 186
<PAGE>
<TABLE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI NET LEASE INCOME & GROWTH FUND XIX (Continued)
<CAPTION>
Champps
Media Play Garden Ridge Party City Americana
Apple Valley, Pineille, Gainesville, Troy,
Name, Location and Minnesota North Carolina Georgia Michigan
Type of Property Retail Store Retail Store Retail Store Restaurant
<S> <C> <C> <C> <C>
Gross Leasable Space 49,944 141,220 10,528 <F2>
Date of Purchase 12/21/95 3/28/96 12/18/97 12/23/97
Mortgage Financing at
Date of Purchase 0 0 0 0
Cash Down Payment $1,368,098<F1> $3,560,481<F1> $1,370,475 $ 361,889<F1>
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0
Other Cash Expenditures
Capitalized 21,268 54,897 64,834 <F3>
Total Acquisition Cost $1,389,366 $3,615,378 $1,435,309 $ 0
</TABLE>
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
<F2> Cash down payment represents purchase of land. Restaurant is
under construction as of December 31, 1997.`
<F3> A final allocation of capital costs has not been completed.
</FN>
</PAGE> 187
<PAGE>
<TABLE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI NET LEASE INCOME & GROWTH FUND XX
<CAPTION>
Champps
Applebee's Applebee's Denny's Media Play Garden Ridge Americana
Lafayette, Brownsville, Grapevine, Apple Valley, Pineville, Lyndhurst,
Name, Location and Louisiana Texas Texas Minnesota North Carolina Ohio
Type of Property Restaurant Restaurant Restaurant Retail Store Retail Store Restaurant
<S> <C> <C> <C> <C> <C> <C>
Gross Leasable Space 5,432 6,088 4,943 49,944 141,220 8,170
Date of Purchase 1/17/95 8/31/95 11/21/95 12/21/95 3/28/96 4/10/96
Mortgage Financing at
Date of Purchase 0 0 0 0 0 0
Cash Down Payment $1,125,000 $1,320,000 $1,287,240 $1,368,097<F1> $1,616,415<F1> $2,381,945<F1>
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0 0
Other Cash Expenditures
Capitalized 51,559 58,736 67,481 54,604 50,678 78,449
Total Acquisition
Cost $1,176,559 $1,378,736 $1,354,721 $1,422,701 $1,667,093 $2,460,394
</TABLE>
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) or Individual General Partner
owns the remaining interest.
</FN>
</PAGE> 188
<PAGE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI NET LEASE INCOME & GROWTH FUND XX (Continued)
Champps
Americana
Schaumburg,
Name, Location and Illinois
Type of Property Restaurant
Gross Leasable Space 11,158
Date of Purchase 12/31/97
Mortgage Financing at
Date of Purchase 0
Cash Down Payment $1,640,981<F1>
Contract Purchase
Price Plus
Acquisition Fee 0
Other Cash Expenditures
Expensed 0
Other Cash Expenditures
Capitalized 35,214
Total Acquisition Cost $1,676,195
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
</FN>
</PAGE> 189
<PAGE>
<TABLE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND XXI
<CAPTION>
Arby's Media Play Garden Ridge Champps Denny's Caribou Coffee
Montgomery, Apple Valley, Pineville, Columbus, Covington, Charlotte,
Name, Location and Alabama Minnesota North Carolina Ohio Louisiana North Carolina
Type of Property Restaurant Retail Store Retail Store Restaurant Restaurant Store
<S> <C> <C> <C> <C> <C> <C>
Gross Leasable Space 2,965 49,944 141,220 8,170 4,880 4,411
Date of Purchase 5/31/95 12/21/95 3/28/96 8/29/96 3/19/97 7/31/97
Mortgage Financing at
Date of Purchase 0 0 0 0 0 0
Cash Down Payment $750,000<F1> $1,409,555<F1> $3,560,481<F1> $1,764,794<F1> $1,255,489 $1,273,375<F1>
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0 0
Other Cash Expenditures
Capitalized 4,104 4,505 83,910 44,086 49,459 37,223
Total Acquisition
Cost $ 754,104 $1,414,060 $3,644,391 $1,808,880 $1,304,948 $1,310,598
</TABLE>
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
</FN>
</PAGE> 190
<PAGE>
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND XXI
Champps Champps Champps
Americana Americana Americana
San Antonio, Schaumburg, Livonia,
Name, Location and Texas Illinois Michigan
Type of Property Restaurant Restaurant Restaurant
Gross Leasable Space 8,680 11,158 <F2>
Date of Purchase 12/23/97 12/31/97 7/8/97
Mortgage Financing at
Date of Purchase 0 0 0
Cash Down Payment $2,753,700 $2,199,801<F1> $1,074,384
Contract Purchase
Price Plus
Acquisition Fee 0 0 0
Other Cash Expenditures
Expensed 0 0 0
Other Cash Expenditures
Capitalized 79,657 56,661 <F3>
Total Acquisition
Cost $2,833,357 $2,256,462 $ 0
[FN]
<F1> Represents a partial ownership interest in such property.
An affiliated partnership(s) owns the remaining interest.
<F2> Cash down payment represents purchase of land. Restaurant is
under construction as of December 31, 1997.
<F3> A final allocation of capital costs has not been completed.
</FN>
</PAGE> 191
<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 the requirements for filing on Form SB-2 and has duly caused
this Post-Effective Amendment No. 5 to the Registration Statement to
be signed on its behalf by the undersigned, thereunto duly authorized,
in the City of St. Paul on the 29th day of May, 1998.
AEI INCOME & GROWTH FUND XXII
Limited Partnership
By: AEI Fund Management XXI, Inc.
Managing General Partner
By: /s/ Robert P Johnson
Robert P. Johnson, President
Pursuant to the requirements of the Securities Act of 1933,
this Post-Effective Amendment No. 5 to the Registration Statement has
been signed by the following persons in the capacities and on the
dates indicated.
MANAGING GENERAL PARTNER
AEI Fund Management XXI, Inc.
Date
By: /s/ Robert P Johnson Sole Director and May 29, 1998
Robert P.Johnson President (principal
executive officer)
By: /s/ Mark E Larson Chief Financial Officer May 29, 1998
Mark E.Larson and Treasurer (principal
financial and accounting
officer)
INDIVIDUAL GENERAL PARTNER
By: /s/ Robert P Johnson Individual General Partner May 29, 1998
Robert P.Johnson
</PAGE> 192
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated February 4, 1998 on
the financial statements of AEI Income & Growth Fund XXII Limited Partnership
as of December 31, 1997 and for the period from inception (July 31, 1996) to
December 31, 1996 in the post effective Amendment Number 5 to Form SB-2
of AEI Income & Growth Fund XXII Limited Partnership dated on or about
May 29, 1998 and to the reference to our Firm under the caption
"Experts" in the Prospectus included therein.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P
Boulay, Heutmaker, Zibell & Co. P.L.L.P
Minneapolis, Minnesota
May 29, 1998
