<PAGE>
As filed with the Securities and Exchange Commission on January 12, 1999
Registration No. 33-66657
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------------------
AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------------------------------
WELLS REAL ESTATE FUND XII, L.P.
and
WELLS REAL ESTATE FUND XIII, L.P.
(Exact name of registrant as specified in governing instruments)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(404) 817-8500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Agent for Service)
-------------------------------------------
Georgia ______________________
(State or other (I.R.S. Employer
Jurisdiction of Incorporation) Identification Numbers)
-------------------------------------------
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act, check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]_____________________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]_________________________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [_]_________________________
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. [_]
Approximate date of commencement of proposed sale to the public: As soon as
practicable following effectiveness of this Registration Statement.
-------------------------------------------
<PAGE>
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
=========================================================================================================================
Proposed Maximum Proposed Maximum
Title of Amount Being Offering Price Aggregate Amount of
Securities Being Registered/(1)/ Registered Per Unit Offering Price Registration Fee (2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Class A Status Units of Limited
Partnership Interest
7,000,000 $10.00 $70,000,000 $19,460
Class B Status Units of Limited
Partnership Interest
=========================================================================================================================
</TABLE>
(1) Class A Status Units and Class B Status Units will be offered in
combination, such that the aggregate dollar amount of units sold will not
exceed $70,000,000.
(2) The Registration Fee of $19,460 was previously paid upon the initial filing
of the Registration Statement.
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 said Section 8(a),
may determine.
<PAGE>
WELLS REAL ESTATE FUND XII/XIII, L.P.
$1,250,000 MINIMUM OFFERING FOR EACH PARTNERSHIP
-------------------------------------------------
Units at a Purchase Price of $10.00 per Unit
-------------------------------------------------
We are offering and selling to the public 3,500,000 units of limited
partnership interest for each of Wells Real Estate Fund XII, L.P. and Wells Real
Estate Fund XIII, L.P., the proceeds of which will be invested in real estate
properties such as office buildings. Upon your purchase of units, you will elect
to have your units treated as either Cash Preferred Units or Tax Preferred
Units.
. Cash Preferred Units entitle you to distributions of cash flow from
operations.
. Tax Preferred Units entitle you to a higher percentage of growth in the
value of the partnership's real estate properties and allocations of tax
deductions.
You must purchase at least 100 units for $1,000 except in certain states as
described on page ___ of this prospectus. Your money will be placed in an
interest-bearing escrow account with NationsBank, N.A. until we receive a
minimum of $1,250,000 (125,000 units).
We will offer units in Wells Real Estate Fund XII, L.P. until the earlier
of (1) ____________, 2000, or (2) the date we sell all $35,000,000 worth of
units. We will offer units in Wells Real Estate Fund XIII, L.P. beginning
immediately upon the termination of the offering of units of Wells Real Estate
Fund XII, L.P. and will continue until the earlier of (1) ___________, 2001, or
(2) the date we sell all $35,000,000 worth of units.
You should see the complete discussion of the risk factors beginning on page 9.
Some of the more significant risks of investing in the partnership include the
following:
. No public market for units currently exists or is likely to develop so it
will be difficult for you to sell your units.
. We do not anticipate liquidating the partnership until at least 10 years
after the date we invest in the final property.
. You must rely totally upon the general partners' ability to select real
estate since we do not yet own any properties.
. The general partners will face various conflicts of interest in operating
the partnership.
The Offering:
. Our units will be offered to the public at $10 per unit for a total
offering of $35,000,000.
. We will pay selling commissions to broker-dealers of 7% and a dealer
manager fee for reimbursement of marketing expenses of 2.5% out of the
offering proceeds raised.
. We will invest approximately 84% of the offering proceeds raised in real
estate properties, and the balance will be used to pay fees and expenses.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE ATTORNEY GENERAL OF THE
STATE OF NEW YORK NOR ANY OTHER STATE SECURITIES REGULATOR HAS APPROVED OR
DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR
COMPLETE. IT IS A CRIMINAL OFFENSE IF SOMEONE TELLS YOU OTHERWISE.
THE USE OF PROJECTIONS OR FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS PROGRAM ARE NOT PERMITTED.
WELLS INVESTMENT SECURITIES, INC.
___________, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
SUMMARY OF THE OFFERING................................................................ 1
RISK FACTORS........................................................................... 9
Investment Risks.................................................................. 9
Special Risks Regarding Status of Units........................................... 17
Real Estate Risks................................................................. 18
Federal Income Tax Risks.......................................................... 21
Retirement Plan and Qualified Plan Risks.......................................... 24
SUITABILITY STANDARDS.................................................................. 26
INVESTMENT OBJECTIVES AND CRITERIA..................................................... 30
General........................................................................... 30
Acquisition and Investment Policies............................................... 30
Development and Construction of Properties........................................ 33
Acquisition of Properties from Wells Development Corporation...................... 33
Terms of Leases and Tenant Creditworthiness....................................... 35
Borrowing Policies................................................................ 36
Joint Venture Investments......................................................... 37
Disposition Policies.............................................................. 39
Other Policies.................................................................... 40
MANAGEMENT............................................................................. 41
The General Partners.............................................................. 41
Management........................................................................ 43
ESTIMATED USE OF PROCEEDS.............................................................. 45
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES.................................... 47
CONFLICTS OF INTEREST.................................................................. 50
FIDUCIARY DUTY OF THE GENERAL PARTNERS................................................. 55
PRIOR PERFORMANCE SUMMARY.............................................................. 57
Publicly Offered Unspecified Real Estate Programs................................. 58
DESCRIPTION OF THE UNITS............................................................... 66
Election of Cash Preferred Units or Tax Preferred Units........................... 66
Cash Preferred Units.............................................................. 67
Tax Preferred Units............................................................... 68
Effect of Change of Status of Units............................................... 68
</TABLE>
(i)
<PAGE>
<TABLE>
<S> <C>
DISTRIBUTIONS AND ALLOCATIONS.......................................................... 69
Distributions of Net Cash From Operations......................................... 69
Distribution of Net Sale Proceeds................................................. 70
Liquidating Distributions......................................................... 71
Return of Unused Capital Contributions............................................ 71
Partnership Allocations........................................................... 71
Monthly Distributions............................................................. 74
REAL PROPERTY INVESTMENTS.............................................................. 75
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.. 76
General........................................................................... 76
Year 2000 Issues.................................................................. 77
SUMMARY OF PARTNERSHIP AGREEMENT....................................................... 78
Powers of the General Partners.................................................... 78
Liabilities of the Limited Partners............................................... 78
Other Activities of the General Partners.......................................... 78
Rights and Obligations of Limited Partners; Nonassessability of Units............. 78
Voting Rights of the Limited Partners............................................. 79
Mergers and Consolidations........................................................ 80
Special Partnership Provisions.................................................... 80
Removal of General Partners....................................................... 80
Assignability of General Partners' Interests...................................... 81
Books and Records; Rights to Information; Annual Audits........................... 81
Meetings of Limited Partners...................................................... 81
Transferability of Units.......................................................... 81
Partnership Borrowing............................................................. 83
Repurchase of Units............................................................... 83
Distribution Reinvestment Plan.................................................... 85
Proxy to Liquidate................................................................ 87
Dissolution and Termination....................................................... 87
INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS............................. 88
General........................................................................... 88
Minimum Distribution Requirements................................................. 89
Plan Assets - Generally........................................................... 90
Plan Assets - Definition.......................................................... 90
Plan Asset Regulations - Available Exemptions..................................... 91
Plan Asset Consequences - Prohibited Transaction Excise Tax....................... 92
Annual Valuation.................................................................. 94
FEDERAL INCOME TAX CONSEQUENCES........................................................ 94
Tax Opinion....................................................................... 95
Partnership Status Generally...................................................... 97
Publicly Traded Partnerships...................................................... 98
General Principles of Partnership Taxation........................................ 100
</TABLE>
(ii)
<PAGE>
<TABLE>
<S> <C>
Anti-Abuse Rules.................................................................. 100
Deductibility of Losses - Limitations............................................. 100
Allocations of Profit and Loss.................................................... 102
Taxable Income Without Cash Distributions......................................... 105
Investment by Qualified Plans and Other Tax-Exempt Entities....................... 106
Investment by Charitable Remainder Trusts......................................... 107
Syndication and Organizational Expenses........................................... 108
Activities Not Engaged in For Profit.............................................. 108
Taxation of Real Estate Operations................................................ 109
Sales of Limited Partnership Units................................................ 110
Dissolution and Liquidation of the Partnership.................................... 111
Capital Gains and Losses.......................................................... 111
Election for Basis Adjustments.................................................... 111
Alternative Minimum Tax........................................................... 112
Penalties......................................................................... 112
Tax Shelter Registration.......................................................... 113
Tax Return, Tax Information and Audits............................................ 113
Foreign Investors as Limited Partners............................................. 114
Tax Legislation and Regulatory Proposals.......................................... 114
State and Local Taxes............................................................. 115
REPORTS TO INVESTORS................................................................... 116
PLAN OF DISTRIBUTION................................................................... 117
SUPPLEMENTAL SALES MATERIAL............................................................ 124
LEGAL OPINIONS......................................................................... 124
EXPERTS................................................................................ 124
Audited Financial Statements...................................................... 124
Unaudited Financial Statements.................................................... 124
ADDITIONAL INFORMATION................................................................. 125
GLOSSARY............................................................................... 125
FINANCIAL STATEMENTS................................................................... 127
PRIOR PERFORMANCE TABLES............................................................... 169
FORM OF AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP OF WELLS REAL ESTATE
FUND XII/XIII, L.P.............................................................. EXHIBIT A
SUBSCRIPTION AGREEMENT.......................................................... EXHIBIT B
</TABLE>
(iii)
<PAGE>
SUMMARY OF THE OFFERING
This summary highlights selected information contained elsewhere in this
prospectus. It is not complete and does not contain all of the information that
is important to your decision whether to invest in the partnership. To
understand this offering fully, you should read the entire prospectus carefully,
including the "Risk Factors" section and the financial statements.
WELLS REAL ESTATE FUND XII, L.P. AND WELLS REAL ESTATE FUND XIII, L.P.:
Wells Real Estate Fund XII, L.P. and Wells Real Estate Fund XIII, L.P. are
each newly formed Georgia limited partnerships. The business address and
registered office of each of these limited partnerships is located at the office
of the general partners, 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
(Telephone: 770-449-7800 or 800-448-1010 - outside of Georgia.) If you purchase
units in one of these limited partnerships, you will not be acquiring any
ownership interest in the other limited partnership or its properties unless you
also purchase limited partnership units in that partnership. However, the
partnerships may acquire interests in the same property through joint ventures,
and either or both of the partnerships may form joint ventures with prior or
future public real estate programs sponsored by the general partners or their
affiliates ("Wells Programs"). An affiliate of the partnership includes
generally any person owning, directly or indirectly, 10% or more of the general
partner and any officer, director or partner of a general partner.
GENERAL PARTNERS:
Leo F. Wells, III and Wells Partners, L.P., a Georgia limited partnership,
are the general partners of the partnership and will make all investment
decisions for the partnership. For information regarding the previous
experience of the general partners and their affiliates in the management of
real estate programs, see "Prior Performance Summary."
SECURITIES OFFERED:
We are offering a minimum of 125,000 units and a maximum of 3,500,000 units
in the partnership at a purchase price of $10 per unit. Upon your purchase of
our units, you will elect to have your units treated as either Cash Preferred
Units or Tax Preferred Units, which are described in more detail below.
SUMMARY RISK FACTORS:
Your investment in units involves various risks including the following:
. The Partnership Agreement imposes substantial restrictions on transfers of
your units. No public market for our units currently exists or is ever
likely to develop so it will be difficult to sell your units. If you are
able to sell your units at all, you will likely have to sell them at 85% or
less of the price you paid for them for at least the first three years.
. You will have limited voting rights and, therefore, will have minimal
control over the partnership's operations.
<PAGE>
. You must rely on the general partners and entities affiliated with them for
the day-to-day management of our business.
. The general partners have a net worth that is limited in amount,
substantially illiquid and not readily marketable. Accordingly, we cannot
guarantee that the general partners will have sufficient cash to make any
required payments to the partnership.
. The number of properties that we will acquire and the diversification of
our investments will be reduced to the extent that we sell less than all of
the 3,500,000 units. If we only sell the minimum 125,000 units, we may only
buy one property. There is a greater risk that you will lose money in your
investment if we cannot diversify our portfolio of properties by geographic
location and property type.
. The partnership will pay substantial fees to the general partners and their
affiliates regardless of whether we are successful.
. If you elect to have your units treated as Cash Preferred Units, you will
be allocated all of our net income, and substantially lower or no
deductions for depreciation and other tax losses. As a result, we
anticipate you will be allocated taxable income in excess of cash
distributions received from us if you elect Cash Preferred Units.
. If you elect to have your units treated as Tax Preferred Units, you will
not receive any cash distributions from operations. You will be allocated a
disproportionately larger share of the partnership's deductions for
depreciation and other tax losses.
. Real estate investments are subject to general downturns in the industry as
well as downturns in specific geographic areas. We cannot predict what the
occupancy level will be in a particular building or that any tenant will
remain solvent. We also cannot predict the future value of our properties.
Accordingly, we cannot guarantee that you will receive cash distributions
or appreciation of your investment.
. This is a "blind pool" offering in that we do not own any real property and
we have not identified any properties in which there is a reasonable
probability that we will invest. A reasonable probability exists when we
have entered into a contract for the purchase of a property that does not
contain material contingencies that make the ultimate closing unlikely.
Accordingly, you will not have the opportunity to evaluate the properties
that we acquire before you make your investment in us. You must rely
totally upon the general partners' ability to select properties.
. We may invest some or all of the offering proceeds to acquire vacant land
on which a building will be constructed in the future. This type of
investment involves risks relating to the builder's ability to control
construction costs, failure to perform, or failure to build in conformity
with plan specifications and timetables. We will be subject to cost
overruns and time delays for properties under construction. Increased costs
of newly constructed properties may reduce our returns to you, while
construction delays may delay our ability to distribute cash to you.
2
<PAGE>
. We do not anticipate liquidating the partnership until at least 10 to 12
years after the date we acquire our last property or complete construction
of our last building.
Before you invest in the partnership, you should see the complete
discussion of the "Risk Factors" beginning on page 9 of this prospectus.
TERMS OF THE OFFERING:
We will offer units in Wells Real Estate Fund XII, L.P. until the earlier
of:
(1) ____________, 2000; or
(2) the date we sell all $35,000,000 worth of units in Wells Real Estate
Fund XII, L.P.
We will offer units in Wells Real Estate Fund XIII, L.P. immediately upon the
termination of the offering of units of Wells Real Estate Fund XII, L.P. and
will continue until the earlier of:
(1) ___________, 2001; or
(2) the date we sell all $35,000,000 worth of units in Wells Real Estate
Fund XIII, L.P.
However, if the offering of units of Wells Real Estate Fund XIII, L.P. begins
before _____________, 2000, we may terminate the offering after one year. For
each of the offerings, we will hold your money in an interest-bearing escrow
account until we receive subscriptions for at least $1,250,000 (125,000 units).
PROPERTIES TO BE ACQUIRED:
As of the date of this prospectus, we have neither purchased nor contracted
to purchase any properties, nor have the general partners identified any
properties in which there is a reasonable probability that we will invest. Upon
receipt of proceeds of greater than $1,250,000, we will seek to acquire and
operate commercial properties, including without limitation, office buildings,
shopping centers, business and industrial parks, manufacturing facilities,
warehouses and distribution facilities, and other similar real estate
properties. We will purchase properties which are newly constructed, under
construction, or have been constructed and have operating histories. All such
properties may be acquired, developed and operated by us either alone or jointly
with another party. We are likely to enter into one or more joint ventures for
the acquisition of properties with Wells Real Estate Fund XI, L.P. ("Wells Fund
XI") and Wells Real Estate Investment Trust, Inc. (the "Wells REIT") or other
future public real estate programs sponsored by the general partners or their
affiliates. We anticipate that most of our properties will be leased on a
"triple net" basis. In other words, the tenant will pay as additional rent
substantially all costs associated with the repair and maintenance of the
building, real estate taxes, insurance and other similar costs associated with a
building.
3
<PAGE>
POSSIBLE LEVERAGE OF PROPERTIES:
We will acquire our real estate properties on an all cash basis. While the
general partners have never borrowed funds for real estate programs they have
sponsored in the past, they are authorized under the Partnership Agreement to
borrow against properties acquired by the partnership in amounts of up to 25% of
the total purchase price for purposes of the maintenance, repair or improvement
of our properties.
ESTIMATED USE OF PROCEEDS OF OFFERING:
We anticipate that we will invest approximately 84% of the proceeds of this
offering in partnership properties. We will use the remainder of offering
proceeds to pay selling commissions and fees and expenses relating to the
selection and acquisition of properties and the costs of the offering and
organizing the partnerships.
INVESTMENT OBJECTIVES:
Our investment objectives are:
. to maximize distributable cash to you;
. to preserve, protect and return your capital contribution; and
. to realize growth in the value of our properties upon our ultimate
sale of such properties.
We may only change these investment objectives upon approval of a majority of
the investors.
DISTRIBUTIONS AND ALLOCATIONS
We expect to distribute cash flow from operations to investors electing
Cash Preferred Units no later than the end of the sixth full quarter of
partnership operations.
DIFFERENCES BETWEEN CASH PREFERRED UNITS AND TAX PREFERRED UNITS:
Upon subscribing for units in the partnership, you must elect to have your
units treated as either Cash Preferred Units or Tax Preferred Units. You may
also change your election one time during each quarterly accounting period,
unless prohibited by applicable state law. Your choice of Cash Preferred Units
or Tax Preferred Units is merely an election of status for your units that
entitles you to different rights and priorities as to distributions of cash from
operations and liquidating distributions and as to the allocation of taxable
income and deductions for depreciation and other tax losses, as summarized in
the table below. In all other respects, the units have the same rights and
privileges.
4
<PAGE>
<TABLE>
<CAPTION>
================================================================================================
Description Cash Tax
Preferred Preferred
- ------------------------------------------------------------------------------------------------
<S> <C> <C>
Distribution of all cash flow from operations X
- ------------------------------------------------------------------------------------------------
Allocation of substantially all deductions and tax losses X
- ------------------------------------------------------------------------------------------------
Allocation of substantially all income X
- ------------------------------------------------------------------------------------------------
Potential for higher return on real estate appreciation X
- ------------------------------------------------------------------------------------------------
Initial priority of distribution of net sale proceeds X
================================================================================================
</TABLE>
If you elect to have your units treated as Cash Preferred Units, you will
be allocated more taxable income than the amount of cash flow you will receive
because you will be allocated little, if any, of the partnership's deductions
for depreciation and other tax losses. However, we anticipate that you will
receive sufficient cash distributions to pay your income tax liability resulting
from such allocation of income.
If you elect to have your units treated as Tax Preferred Units, you will
not receive any cash distributions from operations, but you will be allocated
substantially all of the partnership's deductions for depreciation and other tax
losses over the initial years of your investment until you are allocated
aggregate tax losses equal to the amount of the purchase price paid for your
units.
If you want to read more about each class of unit, please see the
"Description of the Units" section of the prospectus. If you want to read more
about the allocation and distribution of cash flow from operations, the net
proceeds from the sale or exchange of properties and the allocation of taxable
income and loss, please see the "Distributions and Allocations" section of the
prospectus.
CONFLICTS OF INTEREST:
The general partners and their affiliates will experience conflicts of
interest in connection with the management of the partnership, including the
following:
. The general partners and their affiliates will have to allocate their
time between the partnership and other real estate programs and
activities they are involved in.
. The general partners may compete with other Wells Programs for the
same tenants in negotiating leases or in selling similar properties at
the same time.
. The general partners must determine which Wells Program or other
entity should enter into a joint venture for the acquisition and
operation of specific properties with affiliates of the general
partners.
5
<PAGE>
. We will pay fees to the general partners and their affiliates in
connection with partnership transactions involving the purchase,
management and sale of our properties regardless of the quality of the
property acquired or the services provided to us.
See the "Conflicts of Interest" section of this prospectus on page 50 for a
detailed discussion of the various conflicts of interest relating to your
investment in units.
The following chart indicates the relationship between the general partners
and their affiliates which will be providing services to the partnership.
<TABLE>
<CAPTION>
================================================================================================
LEO F. WELLS, III
(GENERAL PARTNER)
================================================================================================
<S> <C> <C>
100%
=======================================================================================
WELLS REAL ESTATE FUNDS, INC.
=======================================================================================
100% 100% 100%
========================== =========================== ======================
WELLS CAPITAL, INC. WELLS INVESTMENT WELLS MANAGEMENT
SECURITIES, INC. COMPANY, INC.
(DEALER MANAGER) (PROPERTY MANAGER)
========================== =========================== ======================
General Partner 100%
========================== ======================
WELLS PARTNERS, L.P. WELLS DEVELOPMENT
(GENERAL PARTNER) CORPORATION
========================== ======================
</TABLE>
PRIOR OFFERING SUMMARY:
The general partners and their affiliates have previously sponsored twelve
publicly offered real estate limited partnerships and one real estate investment
trust on an unspecified property or "blind pool" basis. As of December 31,
1998, the general partners have raised approximately $______________ from
approximately _____ investors in these thirteen real estate programs. The
"Prior Performance Summary" on page 57 of this prospectus contains a discussion
of the Wells Programs sponsored to date. Certain statistical data relating to
prior
6
<PAGE>
public limited partnerships with investment objectives similar to ours is also
provided in the "Prior Performance Tables" included at the end of this
prospectus.
COMPENSATION TO GENERAL PARTNERS AND AFFILIATES:
The general partners and their affiliates will receive compensation and
fees for services relating to this offering and the investment and management of
our assets. The most significant items of compensation are included in the
following table:
<TABLE>
<CAPTION>
===============================================================================================================================
Type of Compensation Form of Compensation $$ Amount for Minimum $$ Amount for Maximum
Offering (125,000 units) Offering (3,500,000 units)
- -------------------------------------------------------------------------------------------------------------------------------
Organizational and Offering
Stage
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Sales Commission 7% of gross offering proceeds $87,500 $2,450,000
- -------------------------------------------------------------------------------------------------------------------------------
Dealer Manager Fee 2.5% of gross offering proceeds $31,250 $ 875,000
- -------------------------------------------------------------------------------------------------------------------------------
Organization and 3% of gross offering proceeds $37,500 $1,050,000
Offering Expenses
- -------------------------------------------------------------------------------------------------------------------------------
Acquisition and Development
Stage
- -------------------------------------------------------------------------------------------------------------------------------
Acquisition and 3% of gross offering proceeds $37,500 $1,050,000
Advisory Fees
- -------------------------------------------------------------------------------------------------------------------------------
Acquisition Expenses .5% of gross offering proceeds $ 6,250 $ 175,000
- -------------------------------------------------------------------------------------------------------------------------------
Operational Stage
- -------------------------------------------------------------------------------------------------------------------------------
Property Management 4.5% of gross revenues N/A N/A
and Leasing Fee
- -------------------------------------------------------------------------------------------------------------------------------
Initial Lease-Up Fee Customary fee for geographic N/A N/A
location
- -------------------------------------------------------------------------------------------------------------------------------
Cash Distributions 10% of current cash flow after N/A N/A
Cash Preferred priority return
- -------------------------------------------------------------------------------------------------------------------------------
Liquidation Stage
- -------------------------------------------------------------------------------------------------------------------------------
Real Estate 3% of sale price after investors N/A N/A
Commission receive repayment of capital plus
6% return on capital
- -------------------------------------------------------------------------------------------------------------------------------
Liquidating 20% of net sale proceeds after N/A N/A
Distribution Cash Preferred and Tax Preferred
priority returns
===============================================================================================================================
</TABLE>
7
<PAGE>
Provided, that the general partners may not receive compensation in excess
of the maximum amount permitted under the Statement of Policy Regarding Real
Estate Programs of the North American Securities Administrators Association (the
"NASAA Guidelines").
The general partners and their affiliates may receive a number of other
smaller items of incidental expense reimbursement during the operation and
liquidation stages of the partnership. Please see the "Compensation of the
General Partners and Affiliates" section of this prospectus on page 47 for
specific details relating to such compensation.
DEPRECIATION AND COST RECOVERY METHOD:
For income tax purposes, we intend to use the straight-line method of
depreciation for the real properties to be acquired. (See "Federal Income Tax
Consequences.")
PARTNERSHIP AGREEMENT:
Your rights and obligations in the partnership and your relationship with
the general partners will be governed by the Partnership Agreement. Some of the
significant features of the Partnership Agreement include the following:
. Voting Rights. A majority of you may vote to:
(1) amend the Partnership Agreement, subject to certain limitations;
(2) change our business purpose or our investment objectives; and
(3) remove a general partner.
In the event of any such vote, you will be bound by the majority vote even
if you did not vote with the majority.
. Mergers and Consolidations. The Partnership Agreement prohibits the
general partners from initiating any merger or consolidation by the
partnership with any other partnership or corporation. We may not merge or
consolidate with any other partnership or corporation without approval by a
majority of you.
For a detailed discussion concerning the terms of the Partnership Agreement,
please refer to the "Summary of Partnership Agreement" section of this
prospectus on page 78. A complete copy of the Partnership Agreement is attached
as Exhibit "A" to this prospectus.
GLOSSARY:
We have defined certain terms which have initial capital letters in the
"Glossary" on page 125 of this prospectus.
8
<PAGE>
RISK FACTORS
Your purchase of our units involves a number of risks. In addition to any
other risks discussed in this prospectus, you should specifically consider the
following:
INVESTMENT RISKS
THERE IS NO PUBLIC TRADING MARKET FOR YOUR UNITS.
We do not anticipate that a public trading market will ever develop for our
units. In fact, the Partnership Agreement restricts our ability to participate
in a public trading market or anything substantially equivalent to one by
providing that any transfer which may cause us to be classified as a "publicly
traded partnership" as defined in Section 7704 of the Code shall be deemed void
and shall not be recognized by us. Because classification of the partnership as
a "publicly traded partnership" may significantly decrease the value of your
units, the general partners intend to use their authority to the maximum extent
possible to prohibit transfers of units which could cause us to be classified as
a "publicly traded partnership."
YOUR UNITS HAVE LIMITED TRANSFERABILITY AND LACK LIQUIDITY.
Except for certain intra-family transfers, you are limited in your ability
to transfer your units. The Partnership Agreement and certain state regulatory
agencies have imposed restrictions relating to the number of units you may
transfer. In addition, the suitability standards applied to you upon the
purchase of your units may also be applied to persons to whom you wish to
transfer your units. You may not be able to sell your units in the event of an
emergency, and your units are not likely to be accepted as collateral for a
loan. (See "Summary of Partnership Agreement - Transferability of Units.")
CERTAIN ATTRIBUTES OF THIS OFFERING MAKE IT SUITABLE FOR LONG-TERM
INVESTORS ONLY.
As discussed above, your units lack a public trading market and have
transfer restrictions. In addition, we are limited in our ability to buy back
your units pursuant to the repurchase reserve. Finally, we do not anticipate
selling any properties that we acquire until at least 10 to 12 years after the
date of acquisition or completion of construction. (See "Investment Objectives
and Criteria - Disposition Policies.") You should view your investment in units
strictly as a long-term investment.
YOU ARE PARTICIPATING IN A BLIND POOL OFFERING AND MUST RELY ON THE GENERAL
PARTNERS FOR SELECTION OF PROPERTIES.
This offering is commonly referred to as a "blind pool" offering in that
the general partners have not identified any properties in which there is a
reasonable probability that we will invest. You must rely upon the ability of
the general partners with respect to the investment in and management of
unspecified properties, and you will not have an opportunity to evaluate for
yourself the relevant economic, financial and other information regarding the
specific properties in which the proceeds of this offering will be invested.
Although we are required to obtain an independent appraisal for each property we
purchase reflecting an appraised value at least equal to the purchase price paid
for such property, you should be aware that appraisals are merely estimates of
value and should not be relied upon as accurate measures of true worth or
realizable value. We cannot assure you that we will be
9
<PAGE>
successful in obtaining suitable investments or that, if investments are made,
our objectives will be achieved.
YOU MUST RELY ON THE GENERAL PARTNERS FOR MANAGEMENT OF THE PARTNERSHIP.
The general partners will make all decisions with respect to the management
of the partnership. As a limited partner, you will have no right or power to
take part in the management of the partnership except through the exercise of
your voting rights, which are limited. Therefore, you will be relying almost
entirely on the general partners with respect to the management of the
partnership and the operation of its business. (See "Management.") The general
partners may only be removed under certain conditions, as set forth in the
Partnership Agreement. If the general partners are removed, they will receive
payment equal to the fair market value of their interests in the partnership.
(See "Summary of Partnership Agreement - Voting Rights of the Limited
Partners.")
LEO F. WELLS, III HAS A DOMINANT ROLE IN DETERMINING WHAT IS IN THE BEST
INTEREST OF THE PARTNERSHIP.
Leo F. Wells, III is one of the two general partners of the partnership and
is in control of the other general partner. Therefore, one person has a
dominant role in determining what is in the best interests of the partnership
and with regard to the general partner's duty of loyalty and care owed to the
other partners. Since no person other than Mr. Wells has any direct control
over management of the partnership, we do not have the benefit of independent
consideration of issues affecting partnership operations. (See "Fiduciary Duty
of the General Partners.")
THE PARTNERSHIP DEPENDS ON KEY PERSONNEL WITHOUT EMPLOYMENT CONTRACTS.
Our success depends to a significant degree upon the continued
contributions of certain key personnel, including Leo F. Wells, III, Brian M.
Conlon and Michael C. Berndt, each of whom would be difficult to replace. None
of our key personnel are currently subject to an employment or noncompetition
agreement. If any of these key employees were to cease employment, our
operating results could suffer. We also believe that our future success
depends, in large part, upon our ability to hire and retain highly skilled
managerial, operational and marketing personnel. Competition for such personnel
is intense, and we cannot assure you that we will be successful in attracting
and retaining such skilled personnel.
THE GENERAL PARTNERS WILL FACE CONFLICTS OF INTEREST RELATING TO TIME
MANAGEMENT.
The general partners and their affiliates are also general partners and
sponsors of other real estate programs having investment objectives and legal
and financial obligations similar to the partnership. Because the general
partners and their affiliates have interests in other real estate programs and
also engage in other business activities, they will have conflicts of interest
in allocating their time between the partnership and these other activities.
During times of intense activity in other programs and ventures, the general
partners may devote less time and resources to the partnership than is necessary
or appropriate. (See "Conflicts of Interest.")
10
<PAGE>
THE GENERAL PARTNERS WILL FACE CONFLICTS OF INTEREST RELATING TO THE
PURCHASE AND LEASING OF PROPERTIES.
We may be buying properties at the same time as one or more of the other
Wells Programs are buying properties. The general partners will use their best
judgment in deciding which entity will purchase a particular property. There is
a risk that the general partners will chose a property that provides lower
returns to the partnership than a property purchased by another Wells Program.
We may acquire properties in geographic areas where other Wells Programs own
properties. If one of the Wells Programs attracts a tenant that we are
competing for, we could suffer loss of revenue from delays in locating another
suitable tenant. (See "Conflicts of Interest.")
THE GENERAL PARTNERS WILL FACE CONFLICTS OF INTEREST RELATING TO JOINT
VENTURES WITH AFFILIATES.
We are likely to enter into one or more joint ventures with other real
estate programs sponsored by the general partners ("Wells Programs") for the
acquisition, development or improvement of properties including Wells Fund XI or
the Wells REIT or other Wells Programs. We may purchase and develop properties
in joint ventures or in partnerships, co-tenancies or other co-ownership
arrangements with affiliates of the general partners, the sellers of the
properties, affiliates of the sellers, developers or other persons. Such
investments may involve risks not otherwise present, including, for example:
. the possibility that our co-venturer, co-tenant or partner in an
investment might become bankrupt;
. that such co-venturer, co-tenant or partner may at any time have
economic or business interests or goals which are or which become
inconsistent with our business interests or goals; or
. that such co-venturer, co-tenant or partner may be in a position to
take action contrary to our instructions or requests or contrary to
our policies or objectives.
Actions by such a co-venturer, co-tenant or partner might have the result of
subjecting the property to liabilities in excess of those contemplated and may
have the effect of reducing your returns.
The general partners and their affiliates are currently sponsoring a public
offering on behalf of the Wells REIT, an unspecified real estate program which
is a real estate investment trust. (See "Prior Performance Summary.") In the
event that we enter into a joint venture with the Wells REIT, we may face
certain additional risks and potential conflicts of interest. For example, upon
becoming listed on a securities exchange, the Wells REIT will automatically
become a perpetual life entity, which may no longer have similar goals and
objectives with respect to the resale of properties in the future. In addition,
in the event that the Wells REIT is not listed on a securities exchange within
10 years, the organizational documents of the Wells REIT provide for an
immediate orderly liquidation of its assets. In event of such liquidation, any
joint venture between the partnership and the Wells REIT may also be required to
sell its properties at such time even though we may not otherwise desire to do
so. Although the terms of any joint venture agreement between the partnership
and the Wells REIT would grant us a right of first refusal to buy such
properties, it is unlikely that we would have sufficient funds to exercise our
right of first refusal under these circumstances.
11
<PAGE>
Under certain joint venture arrangements, neither co-venturer may have the
power to control the venture, and an impasse could be reached regarding matters
pertaining to the joint venture, which might have a negative influence on the
joint venture and decrease potential returns to you. In the event that a co-
venturer has a right of first refusal to buy out the other co-venturer, it may
be unable to finance such buy-out at that time. It may also be difficult for us
to sell our interest in any such joint venture or partnership or as a co-tenant
in property. In addition, to the extent that our co-venturer, partner or co-
tenant is an affiliate of the general partners, certain conflicts of interest
will exist. (See "Conflicts of Interest - Joint Ventures with Affiliates of the
General Partners.")
THE GENERAL PARTNERS HAVE A LIMITED NET WORTH CONSISTING OF ASSETS THAT ARE
NOT LIQUID.
The general partners have represented that, as of September 30, 1998, they
have a combined net worth on an estimated fair market value basis of
approximately $2,667,000, exclusive of home, automobiles and home furnishings.
The fair market value method of accounting for net worth values assets at their
current values instead of reporting them at historical cost. The net worth of
the general partners consists primarily of interests in real estate, retirement
plans, partnerships, and closely-held businesses, and thus such net worth is not
liquid and not readily marketable. The limited net worth of the general
partners may be relevant to you in evaluating the ability of the general
partners to fulfill their financial obligations to the partnership. In
addition, the general partners have commitments to the other Wells Programs.
Specifically, you should consider these factors when evaluating the general
partners' obligation to advance on an interest-free basis an amount of up to 1%
of gross offering proceeds for maintenance and repairs of partnership properties
to the extent that we have insufficient funds for such purposes. (See
"Management.")
GRULPA DOES NOT GRANT YOU ANY VOTING RIGHTS AND YOUR RIGHTS ARE LIMITED
UNDER THE PARTNERSHIP AGREEMENT.
A vote of a majority in interest of the limited partners is sufficient to
take the following significant partnership actions:
. to amend the Partnership Agreement;
. to change our business purpose or our investment objectives;
. to remove the general partners; or
. to authorize a merger or a consolidation of the partnership.
These are your only significant voting rights granted under the Partnership
Agreement. In addition, the Georgia Revised Uniform Limited Partnership Act
("GRULPA") does not grant you any specific voting rights. Therefore, your
voting rights in the partnership are severely limited. (See "Summary of
Partnership Agreement - Voting Rights of the Limited Partners.")
12
<PAGE>
THE LIMITED PARTNERS ARE BOUND BY THE MAJORITY VOTE ON MATTERS ON WHICH
THEY ARE ENTITLED TO VOTE.
The limited partners may approve any of the above actions by majority vote.
Therefore, you will be bound by such majority vote even if you do not vote with
the majority on any of these actions.
THE SALE OF FEWER THAN 3,500,000 UNITS WILL RESULT IN A LESS DIVERSIFIED
PORTFOLIO OF PROPERTIES.
If we sell less than 3,500,000 units, we will purchase fewer properties
resulting in less diversification in terms of number of properties owned,
geographic region and type of property. In addition, the likelihood of our
profitability being affected by any one of our investments will increase. For
example, in the event we only raise the minimum amount of $1,250,000, we may
only be able to buy one property and, therefore, would not achieve any
diversification of our assets. Your investment in units will be subject to
greater risk to the extent that we lack a diversified portfolio of properties.
THE GENERAL PARTNERS MAY FACE CONFLICTS OF INTEREST IF THEY PURCHASE UNITS.
Pursuant to the terms of the offering, the general partners or their
affiliates may purchase units for their own account. In addition, the general
partners have broad discretion in choosing between investments in various types
of income-producing and non-income-producing properties, which will affect the
relative performance of Cash Preferred Units and Tax Preferred Units. Under the
terms of the Partnership Agreement, the general partners and their affiliates
may only elect the status of Cash Preferred Units. If the general partners or
their affiliates do purchase units, they would then have an incentive to acquire
properties which would produce more favorable results for investors electing
Cash Preferred Units, which could adversely affect investors electing Tax
Preferred Units.
WE ARE LIMITED IN OUR ABILITY TO BUY BACK YOUR UNITS PURSUANT TO THE
REPURCHASE RESERVE.
We may establish a repurchase reserve of up to 5% of cash flow annually for
the purpose of repurchasing your units at a discount. The general partners,
however, will have the sole discretion as to whether to establish a repurchase
reserve and as to whether to exercise any such repurchase of your units. The
repurchase reserve may be established only after the expiration of one year
following the end of this offering. If established, the general partners may
cancel the repurchase reserve at any time. Since the establishment of a
repurchase reserve is in the sole discretion of the general partners, we are
under no obligation to establish such a reserve or to repurchase any units from
you. Even if a repurchase reserve is established, the Partnership Agreement
limits repurchases out of the repurchase reserve to an aggregate of 2% of gross
offering proceeds throughout the life of the partnership, excluding repurchases
relating to death or legal incapacity of the owner and repurchases relating to a
substantial reduction in the owner's net worth or income. Accordingly, in
considering an investment in the partnership, you should not assume that you
will be able to sell any of your units back to us. In the event that we do
establish a repurchase reserve, the purchase price per unit will be equal to 85%
of the fair market value of your units until three years from the effective date
of the registration statement. After three years from the effective date of the
Registration Statement, the price per unit will be 90% of the fair market value
of your units. The fair market value utilized for purposes of
13
<PAGE>
establishing the purchase price per unit will be the estimated value of units to
be obtained annually for ERISA purposes. (See "Investment by Tax-Exempt Entities
and ERISA Considerations - Annual Valuations"). This means that you would
receive less by selling your units back to us than you would receive if our real
estate investments were sold for their estimated values and such proceeds were
distributed in a liquidation of the partnership. (See "Summary of Partnership
Agreement - Repurchase of Units.")
WE ESTABLISHED THE OFFERING PRICE ON AN ARBITRARY BASIS.
The general partners have arbitrarily determined the selling price of our
units and such price bears no relationship to any established criteria for
valuing issued or outstanding units of limited partnership interest or other
ownership interests at the present time.
PAYMENT OF FEES TO THE GENERAL PARTNERS AND THEIR AFFILIATES WILL REDUCE
CASH AVAILABLE FOR INVESTMENT AND DISTRIBUTION.
The general partners and their affiliates will perform services for us in
connection with the offer and sale of our units, the selection and acquisition
of our properties, and the management and leasing of our properties. We will
pay substantial fees to the general partners for these services including the
following:
. selling commissions of 7% of gross offering proceeds and dealer
manager fees of 2.5% of gross offering proceeds in the maximum amount
of $3,325,000, a majority of which will be reallowed to unrelated
broker-dealers participating in the offering;
. reimbursement of organizational and offering expenses of up to 3% of
gross offering proceeds representing legal, accounting, printing,
marketing and other offering expenses in a maximum amount of
$1,050,000;
. acquisition and advisory fees of 3% of gross offering proceeds in
connection with the selection and acquisition of properties in a
maximum amount of $1,050,000 plus reimbursement of costs and expenses
of up to .5% of gross offering proceeds for the acquisition of
properties; and
. property management and leasing fees of 4.5% of gross rental income
for supervising the management and leasing of our properties as well
as certain other leasing fees.
The above fees do not include all of the compensation to be paid to the general
partners and their affiliates. For a complete description of such compensation,
see the "Compensation of the General Partners and Affiliates" section on page 47
of this prospectus. The payment of such fees will reduce the amount of cash
available for investment in properties or distribution to limited partners.
THE AVAILABILITY AND TIMING OF CASH DISTRIBUTIONS IS UNCERTAIN.
We cannot assure you that sufficient cash will be available to make
distributions to you from either net cash from operations or proceeds from the
sale of properties. We bear all expenses incurred in our operations, which are
deducted from cash funds generated by operations prior to computing the amount
of net cash from operations to be distributed to the general and limited
14
<PAGE>
partners. In addition, the general partners, in their discretion, may retain
any portion of such funds for working capital. Although gains from the sales of
properties typically represent a substantial portion of any profits attributable
to a real estate investment, we cannot assure you that we will realize gains on
the resales of our properties. In any event, you should not expect distribution
of such proceeds to occur during the early years of our operations. We will
generally not sell properties developed by us until at least ten years after
completion of the development and construction of the properties, and receipt of
the full proceeds of such sales may be extended over a substantial period of
time following the sales. (See "Investment Objectives and Criteria -
Disposition Policies.") In addition, the amount of taxable gain allocated to
you with respect to the sale of a partnership property could exceed the cash
proceeds received from such sale.
Proceeds from the sale of property will generally be distributed to
investors. The general partners, in their sole discretion, will not make such
distribution if such proceeds are used to:
. purchase land underlying any of the partnership's properties;
. buy out the interest of any co-venturer or joint venture partner in a
property which is jointly owned;
. create working capital reserves; or
. make capital improvements in existing partnership properties.
The reinvestment of proceeds from the sale of properties will not occur,
however, unless sufficient cash will be distributed to pay any federal or state
income tax liability created by the sale of the property assuming you will be
subject to a 30% combined federal and state tax bracket. (See "Federal Income
Tax Consequences - Sales of Partnership Properties.")
WE ARE UNCERTAIN OF OUR SOURCES FOR FUNDING OF FUTURE CAPITAL NEEDS.
As we raise capital from you, substantially all of the gross proceeds of
the offering will be used for investment in partnership properties and for
payment of various fees and expenses. (See "Estimated Use of Proceeds.") In
addition, we do not anticipate that the partnership will maintain any permanent
working capital reserves. Accordingly, in the event that we develop a need for
additional capital in the future for the improvement of our properties or for
any other reason, we have not identified any sources for such funding, and we
cannot assure you that such sources of funding will be available to us for
potential capital needs in the future.
EARNEST MONEY DEPOSITS MADE TO WELLS DEVELOPMENT FOR DEVELOPMENT OF
PROPERTIES MAY NOT BE REFUNDED.
We may enter into one or more contracts, either directly or indirectly
through joint ventures with affiliates, to acquire real property from Wells
Development Corporation, an affiliate of the general partners ("Wells
Development"). We will acquire properties from Wells Development that are either
existing income-producing properties or properties to be developed or under
development. We anticipate that we will be obligated to pay a substantial
earnest money deposit at the time of contracting to acquire properties. In the
case of properties to be developed by Wells Development, we anticipate we will
be required to close the purchase of the property upon completion of the
15
<PAGE>
development of the property by Wells Development and the tenant taking
possession of the property. At the time of contracting and the payment of the
earnest money deposit by us, Wells Development typically will not have acquired
title to any real property. Wells Development will only have a contract to
acquire land, a development agreement to develop a building on the land, and an
agreement with a tenant to lease the property upon its completion. We may enter
into such a contract with Wells Development even if at the time of contracting
we have not yet raised sufficient proceeds in our offering to enable us to close
the purchase of such property. We will not be required to close a purchase from
Wells Development and will be entitled to a refund of our earnest money in the
following circumstances:
. Wells Development fails to develop the property;
. the tenant fails to take possession under its lease for any reason; or
. we are unable to raise sufficient proceeds from our offering to pay
the purchase price at closing.
The obligation of Wells Development to refund our earnest money is unsecured,
however, and it is unlikely that we would be able to collect such earnest money
deposit from them under these circumstances since Wells Development is an entity
without substantial assets or operations. Although Wells Development's
obligation to refund the earnest money deposit to us under these circumstances
will be guaranteed by Wells Management Company, Inc., an affiliated entity
("Wells Management"), Wells Management has no substantial assets other than
contracts for property management and leasing services pursuant to which it
receives substantial monthly fees. Therefore, we cannot assure you that Wells
Management would be able to refund all of our earnest money deposit in a lump
sum. If we were forced to collect our earnest money deposit by enforcing the
guaranty of Wells Management, we will likely be required to accept installment
payments over time payable out of the revenues of Wells Management's property
management and leasing operations. We cannot assure you that we would be able
to collect the entire amount of our earnest money deposit under such
circumstances. (See "Investment Objectives and Criteria - Acquisition of
Properties from Wells Development Corporation.")
YOUR INVESTMENT MAY SUFFER ADVERSE CONSEQUENCES IF WE ARE NOT PREPARED FOR
THE YEAR 2000 ISSUE.
Many existing computer programs were designed to use only two numeric
digits to identify a year without considering the impact of the year 2000. If
not corrected, many computer applications could fail or create erroneous data.
We are currently addressing the Year 2000 issue with respect to our operations.
The failure of the partnership or its tenants to properly or timely resolve the
Year 2000 issue could have a material adverse effect on our business and the
return on your investment. (See "Management's Discussion and Analysis of
Financial Condition and Results of Operations - Year 2000 Issues.")
16
<PAGE>
SPECIAL RISKS REGARDING STATUS OF UNITS
LIMITED PARTNERS ELECTING CASH PREFERRED UNITS WILL BE ALLOCATED MORE
INCOME THAN CASH FLOW.
Since investors electing Cash Preferred Units will be allocated
substantially all of the partnership's net income, while substantially all
deductions for depreciation and other tax losses will be allocated to investors
electing Tax Preferred Units, we expect that those of you electing Cash
Preferred Units will be allocated taxable income in excess of your cash
distributions. We cannot assure you that cash flow will be available for
distribution in any year.
LIMITED PARTNERS ELECTING TAX PREFERRED UNITS MAY NOT BE ABLE TO USE THEIR
PASSIVE LOSSES.
Those of you electing Tax Preferred Units will be allocated a
disproportionately larger share of our deductions for depreciation and other tax
losses. All such losses will be treated as "passive" losses, which may only be
used to offset "passive" income and may not be used to offset active or
portfolio income. Accordingly, you may receive no current benefit from your
share of tax losses unless you are currently being allocated passive income from
other sources.
YOUR DECISION TO ELECT CASH PREFERRED UNITS OR TAX PREFERRED UNITS WILL BE
IMPAIRED BY THE UNSPECIFIED NATURE OF OUR OFFERING.
As set forth above, the general partners have not identified any properties
in which there is a reasonable probability that we will invest. In addition,
the general partners have broad discretion in choosing between investments in
various types of income-producing and non-income-producing properties, which
will have an effect on the relative performance between Cash Preferred Units and
Tax Preferred Units. We anticipate that investors electing Cash Preferred Units
will benefit to a greater extent than investors electing Tax Preferred Units if
the majority of our investments are in properties which generate relatively high
cash flows but have lower potential for appreciation. Conversely, investors
electing Tax Preferred Units will benefit to a greater extent than investors
electing Cash Preferred Units if a greater percentage of our investments are in
properties generating less current cash flow but having greater potential for
appreciation in value. The unspecified nature of the offering may impair your
ability to make an informed decision as to whether to elect Cash Preferred Units
or Tax Preferred Units in light of the different features of each class of unit.
(See "Investment Objectives and Criteria.")
THE DESIRED EFFECT OF ELECTING CASH PREFERRED UNITS OR TAX PREFERRED UNITS
MAY BE REDUCED DEPENDING ON HOW MANY INVESTORS ELECT EACH TYPE OF UNIT.
You will be entitled to different rights and priorities as to distributions
of cash flow from operations and net sale proceeds and as to the allocation of
depreciation and other tax losses depending upon whether you elect Cash
Preferred Units or Tax Preferred Units. However, the effect of any advantage
associated with the election of Cash Preferred Units or Tax Preferred Units may
be significantly reduced or eliminated, depending upon the ratio of Cash
Preferred Units to Tax Preferred Units during any given period. We will not
restrict the ratio of Cash Preferred Units to Tax Preferred Units, and we will
not attempt to establish or maintain any particular ratio. In the experience of
the general partners in prior Wells Programs, the ratio of investors has
typically been approximately 70% to 80% electing Cash Preferred Units and
approximately 20% to 30% electing
17
<PAGE>
Tax Preferred Units. Below is a set of hypothetical scenarios showing the net
effect of certain ratios of investors electing Cash Preferred Units and Tax
Preferred Units.
Facts: For purposes of the following hypotheticals, assume that the
partnership sells $20,000,000 in units (2,000,000 units) and has $1,000,000 of
cash available for distribution and $800,000 in tax losses in the relevant year.
Hypotheticals: The following table shows the allocation of cash flow per
Cash Preferred Unit (CPU) and tax losses per Tax Preferred Unit (TPU) in three
scenarios reflecting different ratios of investors electing Cash Preferred Units
and Tax Preferred Units.
<TABLE>
<CAPTION>
================================================================================
Allocations 90% CPU/10% TPU 75% CPU/25% TPU 50% CPU/50% TPU
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Cash Flow per CPU $0.55 $0.67 $1.00
- --------------------------------------------------------------------------------
Tax Losses per TPU $4.00 $1.60 $0.80
================================================================================
</TABLE>
As shown in these hypotheticals, your receipt of desired benefits upon
making your election of Cash Preferred Units or Tax Preferred Units may vary
significantly depending upon the ratio of investors electing Cash Preferred
Units and Tax Preferred Units.
REAL ESTATE RISKS
YOUR INVESTMENT WILL BE AFFECTED BY ADVERSE ECONOMIC AND REGULATORY
CHANGES.
We will be subject to risks generally incident to the ownership of real
estate, including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing properties in
an area;
. changes in interest rates and availability of permanent mortgage funds
which may render the sale of a property difficult or unattractive;
. changes in tax, real estate, environmental and zoning laws; and
. periods of high interest rates and tight money supply.
For these and other reasons, we cannot assure you that we will be profitable or
that we will realize gains from the sale of partnership properties.
A PROPERTY THAT INCURS A VACANCY COULD BE DIFFICULT TO SELL OR RE-LEASE.
A property may incur a vacancy either by the continued default of a tenant
under the lease or the expiration of such lease. We may have difficulty
releasing any vacant space we have in our properties. If the vacancy continues
for a long period of time, we may suffer reduced revenues
18
<PAGE>
resulting in less cash to be distributed to investors electing Cash Preferred
Units. In addition, the resale value of the property could be diminished because
the market value of a particular property will depend principally upon the value
of the leases of such property.
WE MAY NOT HAVE FUNDING FOR FUTURE TENANT IMPROVEMENTS.
When a tenant at one of our properties does not renew its lease or
otherwise vacates its space in one of our buildings, it is likely that, in order
to attract one or more new tenants, we will be required to expend substantial
funds for tenant improvements and tenant refurbishments to the vacated space.
Since substantially all of our offering proceeds will be used for investment in
partnership properties and we do not anticipate that we will maintain permanent
working capital reserves, we have no identified funding source to provide funds
which may be required in the future for tenant improvements and tenant
refurbishments in order to attract new tenants. We cannot assure you that any
such sources of funding will be available to us for such purposes in the future.
UNINSURED LOSSES RELATING TO REAL PROPERTY MAY ADVERSELY AFFECT YOUR
RETURNS.
The general partners will attempt to assure that all of our properties are
insured to cover casualty losses. However, in the event that any of our
properties incurs a casualty loss which is not fully covered by insurance, the
value of our assets will be reduced by any such uninsured loss. In addition, we
have no source of funding to repair or reconstruct the damaged property, and we
cannot assure you that any such sources of funding will be available to us for
such purposes in the future.
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES MAY RESULT IN DELAYS AND
INCREASED COSTS AND RISKS.
We may invest some or all of the net proceeds available for investment in
the acquisition and development of properties upon which we will develop and
construct improvements at a fixed contract price. We will be subject to risks
relating to the builder's ability to control construction costs or to build in
conformity with plans, specifications and timetables. The builder's failure to
perform may necessitate legal action by us to rescind the purchase or the
construction contract or to compel performance. Performance may also be
affected or delayed by conditions beyond the builder's control. Delays in
completion of construction could also give lessees the right to terminate
preconstruction leases for space at a newly developed project. We may incur
additional risks when we make periodic progress payments or other advances to
such builders prior to completion of construction. Factors such as those
discussed above can result in increased costs of a project or loss of our
investment. In addition, we will be subject to normal lease-up risks relating
to newly constructed projects. Furthermore, we must rely upon projections of
rental income and expenses and estimates of the fair market value of property
upon completion of construction when agreeing upon a price to be paid for the
property at the time of acquisition of the property. If our projections are
inaccurate, we may pay too much for a property.
COMPETITION FOR INVESTMENTS MAY INCREASE PURCHASE PRICE.
We will experience competition for real property investments from
individuals, corporations and bank and insurance company investment accounts, as
well as other real estate limited partnerships, real estate investment trusts,
and other entities engaged in real estate investment
19
<PAGE>
activities. Competition for investments may have the effect of increasing costs
and reducing your returns.
DELAYS IN ACQUISITIONS OF PROPERTIES MAY HAVE ADVERSE EFFECTS ON YOUR
INVESTMENT.
Delays we encounter in the selection, acquisition and development of
properties could adversely affect your returns. Where properties are acquired
prior to the start of construction or during the early stages of construction,
it will typically take several months to complete construction and rent
available space. Therefore, investors electing Cash Preferred Units could
suffer delays in the distribution of cash and investors electing Tax Preferred
Units could suffer delays in the availability of income tax deductions for
depreciation and other tax losses to be allocated to them.
THE GENERAL PARTNERS HAVE BROAD DISCRETION RELATING TO THE FUTURE
DISPOSITION OF PROPERTIES.
We generally will hold the various real properties in which we invest until
such time as the general partners determine that the sale or other disposition
thereof appears to be advantageous to achieve our investment objectives or until
it appears that such objectives will not be met. The general partners intend to
sell properties acquired for development after holding such properties for a
minimum period of 10 years from the date the development is completed, and
intend to sell existing income-producing properties within 10 to 12 years after
their acquisition, or as soon thereafter as market conditions permit. This is
the period of time it typically takes to realize significant appreciation of a
property we typically invest in. However, the general partners may exercise
their discretion as to whether and when to sell a property, and we will have no
obligation to sell properties at any particular time, except when a majority of
you vote to liquidate the partnership in response to a formal proxy to
liquidate. (See "Summary of Partnership Agreement - Proxy to Liquidate.") We
cannot predict with any certainty the various market conditions affecting real
estate investments which will exist at any particular time in the future. Due
to the uncertainty of market conditions which may affect the future disposition
of our properties, we cannot assure you that we will be able to sell our
properties at a profit in the future. Accordingly, the timing of liquidation of
the partnership and the extent to which you will receive cash distributions and
realize potential appreciation on our real estate investments will be dependent
upon fluctuating market conditions.
IF THE GENERAL PARTNERS PURCHASE ENVIRONMENTALLY HAZARDOUS PROPERTY, OUR
OPERATING RESULTS COULD BE ADVERSELY AFFECTED.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on, under or in such property. Although the general partners have yet to
purchase environmentally hazardous property and do not intend to do so in the
future, such laws often impose liability whether or not the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. Environmental laws also may impose restrictions on the manner in
which property may be used or businesses may be operated, and these restrictions
may require expenditures. Environmental laws provide for sanctions in the event
of noncompliance and may be enforced by governmental agencies or, in certain
circumstances, by private parties. In connection with the acquisition and
ownership of our properties, we may be potentially liable for such costs. The
cost of defending against claims of liability, of compliance with environmental
regulatory requirements or of remediating any contaminated property could
materially
20
<PAGE>
adversely affect the business, assets or results of operations of the
partnership and, consequently, amounts available for distribution to you.
FEDERAL INCOME TAX RISKS
THE IRS MAY CHALLENGE OUR CHARACTERIZATION OF MATERIAL TAX ASPECTS OF AN
INVESTMENT IN THE PARTNERSHIP.
An investment in our units involves certain material income tax risks, the
character and extent of which are, to some extent, a function of whether you
elect to have your units treated as Cash Preferred Units or Tax Preferred Units.
You are urged to consult with your own tax advisor with respect to the federal,
as well as state and foreign, tax consequences of an investment in our units.
We will not seek any rulings from the Internal Revenue Service (the "IRS")
regarding any of the tax issues discussed herein. Further, although we have
obtained an opinion from Holland & Knight LLP ("Counsel") regarding the material
federal income tax issues relating to an investment in our units (the "Tax
Opinion"), you should be aware that the Tax Opinion represents only Counsel's
best legal judgment, based upon representations and assumptions referred to
therein and conditioned upon the existence of certain facts. The Tax Opinion
has no binding effect on the IRS or any court. Accordingly, we cannot assure
you that the conclusions reached in the Tax Opinion, if contested, would be
sustained by any court. In addition, Counsel is unable to form an opinion as to
the probable outcome of the contest of certain material tax aspects of the
transactions described in this prospectus. Counsel also gives no opinion as to
the tax consequences to you of tax issues which impact at the individual or
partner level. Accordingly, you are urged to consult with and rely upon your
own tax advisors with respect to tax issues which impact at the partner or
individual level. (For a more complete discussion of the tax risks and tax
consequences associated with an investment in the partnership, see "Federal
Income Tax Consequences.")
INVESTORS MAY REALIZE TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS.
A partner in a partnership is required to report his allocable share of the
partnership's taxable income on his personal income tax return regardless of
whether or not he has received any cash distributions from the partnership. For
example, an investor electing Cash Preferred Units will be allocated
substantially all of our net income, defined in the partnership to mean
generally net income for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation and amortization
and gain or loss from the sale of partnership properties, even if such income is
in excess of any distributions of cash from operations. Further, an investor
who participates in the distribution reinvestment plan will be allocated his
share of our net income and gain on sale, including net income and gain on sale
allocable to units acquired pursuant to the distribution reinvestment plan, even
though such investor would receive no cash distributions from us. In addition,
an investor electing Cash Preferred Units who purchases units pursuant to the
deferred commission option will be allocated his share of our net income with
respect to such units even though net cash from our operations otherwise
distributable to him will instead be paid to third parties to satisfy the
deferred commission obligations with respect to such units for a period of six
years after the termination of the offering. (See "Plan of Distribution.")
Investors electing Cash Preferred Units will likely be allocated taxable income
in excess of any distributions to them, and the amount of cash received by an
investor could be less than the income tax attributable to the net income
allocated to such investor.
21
<PAGE>
THE PARTNERSHIP COULD POTENTIALLY BE CHARACTERIZED AS A PUBLICLY TRADED
PARTNERSHIP.
Counsel has given its opinion that it is more likely than not we will not
be classified as a "publicly traded partnership," which is defined generally as
a partnership whose interests are publicly traded or frequently transferred.
However, this opinion is based only upon certain representations of the general
partners and the provisions in the Partnership Agreement which attempt to comply
with certain safe harbor standards adopted by the IRS. We cannot assure you
that the IRS will not challenge this conclusion or that we will not, at some
time in the future, be treated as a publicly traded partnership due to the
following factors:
. the complex nature of the IRS safe harbors;
. the lack of interpretive guidance with respect to such provisions; and
. the fact that any determination in this regard will necessarily be
based upon facts which have not yet occurred.
If we become classified as a "publicly traded partnership," we could be taxable
as a corporation and our net income could be treated as portfolio income rather
than passive income.
THE DEDUCTIBILITY OF LOSSES WILL BE SUBJECT TO PASSIVE LOSS LIMITATIONS.
Section 469 of the Code limits the allowance of deductions for losses
attributable to "passive activities," which are defined generally as activities
in which the taxpayer does not materially participate. Any tax losses allocated
to investors electing Tax Preferred Units will be characterized as passive
losses, and accordingly, the deductibility of such losses will be subject to
these limitations.
THE IRS MAY CHALLENGE PARTNERSHIP ALLOCATIONS OF PROFIT AND LOSS.
Counsel has given its opinion that it is more likely than not partnership
items of income, gain, loss, deduction and credit will be allocated among the
general partners and the limited partners substantially in accordance with the
allocation provisions of the Partnership Agreement. We cannot assure you,
however, that the IRS will not successfully challenge the allocations in the
Partnership Agreement and reallocate items of income, gain, loss, deduction and
credit in a manner which reduces the anticipated tax benefits to investors
electing Tax Preferred Units or increases the income allocated to investors
electing Cash Preferred Units.
THE PARTNERSHIP MAY BE CHARACTERIZED AS A DEALER.
If we were deemed for tax purposes to be a "dealer," defined as one who
holds property primarily for sale to customers in the ordinary course of
business, with respect to one or more partnership properties, any gain
recognized upon a sale of such real property would be taxable to you as ordinary
income and would also constitute "unrelated business taxable income" ("UBTI") to
investors who are tax-exempt entities. The resolution of our status is
dependent upon facts which will not be known until the time a property is sold
or held for sale. Accordingly, Counsel is unable to render an opinion as to
whether we will be considered to hold any or all of our properties primarily for
sale to customers in the ordinary course of business.
22
<PAGE>
THE PARTNERSHIP MAY BE AUDITED AND ADDITIONAL TAX, INTEREST AND PENALTIES
MAY BE IMPOSED.
Our federal income tax returns may be audited by the IRS. Any audit of the
partnership could result in an audit of your tax return causing adjustments of
items unrelated to your investment in us, in addition to adjustments to various
partnership items. In the event of any such adjustments, you might incur
attorneys' fees, court costs and other expenses contesting deficiencies asserted
by the IRS. You may also be liable for interest on any underpayment and certain
penalties from the date your tax was originally due. The tax treatment of all
partnership items will generally be determined at the partnership level in a
single proceeding rather than in separate proceedings with each partner, and the
general partners are primarily responsible for contesting federal income tax
adjustments proposed by the IRS. In this connection, the general partners may
extend the statute of limitations as to all partners and, in certain
circumstances, may bind the partners to a settlement with the IRS. Further, the
general partners may cause us to elect to be treated as an "electing large
partnership." If they do, we could take advantage of simplified flow-through
reporting of partnership items. Adjustments to partnership items would continue
to be determined at the partnership level, however, and any such adjustments
would be accounted for in the year they take effect, rather than in the year to
which such adjustments relate. Accordingly, if you make an election to change
the status of your units between the years in which a tax benefit is claimed and
an adjustment is made, you may suffer a disproportionate adverse impact with
respect to any such adjustment. Further, the general partners will have the
discretion in such circumstances either to pass along any such adjustments to
the partners or to bear such adjustments at the partnership level, thereby
potentially adversely impacting the holders of a particular class of units
disproportionately to holders of the other class of units.
STATE AND LOCAL TAXES AND A REQUIREMENT TO WITHHOLD STATE TAXES MAY APPLY.
The state in which you are a resident may impose an income tax upon your
share of our taxable income. Further, states in which we will own partnership
properties may impose income taxes upon your share of our taxable income
allocable to any partnership property located in that state. Many states have
also implemented or are implementing programs to require partnerships to
withhold and pay state income taxes owed by non-resident partners relating to
income-producing properties located in their states, and we may be required to
withhold state taxes from cash distributions otherwise payable to you. In the
event we are required to withhold state taxes from your cash distributions, the
amount of the net cash from operations otherwise payable to you may be reduced.
In addition, such collection and filing requirements at the state level may
result in increases in our administrative expenses which would have the effect
of reducing cash available for distribution to you. You are urged to consult
with your own tax advisors with respect to the impact of applicable state and
local taxes and state tax withholding requirements on an investment in units.
LEGISLATIVE OR REGULATORY ACTION COULD ADVERSELY AFFECT INVESTORS.
In recent years, numerous legislative, judicial and administrative changes
have been made in the provisions of the federal income tax laws applicable to
investments similar to an investment in units. The Taxpayer Relief Act of 1997
and the Internal Revenue Service Restructuring and Reform Act enacted in 1998
contain numerous provisions affecting the real estate industry and the
operations of partnerships such as the partnership. Changes are likely to
continue to occur in the future, and we cannot assure you that any such changes
will not adversely affect the taxation of a limited partner. Any such changes
could have an adverse effect on an investment in units or on the market value or
23
<PAGE>
the resale potential of partnership properties. You are urged to consult with
your own tax advisor with respect to the impact of recent legislation on your
investment in units and the status of legislative, regulatory or administrative
developments and proposals and their potential effect on an investment in units.
You should also note that the Tax Opinion assumes that no legislation will be
enacted after the date of this prospectus which will be applicable to an
investment in units.
RETIREMENT PLAN AND QUALIFIED PLAN RISKS
A retirement plan fiduciary considering an investment in units must
consider provisions of the Code and the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), applicable to such investments. In particular, a
fiduciary should consider the following factors:
. whether the investment is made in accordance with the plan documents
and instruments governing such plan, including the plan's investment
policy;
. whether the investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
. whether the investment will result in sufficient liquidity for the
plan;
. the need to value the assets of the plan annually; and
. whether the investment would constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Code.
For a more complete discussion of the foregoing issues and other risks
associated with an investment in units by retirement plans, see "Investment By
Tax-Exempt Entities and ERISA Considerations."
WE MAY TERMINATE THE OFFERING OR DISSOLVE THE PARTNERSHIP IF OUR ASSETS ARE
DEEMED PLAN ASSETS OR IF WE ENGAGE IN PROHIBITED TRANSACTIONS.
If our assets were deemed to be assets of the qualified plans investing as
limited partners ("Plan Assets"), the general partners would be considered to be
plan fiduciaries and certain contemplated transactions described herein may be
deemed to be "prohibited transactions" subject to excise taxation under Section
4975 of the Code. Additionally, if our assets were deemed to be Plan Assets,
the standards of prudence and other provisions of ERISA would extend as to all
plan fiduciaries to the general partners with respect to our investments. The
general partners have used their best efforts to structure the partnership so
that our assets will not be deemed to be Plan Assets, and intend to use their
best efforts to take such actions as may be required to insure that our assets
will not be deemed to be Plan Assets. However, we have not requested an opinion
of counsel regarding whether or not our assets would constitute Plan Assets
under ERISA nor have we sought any rulings from the U.S. Department of Labor
regarding classification of our assets.
In this regard, U.S. Department of Labor Regulations defining Plan Assets
for purposes of ERISA contain exemptions which, if satisfied, would preclude
assets of a limited partnership such as ours from being treated as Plan Assets.
We cannot assure you that the Partnership Agreement and the offering have been
structured so that the exemptions in such Regulations would apply to us, and
although the general partners intend that an investment by a qualified plan in
units not be deemed an
24
<PAGE>
investment in the assets of the partnership, we can make no representations or
warranties of any kind regarding the consequences of an investment in units by
qualified plans in this regard. Plan fiduciaries are urged to consult with and
rely upon their own advisors with respect to this and other ERISA issues which,
if decided adversely to the partnership, could result in "prohibited
transactions," which would cause the imposition of excise taxation and the
imposition of co-fiduciary liability under Section 405 of ERISA in the event
actions undertaken by us are deemed to be non-prudent investments or "prohibited
transactions."
In the event our assets are deemed to constitute Plan Assets or certain
transactions undertaken by us are deemed to constitute "prohibited transactions"
under ERISA or the Code, and no exemption for such transactions is obtainable by
us, the general partners have the right, but not the obligation, upon notice to
all limited partners, but without the consent of any limited partner to:
. terminate the offering of units;
. compel a termination and dissolution of the partnership; or
. restructure our activities to the extent necessary to comply with any
exemption in the Department of Labor Regulations or any prohibited
transaction exemption granted by the Department of Labor or any
condition which the Department of Labor might impose as a condition to
granting a prohibited transaction exemption. (See "Investment by Tax-
Exempt Entities and ERISA Considerations.")
ADVERSE TAX CONSEQUENCES MAY RESULT BECAUSE OF MINIMUM DISTRIBUTION
REQUIREMENTS.
If you intend to purchase units through your Individual Retirement Account
("IRA"), or if you are a trustee of an IRA or other fiduciary of a retirement
plan considering an investment in units, you must consider the limited liquidity
of an investment in units as it relates to applicable minimum distribution
requirements under the Code. If units are held and our properties have not yet
been sold at such time as mandatory distributions are required to begin to an
IRA beneficiary or qualified plan participant, Sections 408(a)(6) and 401(a)(9)
of the Code will likely require that a distribution in kind of the units be made
to the IRA beneficiary or qualified plan participant. Any such distribution in
kind of units must be included in the taxable income of the IRA beneficiary or
qualified plan participant for the year in which the units are received at the
fair market value of the units without any corresponding cash distributions with
which to pay the income tax liability attributable to any such distribution.
UNRELATED BUSINESS TAXABLE INCOME ("UBTI") MAY BE GENERATED WITH RESPECT TO
TAX-EXEMPT INVESTORS.
We do not intend or anticipate that the tax-exempt investors in the
partnership will be allocated income deemed to be derived from an unrelated
trade or business, which is generally referred to as "UBTI." Further, the
partnership will never incur indebtedness to acquire its properties, which would
cause recharacterization of a portion of our income allocable to tax-exempt
investors as UBTI. Notwithstanding this prohibition, the general partners do
have limited authority to borrow funds deemed necessary:
. to finance improvements necessary to protect capital previously
invested in a property;
25
<PAGE>
. to protect the value of the partnership's investment in a property; or
. to make a property more attractive for sale or lease.
The general partners have represented that they will not cause the partnership
to incur indebtedness unless they obtain an opinion of counsel or an opinion
from our tax accountants that the proposed indebtedness more likely than not
will not cause the income allocable to tax-exempt investors to be characterized
as UBTI. Any such opinion will have no binding effect on the IRS or any court.
Although the general partners will use their best efforts to structure our
operations to avoid characterization of our income as UBTI, some risk remains
that we may generate UBTI for our tax-exempt investors in the event that it
becomes necessary for us to borrow funds.
Further, in the event we are deemed to be a "dealer" in real property,
defined as one who holds real estate primarily for sale to customers in the
ordinary course of business, the gain realized on the sale of partnership
properties which is allocable to tax-exempt investors would be characterized as
UBTI. (See "Federal Income Tax Consequences - Investment by Qualified Plans and
Other Tax-Exempt Entities.")
SUITABILITY STANDARDS
Investment in the partnership involves significant risks. It may be
difficult to resell partnership units due to the restrictions on transferability
contained in the Partnership Agreement and because no public market for the
units currently exists or is likely to develop. Investors who are able to sell
their units at all will likely be able to sell such units only at a discount.
(See "Summary of Partnership Agreement - Limited Transferability of Units.") In
addition, it is contemplated that properties to be purchased by the partnership
will be held for at least 10 years. Accordingly, the units are suitable only
for persons who have adequate financial means and desire a relatively long-term
investment with respect to which they do not anticipate any need for immediate
liquidity. Further, because investors electing to have their units treated as
Cash Preferred Units and Tax Preferred Units have different rights and
priorities with respect to tax allocations and cash distributions from
operations and on sale of the partnership properties, prospective investors
should consider carefully the information set forth under "Description of the
Units" in determining whether to elect Cash Preferred Units or Tax Preferred
Units, or some combination of each.
If the investor is an individual, including an individual beneficiary of a
purchasing IRA, or if the investor is a fiduciary, such as a trustee of a trust
or corporate pension or profit sharing plan, or other tax-exempt organization,
or a custodian under a Uniform Gifts to Minors Act, such individual or
fiduciary, as the case may be, must represent that he meets certain
requirements. The requirements are set out in the Subscription Agreement
attached as Exhibit "B" to this prospectus, and include the following:
. that such individual, or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the
funds to purchase the units, has a minimum annual gross income of
$45,000 and a net worth excluding home, furnishings and automobiles of
not less than $45,000; or
26
<PAGE>
. that such individual, or, in the case of a fiduciary, that the
fiduciary account or the donor who directly or indirectly supplies the
funds to purchase the units, has a net worth excluding home,
furnishings and automobiles of not less than $150,000.
Transferees will also be required to comply with applicable standards,
except for transfers to family members and transfers made by gift, inheritance
or divorce. In the case of purchases of units by fiduciary accounts in
California, the suitability standards must be met by the beneficiary of the
account or, in those instances where the fiduciary directly or indirectly
supplies the funds for the purchase of units, by such fiduciary.
The minimum purchase is 100 units ($1,000) except in certain states as
described below. No transfers will be permitted of less than the minimum
required purchase, nor except in very limited circumstances may an investor
transfer, fractionalize or subdivide such units so as to retain less than such
minimum number thereof. For purposes of satisfying the minimum investment
requirement for retirement plans, unless otherwise prohibited by state law, a
husband and wife may jointly contribute funds from their separate individual
retirement accounts ("IRAs"), provided that they contribute in increments of at
least $25. It should be noted, however, that an investment in the partnership
will not, in itself, create a retirement plan as defined in Section 401(a) of
the Code or an IRA as defined in Section 408(a) of the Code for any investor and
that, in order to create a retirement plan or an IRA, an investor must comply
with all applicable provisions of the Code. Except in Maine, Minnesota,
Nebraska and Washington, investors who have satisfied the minimum purchase
requirements and have purchased units in Wells Programs or units or shares in
other public real estate programs may purchase less than the minimum number of
units set forth above, but in no event less than 2.5 units ($25). After an
investor has purchased the minimum investment, any additional investments must
be made in increments of at least 2.5 units ($25), except for (1) those made by
investors in Maine, who must still meet the minimum investment requirement for
Maine residents of $1,000 for IRAs and $2,500 for non-IRAs, and (2) purchases of
units pursuant to the distribution reinvestment plan sponsored by the
partnership or reinvestment plans of other public real estate programs, which
may be in lesser amounts.
We have listed the suitability standards in the following table for those
states that have any requirements different from those set by the partnership.
<TABLE>
<CAPTION>
==================================================================================================================================
STATE INCOME/NET WORTH MINIMUM OTHER LIMITATIONS
REQUIREMENTS PURCHASE
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Arizona 1) Current annual gross income of 100 units ($1,000) N/A
$60,000 and net worth of $60,000, or 2)
Net worth of $225,000
- ----------------------------------------------------------------------------------------------------------------------------------
California 1) Current annual gross income of 100 units ($1,000) The following legend must be placed on each
$45,000 and net worth of $45,000, or 2) certificate: "It is unlawful to consummate a
Net worth of $150,000 sale or transfer of this security, or any
interest therein, or to receive any
consideration therefor, without the prior
written consent of the Commissioner of
Corporations of the State of California, except
as permitted in the Commissioner's rules."
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
====================================================================================================================================
STATE INCOME/NET WORTH MINIMUM OTHER LIMITATIONS
REQUIREMENTS PURCHASE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Florida 1) Current annual gross income of 100 units ($1,000) Units of subsequent partnership
$45,000 and net worth of $45,000, or 2) reinvestment plan must be registered or
Net worth of $150,000 exempt from registration in Florida, and
such units must be purchased from a Florida
broker.
- ------------------------------------------------------------------------------------------------------------------------------------
Iowa 1) Current annual gross income of 200 units ($2,000) Husband and wife may not jointly
$45,000 and net worth of $45,000, or 2) contribute from separate IRAs to satisfy
Net worth of $150,000 minimum purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
Maine 1) Current annual gross income of 250 units ($2,500); Husband and wife may not jointly
$50,000 and net worth of $50,000, or 2) 200 units ($2,000) contribute from separate IRAs to satisfy
Net worth of $200,000 for IRAs minimum purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
Massachusetts 1) Current annual gross income of 100 units ($1,000) N/A
$60,000 and net worth of $60,000, or 2)
Net worth of $225,000
- ------------------------------------------------------------------------------------------------------------------------------------
Michigan Current annual gross income of $45,000 100 units ($1,000) Investor may not invest more than 10% of net
and net worthof $45,000, or 2) Net worth.
worth of $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Minnesota Current annual gross income of $45,000 250 units ($2,500); N/A
and net worth of $45,000, or 2) Net 200 units ($2,000)
worth of $150,000 for IRAs and qualified
retirement plans
- ------------------------------------------------------------------------------------------------------------------------------------
Mississippi 1) Current annual gross income of 100 units ($1,000) N/A
$60,000 and net worth of $60,000, or 2)
Net worth of $225,000
- ------------------------------------------------------------------------------------------------------------------------------------
Missouri 1) Current annual gross income of 100 units ($1,000) Husband and wife may not jointly
$60,000 and net worth of $60,000, or 2) contribute from separate IRAs to satisfy
Net worth of $225,000 minimum purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
Nebraska 1) Current annual gross income of 500 units ($5,000) Investments in additional units pursuant to
$45,000 and net worth of $45,000, or 2) except for IRAs reinvestment plan must be at least $50 per
Net worth of $150,000 and qualified year and made through a Nebraska broker.
retirement plans
- ------------------------------------------------------------------------------------------------------------------------------------
New Hampshire 1) Current annual gross income of 100 units ($1,000) N/A
$50,000 and net worth of $125,000, or 2)
Net worth of $250,000
- ------------------------------------------------------------------------------------------------------------------------------------
New York 1) Current annual gross income of 250 units ($2,500) No proceeds from New York investors
$50,000 and net worth of $50,000, or 2) except for IRAs released from escrow until $2,500,000
Net worth of $150,000 raised in offering.
- ------------------------------------------------------------------------------------------------------------------------------------
North Carolina 1) Current annual gross income of 250 units ($2,500) except N/A
$45,000 and net worth of $45,000, or 2) for IRAs and qualified
Net worth of $150,000 retirement plans
- ------------------------------------------------------------------------------------------------------------------------------------
Ohio 1) Current annual gross income of 250 units ($2,500) except Investor may not invest more than 10% of net
$45,000 and net worth of $45,000, or 2) for IRAs worth.
Net worth of $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
STATE INCOME/NET WORTH MINIMUM OTHER LIMITATIONS
REQUIREMENTS PURCHASE
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Oklahoma 1) Current annual gross income of 100 units ($1,000) Husband and wife may not jointly contribute
$45,000 and net worth of $45,000, or 2) from separate IRAs to satisfy minimum
Net worth of $150,000 purchase.
- ------------------------------------------------------------------------------------------------------------------------------------
Oregon 1) Current annual gross income of 100 units ($1,000) N/A
$60,000 and net worth of $60,000, or 2)
Net worth of $225,000
- ------------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Net worth of at least ten times amount 100 units ($1,000) Subscription proceeds from PA investors held
of investment in partnership in escrow until $2,500,000 raised from all
investors. If proceeds held in escrow more
than 120 days, funds returned to investors
unless they choose to reinvest.
- ------------------------------------------------------------------------------------------------------------------------------------
South Carolina 1) Net worth of $150,000, or 2) State 250 units ($2,500) except N/A
and federal income subject to maximum IRAs and qualified
rate of income tax retirement plans
- ------------------------------------------------------------------------------------------------------------------------------------
South Dakota 1) Current annual gross income of 100 units ($1,000) N/A
$60,000 and net worth of $60,000, or 2)
Net worth of $225,000
- ------------------------------------------------------------------------------------------------------------------------------------
Tennessee 1) Current annual gross income of 100 units ($1,000) N/A
$60,000 and net worth of $60,000, or 2)
Net worth of $225,000
- ------------------------------------------------------------------------------------------------------------------------------------
Texas 1) Current annual gross income of 100 units ($1,000) Investments through reinvestment plan must be
$45,000 and net worth of $45,000, or 2) made through Texas registered broker.
Net worth of $150,000
- ------------------------------------------------------------------------------------------------------------------------------------
Wisconsin 1) Current annual gross income of 100 units ($1,000) Husband and wife may not jointly contribute
$45,000 and net worth of $45,000, or 2) from separate IRAs to satisfy minimum
Net worth of $150,000 purchase.
===================================================================================================================================
</TABLE>
Net worth in all cases excludes home, furnishings and automobiles.
By executing the Subscription Agreement and Subscription Agreement
Signature Page (collectively, the "Subscription Agreement"), which is attached
as Exhibit "B" to this prospectus, an investor represents to the general
partners that he meets the foregoing applicable suitability standards for the
state in which he resides. The general partners will not accept subscriptions
from any person or entity which does not represent that it meets such standards.
The general partners have the unconditional right to accept or reject any
subscription in whole or in part.
The general partners and each person selling units on behalf of the
partnership are required to:
. make reasonable efforts to assure that each person purchasing units in
the partnership is suitable in light of such person's age, educational
level, knowledge of investments, financial means and other pertinent
factors; and
29
<PAGE>
. maintain records for at least six years of the information used to
determine that an investment in units is suitable and appropriate for
each investor.
The agreements with the selling broker-dealers require such broker-dealers
to (1) make inquiries diligently as required by law of all prospective investors
in order to ascertain whether a purchase of the units is suitable for the
investor, and (2) transmit promptly to the partnership all fully completed and
duly executed Subscription Agreements.
INVESTMENT OBJECTIVES AND CRITERIA
GENERAL
The partnership is a limited partnership which was organized to invest in
commercial real properties, including properties which are under development or
construction, are newly constructed or have been constructed and have operating
histories. The partnership's investment objectives are:
. to maximize net cash from operations;
. to preserve, protect and return the capital contributions of the
partners; and
. to realize capital appreciation upon the ultimate sale of properties.
No assurance can be given that these objectives will be attained or that the
partnership's capital will not decrease. The investment objectives of the
partnership may not be changed by the general partners except upon approval of
limited partners holding a majority of the units.
Decisions relating to the purchase or sale of partnership properties will
be made by the general partners. See "Management" for a description of the
background and experience of the general partners.
ACQUISITION AND INVESTMENT POLICIES
The partnership will seek to invest substantially all of the net offering
proceeds available for investment on an all cash basis in the acquisition of
commercial real properties, which are newly constructed, under construction, or
which have been previously constructed and have operating histories. While not
limited to such investments, the general partners will generally seek to invest
in commercial properties such as office buildings, shopping centers and
industrial properties which are less than five years old, the space in which has
been leased or preleased to one or more large corporate tenants who satisfy the
general partners' standards of creditworthiness. (See "Terms of Leases and
Tenant Creditworthiness.") The partnership may, however, invest in office
buildings, shopping centers or industrial properties which are not preleased to
such tenants or in other types of commercial properties such as hotels, motels
or business or industrial parks. Notwithstanding the foregoing, the partnership
will not be actively engaged in the business of operating hotels, motels or
similar properties. The trend of the general partners in the two most recently
sponsored public limited partnerships and the Wells REIT has been to invest
primarily in office buildings located in densely populated suburban markets.
(See "Prior Performance Summary.")
30
<PAGE>
The partnership will seek to invest in properties that will satisfy the
primary objective of providing distributions of current cash flow to investors.
However, because a significant factor in the valuation of income-producing real
properties is their potential for future income, the general partners anticipate
that the majority of properties acquired by the partnership will have both the
potential for capital appreciation and distributions of current cash flow to
investors. To the extent feasible, the general partners will strive to invest
in a diversified portfolio of properties, both in terms of geography and type of
property, that will satisfy the partnership's investment objectives of
maximizing net cash from operations, preserving investors' capital and realizing
capital appreciation upon the ultimate sale of properties.
The general partners anticipate that approximately 84% of the proceeds from
the sale of units will be used to acquire real estate properties and the balance
will be used to pay various fees and expenses. (See "Estimated Use of
Proceeds.")
Investment in unimproved or non-income producing property may not exceed
15% of the net offering proceeds available for investment in properties. A
property which is expected to produce income within two years of its acquisition
will not be considered a non-income producing property. The partnership will
not acquire property in exchange for units.
Investment in real estate generally will take the form of fee title or of a
leasehold estate having a term, including renewal periods, of at least 40 years.
The partnership shall acquire such interest either directly or indirectly
through investments in joint ventures, general partnerships, co-tenancies or
other co-ownership arrangements with the developers of the properties,
affiliates of the general partners or other persons. (See "Joint Venture
Investments" below.) In addition, the partnership may purchase properties and
lease them back to the sellers of such properties. While the general partners
will use their best efforts to structure any such sale-leaseback transaction
such that the lease will be characterized as a "true lease" so that the
partnership will be treated as the owner of the property for federal income tax
purposes, no assurance can be given that the IRS will not challenge such
characterization. In the event that any such sale-leaseback transaction is
recharacterized as a financing transaction for federal income tax purposes,
deductions for depreciation and cost recovery relating to such property would be
disallowed. (See "Federal Income Tax Consequences - Characterization of
Leases.")
The partnership is not limited as to the geographic area where it may
conduct its operations, but the general partners intend to invest in properties
located in the United States.
There are no specific limitations on the number or size of properties to be
acquired by the partnership or on the percentage of net proceeds of this
offering which may be invested in a single property. The number and mix of
properties acquired will depend upon real estate and market conditions and other
circumstances existing at the time the partnership is acquiring its properties
and the amount of the net proceeds of this offering.
In making investment decisions for the partnership, the general partners
will consider relevant real estate property and financial factors, including the
location of the property, its suitability for any development contemplated or in
progress, its income-producing capacity, the prospects for long-range
appreciation, its liquidity and income tax considerations. In this regard, the
general partners will have substantial discretion with respect to the selection
of specific partnership investments.
31
<PAGE>
The partnership will obtain independent appraisals for each property in
which it invests, and the purchase price of each such property will not exceed
its appraised value. However, the general partners will rely on their own
independent analysis and not on such appraisals in determining whether to invest
in a particular property. It should be noted that appraisals are estimates of
value and should not be relied upon as measures of true worth or realizable
value. Copies of these appraisals will be available for review and duplication
by investors at the office of the partnership and will be retained for at least
five years.
The partnership's obligation to close the purchase of any investment will
generally be conditioned upon the delivery and verification of certain documents
from the seller or developer, including, where appropriate:
. plans and specifications;
. environmental reports;
. surveys;
. evidence of marketable title subject to such liens and encumbrances
acceptable to the general partners;
. audited financial statements covering recent operations of any
properties having operating histories unless such statements are not
required to be filed with the Securities and Exchange Commission and
delivered to investors; and
. title and liability insurance policies.
The partnership will not close the purchase of any property unless and until it
obtains an environmental assessment, a minimum of a Phase I review, for each
property purchased and the general partners are generally satisfied with the
environmental status of the property.
The partnership may also enter into arrangements with the seller or
developer of a property whereby the seller or developer agrees that if during a
stated period the property does not generate a specified cash flow, the seller
or developer will pay in cash to the partnership a sum necessary to reach the
specified cash flow level, subject in some cases to negotiated dollar
limitations.
In determining whether to purchase a particular property, the partnership
may, in accordance with customary practices, obtain an option on such property.
The amount paid for an option, if any, is normally surrendered if the property
is not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real estate properties, the
partnership will be subject to risks generally incident to the ownership of real
estate, including changes in general economic or local conditions, changes in
supply of or demand for similar or competing properties in an area, changes in
interest rates and availability of permanent mortgage funds which may render the
sale of a property difficult or unattractive, and changes in tax, real estate,
environmental and zoning laws. Periods of high interest rates and tight money
supply may make the sale of properties more difficult. The partnership may
experience difficulty in keeping the properties fully leased due to tenant
turnover,
32
<PAGE>
general overbuilding or excess supply in the market area. Development of real
estate properties is subject to risks relating to the builders' ability to
control construction costs or to build in conformity with plans, specifications
and timetables. (See "Risk Factors - Real Estate Risks.")
DEVELOPMENT AND CONSTRUCTION OF PROPERTIES
The partnership may invest substantially all of the net proceeds available
for investment in properties on which improvements are to be constructed or
completed although the partnership may not invest in excess of 15% of the net
offering proceeds available for investment in properties which are not expected
to produce income within two years of their acquisition. To help ensure
performance by the builders of properties which are under construction,
completion of properties under construction shall be guaranteed at the price
contracted either by an adequate completion bond or performance bond, or, in
appropriate circumstances, the general partners may rely upon the substantial
net worth of the contractor or developer or a personal guarantee accompanied by
financial statements showing a substantial net worth provided by an affiliate of
the person entering into the construction or development contract as an
alternative to a completion bond or performance bond.
The partnership may make periodic progress payments or other cash advances
to developers and builders of its properties prior to completion of construction
only upon receipt of an architect's certification as to the percentage of the
project then completed and as to the dollar amount of the construction then
completed. The partnership intends to use such additional controls on its
disbursements to builders and developers as it deems necessary or prudent.
The partnership may directly employ one or more project managers to plan,
supervise and implement the development of any unimproved properties which it
may acquire. Such persons would be compensated directly by the partnership and,
other than through such employment, will not be affiliated with the general
partners.
ACQUISITION OF PROPERTIES FROM WELLS DEVELOPMENT CORPORATION
The partnership may acquire properties, directly or through joint ventures
with affiliated entities, from Wells Development Corporation ("Wells
Development"), a Georgia corporation formed by Wells Management Company, Inc.
("Wells Management') as a wholly owned subsidiary for the purposes of (1)
acquiring existing income-producing commercial real estate properties, and (2)
acquiring land, developing commercial real properties, securing tenants for such
properties, and selling such properties upon completion to the partnership or
other Wells Programs. In the case of properties to be developed by Wells
Development and sold to the partnership, it is anticipated that Wells
Development will:
. acquire a parcel of land;
. enter into contracts for the construction and development of a
commercial building thereon;
. enter into an agreement with one or more tenants to lease all or a
majority of the property upon its completion; and
33
<PAGE>
. secure a financing commitment from a commercial bank or other
institutional lender to finance the acquisition and development of the
property.
Contracts between Wells Development and the partnership will provide for the
partnership to acquire the developed property only upon its completion and upon
the tenant taking possession under its lease. All construction required to
develop a parcel of land acquired by Wells Development will be performed by one
or more companies which are independent of Wells Development, the general
partners and their affiliates.
The partnership will be required to pay a substantial sum to Wells
Development at the time of entering into the contract as a refundable earnest
money deposit to be credited against the purchase price at closing, which Wells
Development will apply to the cost of acquiring the land and initial development
costs. It is anticipated that the earnest money deposit will represent
approximately twenty to thirty percent (20-30%) of the purchase price of the
developed property set forth in the purchase contract. The purchase price for
the developed property to be paid by the partnership to Wells Development will
not exceed the cost to Wells Development of the acquisition, construction and
development of the project, including interest and other carrying costs to Wells
Development. All profits and losses during the period any such property is held
by Wells Development will accrue to the partnership, and no other benefit will
accrue to Wells Development or its affiliates from the sale of such property
except for acquisition and advisory fees payable to the general partners or
their affiliates which are described in detail elsewhere in this prospectus.
(See "Compensation of the General Partners and Affiliates.")
In the case of properties acquired by the partnership from Wells
Development that have already been developed, Wells Development will be required
to obtain an appraisal for the property prior to contracting with the
partnership, and the purchase price payable by the partnership under the
purchase contract will not exceed the fair market value of the property as
determined by the appraisal. In the case of properties to be acquired by the
partnership from Wells Development which have not yet been constructed at the
time of contracting, Wells Development will be required to obtain an independent
"as built" appraisal for the property prior to contracting with the partnership,
and the purchase price payable by the partnership under the purchase contract
will not exceed the anticipated fair market value of the developed property as
determined by the appraisal.
It is anticipated that Wells Development will use the earnest money deposit
received from the partnership upon execution of a purchase contract as partial
payment for the cost of the acquisition of the land and construction
expenditures. Wells Development will borrow the remaining funds necessary to
complete the development of the property from an independent commercial bank or
other institutional lender by pledging the real property, development contracts,
leases and all other contract rights relating to the project as security for
such borrowing. The contract between the partnership and Wells Development will
require Wells Development to deliver to the partnership at closing title to the
property, as well as an assignment of leases, free and clear of all encumbrances
relating to any such borrowing. In no event will the partnership take title to
the property subject to a mortgage or otherwise incur indebtedness in connection
with the acquisition of such property. Wells Development will hold the title to
the property on a temporary basis only for the purpose of facilitating the
acquisition and development of the property prior to its resale to the
partnership and other affiliates of the general partners. Wells Development
will not hold title to any such property for more than twelve months prior to
reselling to the partnership.
34
<PAGE>
The partnership may enter into a contract to acquire property from Wells
Development notwithstanding the fact that at the time of contracting, the
partnership has not yet raised sufficient proceeds to enable it to pay the full
amount of the purchase price at closing. The partnership anticipates that it
will be able to raise sufficient additional proceeds from its offering during
the period between any such execution of the contract and the date provided in
the contract for closing. In the case of properties to be developed by Wells
Development, the contract will likely provide that the closing will occur
immediately following the completion of the development by Wells Development.
However, it is likely that the contract will also provide that the partnership
may elect to close the purchase of the property before the development has been
completed, in which case the partnership would obtain an assignment of the
construction and development contracts from Wells Development and would complete
the construction either directly or through a joint venture with an affiliate.
Any contract between the partnership, directly or indirectly through a joint
venture with an affiliate, and Wells Development for the purchase of property to
be developed by Wells Development will provide that the partnership will be
obligated to purchase the property only if:
. Wells Development completes the development of the improvements in
accordance with the specifications of the contract, and an approved
tenant takes possession of the building under a lease satisfactory to
the partnership; and
. the partnership has sufficient net proceeds available for investment
in properties at closing to pay the balance of the purchase price
remaining after payment of the earnest money deposit.
The general partners will not cause the partnership to enter into a contract to
acquire property from Wells Development if they do not reasonably anticipate
that funds will be available to purchase the property at the time of closing.
If the partnership enters into a contract to acquire property from Wells
Development and, at the time for closing, is unable to purchase the property
because it does not have sufficient net proceeds available for investment, the
partnership will not be required to close the purchase of the property and will
be entitled to a refund of its earnest money deposit from Wells Development.
Because Wells Development is an entity without substantial assets or operations,
however, Wells Development's obligation to refund the partnership's earnest
money deposit will be guaranteed by Wells Management. See the "Management"
section of this prospectus for a description of Wells Management.
If Wells Management is required to make good on its guaranty, the
partnership may not be able to obtain the earnest money deposit from Wells
Management in a lump sum since Wells Management's only significant assets are
its contracts for property management and leasing services, but would more
likely be required to accept installment payments over some period of time out
of Wells Management's operating revenues. (See "Risk Factors - Investment
Risks.")
TERMS OF LEASES AND TENANT CREDITWORTHINESS
The terms and conditions of any lease entered into by the partnership with
regard to a tenant may vary substantially from those described herein; however,
a majority of leases are expected to be what is generally referred to as "triple
net" leases. A "triple net" lease provides that the tenant will be required to
pay or reimburse the partnership for all real estate taxes, sales and use taxes,
special assessments, utilities, insurance and building repairs, in addition to
making its lease payments.
35
<PAGE>
The general partners have developed specific standards for determining the
creditworthiness of potential tenants of partnership properties. While
authorized to enter into leases with any type of tenant, the general partners
anticipate that a majority of the tenants of the partnership properties will be
U.S. corporations or other entities each of which has a net worth in excess of
$100,000,000 or whose lease obligations are guaranteed by another corporation or
entity with a net worth in excess of $100,000,000.
It is anticipated that tenant improvements required to be funded by the
landlord in connection with newly acquired properties will be funded from the
partnership's net proceeds available for investment. However, at such time as a
tenant at one of our properties does not renew its lease or otherwise vacates
its space in one of our buildings, it is likely that, in order to attract new
tenants, the partnership will be required to expend substantial funds for tenant
improvements and tenant refurbishments to the vacated space. Since the
partnership does not anticipate maintaining permanent working capital reserves,
the partnership may not have access to funds required in the future for tenant
improvements and tenant refurbishments in order to attract new tenants to lease
vacated space.
BORROWING POLICIES
The partnership will acquire properties on an all cash basis, and the
general partners do not intend to cause the partnership to borrow any funds.
However, in order to give the general partners flexibility in the management of
the partnership, the Partnership Agreement authorizes the partnership to borrow
funds:
. for partnership operating purposes in the event of unexpected
circumstances in which the partnership's working capital reserves and
other cash resources available to the partnership become insufficient
for the maintenance and repair of partnership properties or for the
protection or replacement of the partnership's assets; and
. in order to finance improvement of properties, when the general
partners deem such improvements to be necessary or appropriate to
protect the capital previously invested in the properties, to protect
the value of the partnership's investment in a particular property, or
to make a particular property more attractive for sale or lease.
The partnership cannot borrow funds for any other purposes. Further, the
aggregate amount of partnership borrowings at any given time may not exceed 25%
of the total purchase price of all partnership properties. The general partners
have also represented that they will not cause the partnership to incur
indebtedness unless the partnership first obtains an opinion of counsel or an
opinion from its tax accountants that the indebtedness to be obtained more
likely than not will not cause the income of the partnership to be characterized
by the IRS as "unrelated business taxable income" as defined in Section 512 of
the Code. Investors should be aware, however, that any such opinion would be
based upon various representations and assumptions, and would have no binding
effect on the IRS or any court. Accordingly, no assurance can be given that the
conclusions reached in any such opinion, if contested, would be sustained by a
court, or that any such indebtedness to be obtained by the partnership in the
future would not cause the income allocated to limited partners that are tax-
exempt entities to be taxed as "unrelated business taxable income." (See
"Federal Income Tax Consequences - Investment by Qualified Plans and Other Tax-
Exempt Entitles.") The partnership will not incur debt to fund distributions to
investors.
36
<PAGE>
The partnership may borrow funds from the general partners or their
affiliates in such situations only if the following qualifications are met:
. any such borrowing cannot constitute a "financing" as that term is
defined under the NASAA Guidelines, i.e., all indebtedness encumbering
partnership properties or incurred by the partnership, the principal
amount of which is scheduled to be paid over a period of not less than
48 months, and not more than 50% of the principal amount of which is
scheduled to be paid during the first 24 months;
. interest and other financing charges or fees must not exceed the
amounts which would be charged by unrelated lending institutions on
comparable financing for the same purpose in the same locality as the
partnership's principal place of business; and
. no prepayment charge or penalty shall be required.
Except in connection with a potential borrowing as described above, the
partnership will not issue senior securities.
JOINT VENTURE INVESTMENTS
The partnership is likely to enter into one or more joint ventures with
affiliated entities for the acquisition, development or improvement of
properties for the purpose of diversifying its portfolio of assets. The
partnership may invest some or all of the proceeds of the offering in such joint
ventures under the conditions described below. In this connection, the
partnership will likely enter into joint ventures with Wells Fund XI or the
Wells REIT or other Wells Programs. The general partners also have the
authority to enter into joint ventures, general partnerships, co-tenancies and
other participations with real estate developers, owners and others for the
purpose of developing, owning and operating properties in accordance with the
partnership's investment policies. (See "Risk Factors" and "Conflicts of
Interest.") In determining whether to invest in a particular joint venture, the
general partners will evaluate the real property which such joint venture owns
or is being formed to own under the same criteria described elsewhere in this
prospectus for the selection of real estate property investments of the
partnership. (See generally "Investment Objectives and Criteria.")
At such time as the general partners believe that a reasonable probability
exists that the partnership will enter into a joint venture with a Wells Program
for the acquisition or development of a specific property, this prospectus will
be supplemented to disclose the terms of such proposed investment transaction.
Based upon the general partners' experience, in connection with the development
of a property which is currently owned by a Wells Program, this would normally
occur upon the signing of legally binding leases with one or more major tenants
for commercial space to be developed on such property, but may occur before or
after any such signing, depending upon the particular circumstances surrounding
each potential investment. It should be understood that the initial disclosure
of any such proposed transaction cannot be relied upon as an assurance that the
partnership will ultimately consummate such proposed transaction nor that the
information provided in any supplement to this prospectus concerning any
proposed transaction will not change after the date of the supplement.
The partnership may enter into a partnership, joint venture or co-tenancy
with unrelated parties if:
37
<PAGE>
. the management of such partnership, joint venture or co-tenancy is
under the control of the partnership in that the partnership or an
affiliate of the partnership possesses the power to direct or to cause
the direction of the management and policies of any such partnership,
joint venture or co-tenancy;
. the partnership, as a result of such joint ownership of a property, is
not charged, directly or indirectly, more than once for the same
services;
. the joint ownership, partnership or co-tenancy agreement does not
authorize or require the partnership to do anything as a partner,
joint venturer or co-tenant with respect to the property which the
partnership or the general partners could not do directly under the
Partnership Agreement; and
. the general partners and their affiliates are prohibited from
receiving any compensation, fees or expenses which are not permitted
to be paid under the Partnership Agreement.
In the event that any such co-ownership arrangement contains a provision giving
each party a right of first refusal to purchase the other party's interest, the
partnership may not have sufficient capital to finance the buy-out. (See "Risk
Factors - Investment Risks.")
The partnership intends to enter into joint ventures with other Wells
Programs for the acquisition of properties, but may only do so provided that:
. each such co-venturer has substantially identical investment
objectives as those of the partnership;
. the partnership, as a result of such joint ownership of a property, is
not charged, directly or indirectly, more than once for the same
services;
. the compensation payable to the general partners and their affiliates
is substantially identical in each program;
. the partnership will have a right of first refusal to buy if such co-
venturer elects to sell its interest in the property held by the joint
venture; and
. the investment by the partnership and such affiliate are on
substantially the same terms and conditions.
In the event that the co-venturer were to elect to sell property held in any
such joint venture, however, the partnership may not have sufficient funds to
exercise its right of first refusal to buy the other co-venturer's interest in
the property held by the joint venture. In the event that any joint venture
with an affiliated entity holds interests in more than one property, the
interest in each such property may be specially allocated based upon the
respective proportion of funds invested by each co-venturer in each such
property. Entering into joint ventures with other Wells Programs will result in
certain conflicts of interest. (See "Risk Factors - Investment Risks" and
"Conflicts of Interest - Joint Ventures with Affiliates of the General
Partners.")
38
<PAGE>
DISPOSITION POLICIES
The partnership anticipates that prior to its termination and dissolution,
all of the partnership's properties will be sold. The partnership intends to
hold the various real properties in which it invests until such time as sale or
other disposition appears to be advantageous to achieve the partnership's
investment objectives or until it appears that such objectives will not be met.
In deciding whether to sell properties, the partnership will consider factors
such as potential capital appreciation, cash flow and federal income tax
considerations, including possible adverse federal income tax consequences to
the investors. The general partners anticipate that the partnership will sell
existing income-producing properties within 10 to 12 years after acquisition and
will sell property acquired for development within 10 to 12 years from the date
of completion of such development. However, the general partners may exercise
their discretion as to whether and when to sell a property, and the partnership
will have no obligation to sell properties at any particular time, except in the
event that investors holding a majority of the units vote to liquidate the
partnership in response to a formal proxy to liquidate. (See "Summary of
Partnership Agreement - Proxy to Liquidate.")
Cash flow from operations will not be invested in the acquisition of real
estate properties. However, in the discretion of the general partners, cash
flow may be held as working capital reserves, or used to make capital
improvements to existing properties. In addition, net sale proceeds generally
will not be reinvested but will be distributed to the partners. Thus, the
partnership is intended to be self-liquidating in nature. However, net sale
proceeds need not be so distributed if such proceeds are, in the discretion of
the general partners:
. used to purchase land underlying any of the partnership's properties;
. used to buy out the interest of any co-tenant or joint venture partner
in a property which is jointly owned;
. held as working capital reserves; or
. used to make capital improvements to existing properties.
Notwithstanding the above, reinvestment of proceeds from the sale of properties
will not occur unless sufficient cash will be distributed to pay any federal or
state income tax liability created by the sale of the property assuming limited
partners will be subject to a 30% combined federal and state tax bracket.
Although not required to do so, the partnership will generally seek to sell
its real estate properties for all cash. The partnership may, however, accept
terms of payment from a buyer which include purchase money obligations secured
by mortgages as partial payment, depending upon then prevailing economic
conditions customary in the area in which the property being sold is located,
credit of the buyer and available financing alternatives. Some properties sold
by the partnership may be sold on the installment basis under which only a
portion of the sale price will be received in the year of sale, with subsequent
payments spread over a number of years. In such event, the full distribution by
the partnership of the net proceeds of any sale may be delayed until the notes
are paid, sold or financed.
39
<PAGE>
OTHER POLICIES
The partnership will not invest as a limited partner in other limited
partnerships.
Except in connection with sales of properties by the partnership where
purchase money obligations may be taken by the partnership as partial payment,
the partnership will not make loans to any person, nor will the partnership
underwrite securities of other issuers, offer securities except potentially for
purchase money obligations to sellers in exchange for property, or invest in
securities of other issuers for the purpose of exercising control.
Notwithstanding the foregoing, the partnership may invest in joint ventures or
partnerships as described above and in a corporation where real estate is the
principal asset and its acquisition can best be effected by the acquisition of
the stock of such corporation, subject to the limitations set forth below.
The partnership will not engage in any of the following activities:
. issue any units after the termination of the offering or issue units
in exchange for property;
. make investments in real estate mortgages except in connection with
the sale or other disposition of a property;
. make loans to the general partners or their affiliates; or
. invest in or underwrite the securities of other issuers, including any
publicly offered or traded limited partnership interests, except for
permitted temporary investments pending utilization of partnership
funds, provided that following one year after the commencement of
operations of the partnership no more than 45% of the value of the
partnership's total assets exclusive of government securities and cash
items will consist of, and no more than 45% of the partnership's net
income after taxes for the last four fiscal quarters combined will be
derived from, securities other than:
(1) government securities; or
(2) securities in a corporation where real estate is the principal
asset and the acquisition of such real estate can best be
effected by the acquisition of the stock of such corporation,
provided that any such corporation is either (a) a corporation
which is a majority owned subsidiary of the partnership and which
is not an investment company, or (b) a corporation which is
controlled primarily by the partnership, through which
corporation the partnership engages in the business of
acquisition and operation of real estate and which is not an
investment company.
40
<PAGE>
MANAGEMENT
THE GENERAL PARTNERS
The general partners of the partnership are: Wells Partners, L.P. and Mr.
Leo F. Wells, III, individually.
WELLS PARTNERS, L.P. ("Wells Partners") is a Georgia limited partnership
having Wells Capital, Inc. ("Wells Capital"), a Georgia corporation formed in
April 1984, as its sole general partner. The executive offices of both Wells
Partners and Wells Capital are located at 3885 Holcomb Bridge Road, Norcross,
Georgia 30092. Financial statements of Wells Partners and Wells Capital are
included at the end of this prospectus. Leo F. Wells, III is the President and
sole Director of Wells Capital as well as the sole shareholder, the President
and sole Director of Wells Real Estate Funds, Inc., which is the sole
shareholder of each of Wells Capital, Wells Management Company, Inc. ("Wells
Management") and Wells Investment Securities, Inc. ("Wells Investment"). (See
"Conflicts of Interest.")
As of September 30, 1998, the net worth of Wells Partners was approximately
$667,000 on an estimated fair market value basis and on a generally accepted
accounting principles (GAAP) basis; however, the net worth of Wells Partners
consists almost entirely of partnership interests in real estate limited
partnerships and, therefore, does not represent liquid assets.
The principal officers and directors of Wells Capital are as follows:
Name Positions
---- ---------
Leo F. Wells, III President and Sole Director
Brian M. Conlon Executive Vice President
Louis A. Trahant Vice President of Sales and Operations
Kim R. Comer National Vice President of Marketing
Edna B. King Vice President of Investor Services
Linda L. Carson Vice President of Accounting
LEO F. WELLS, III (age 53) is the President and sole Director of both Wells
Capital and Wells Real Estate Funds, Inc. In addition, he is President of Wells
& Associates, Inc., a real estate brokerage and investment company formed in
1976 and incorporated in 1978, for which he serves as principal broker. He is
also the President and sole Director of Wells Management, a property management
company he founded in 1983; Wells Investment, a registered securities broker-
dealer he formed in 1984; Wells Advisors, Inc. ("Wells Advisors"), a company he
organized in 1991 to act as a non-bank custodian for IRAs; Wells Development
Corporation ("Wells Development"), a company he organized in 1997 to temporarily
own, operate, manage, and/or develop real properties; and the President and a
Director of the Wells REIT. Mr. Wells was a real estate salesman and property
manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta real estate
company, and he
41
<PAGE>
was associated from 1973 to 1976 with Sax Gaskin Real Estate Company, during
which time he became a Life Member of the Atlanta Board of Realtors Million
Dollar Club. From 1980 to February 1985, he served as Vice President of Hill-
Johnson, Inc., a Georgia corporation engaged in the construction business. Mr.
Wells holds a Bachelor of Business Administration degree in Economics from the
University of Georgia. Mr. Wells is a member of the International Association
for Financial Planning and a registered NASD principal.
Mr. Wells has over 27 years of experience in real estate sales, management
and brokerage services. He is currently a co-general partner in a total of 25
real estate limited partnerships formed for the purpose of acquiring, developing
and operating office buildings and other commercial properties. As of September
30, 1998, these 25 real estate limited partnerships represented investments
totaling $280,854,001 from approximately 26,000 investors. (See "Prior
Performance Summary.")
As of September 30, 1998, Mr. Wells' net worth exclusive of home,
automobiles and home furnishings was in excess of $2,000,000 on an estimated
fair market value basis. Mr. Wells' net worth consists principally of
investments in partnerships, real estate, interests in retirement plans, notes
receivable and his stock in Wells Real Estate Funds, Inc. and other closely held
corporations and, therefore, does not represent liquid assets or assets which
are readily marketable. (See "Risk Factors.")
The combined net worth of the general partners as of September 30, 1998, on
an estimated fair market value basis, was approximately $2,667,000. However,
the general partners' net worth consists primarily of interests in other
partnerships, real estate and closely-held businesses, and thus such net worth
is not liquid and not readily marketable. (See "Risk Factors.")
BRIAN M. CONLON (age 40) is the Executive Vice President of Wells Capital,
Wells Real Estate Funds, Inc. and Wells Development; is a Vice President of
Wells Investment; and is Executive Vice President and a Director of the Wells
REIT. Mr. Conlon joined Wells Capital in 1985 as a Regional Vice President, and
served as Vice President and National Marketing Director from 1991 until April
1996 when he assumed his current position. Previously, Mr. Conlon was Director
of Business Development for Tishman Midwest Management & Leasing Services Corp.
where he was responsible for marketing the firm's property management and
leasing services to institutions. Mr. Conlon also spent two years as an
Investment Property Specialist with Carter & Associates where he specialized in
acquisitions and dispositions of office and retail properties for institutional
clients. Mr. Conlon received a Bachelor of Business Administration degree from
Georgia State University and a Master of Business Administration degree from the
University of Dallas. Mr. Conlon is a member of the International Association
for Financial Planning (IAFP), a general securities principal and a Georgia real
estate broker. Mr. Conlon also holds the certified commercial investment member
(CCIM) designation of the Commercial Investment Real Estate Institute and the
certified financial planner (CFP) designation of the Certified Financial Planner
Board of Standards, Inc.
KIM R. COMER (age 45) rejoined Wells Capital as National Vice President of
Marketing in April 1997, after previously working for Wells Capital in similar
capacities from January 1992 through September 1995. Mr. Comer is responsible
for all investor, financial advisor and broker-dealer communications and
relations. In prior positions with Wells Capital, Mr. Comer served as Vice
President of Marketing for the southeast and northeast regions. He has ten
years of experience in the securities industry and is a licensed registered
representative and financial principal with the
42
<PAGE>
NASD. Additionally, he has previous experience as controller and Chief Financial
Officer of two regional broker-dealers. In 1976, Mr. Comer graduated with honors
from Georgia State University with a BBA degree in accounting.
EDNA B. KING (age 62) is the Vice President of Investor Services for Wells
Capital. She is responsible for processing new investments, sales reporting and
investor communications. Prior to joining Wells Capital in 1985, Ms. King
served as the Southeast Service Coordinator for Beckman Instruments and an
office manager for a regional office of Commerce Clearing House. Ms. King holds
an Associate Degree in Business Administration from DeKalb Community College in
Atlanta, Georgia and has completed various courses at the University of North
Carolina at Wilmington.
LINDA L. CARSON (age 55) is Vice President of Accounting for Wells Capital.
As such, she is responsible for partnership, property and corporate accounting,
SEC reporting and coordination of audits with the independent auditors. Ms.
Carson joined Wells Capital in 1989 as Staff Accountant, became Controller in
1991, and assumed her current position in 1996. Prior to jointing Wells
Capital, Ms. Carson was an accountant with an electrical distributor. She is a
graduate of City College of New York and has completed additional accounting
courses at Kennesaw State. She is a member of the National Society of
Accountants.
MANAGEMENT
The general partners of the partnership, Mr. Wells and Wells Partners, will
be responsible for the direction and management of the partnership, including
acquisition, construction and property management. Any action required to be
taken by the general partners shall be taken only if it is approved, in writing
or otherwise, by both general partners, unless the general partners agree
between themselves to a different arrangement for the approval of action of the
general partners. The powers and duties of the general partners are described
in Article XI of the Partnership Agreement. The compensation payable to the
general partners for performance of their duties is set forth in "Compensation
of the General Partners and Affiliates."
A change in management of the partnership may be accomplished by removal of
the general partners or the designation of a successor or additional general
partner, in each case in accordance with the provisions of the Partnership
Agreement. The Partnership Agreement provides that a general partner may be
removed and a new general partner elected upon the written consent or
affirmative vote of limited partners owning more than 50% of the units. The
Partnership Agreement further provides that a general partner may designate a
successor or additional general partner with the consent of all other general
partners and limited partners holding more than 50% of the units, after
providing 90 days written notice to the general partners and limited partners
and provided that the interests of the limited partners are not adversely
affected. Generally, except in connection with such a designation, no general
partner shall have the right to retire or withdraw voluntarily from the
partnership or to sell, transfer or assign his or its interest without the
consent of the limited partners holding more than 50% of the units. (See
"Summary of Partnership Agreement.")
PROPERTY MANAGER
Partnership properties will be managed and leased initially by Wells
Management Company, Inc., which is a wholly owned subsidiary of Wells Real
Estate Funds, Inc. Wells Management is engaged in the business of real estate
management. It was organized and commenced active
43
<PAGE>
operations in 1983 to lease and manage real estate projects which the general
partners or their affiliates operate or in which the general partners or their
affiliates own an interest. As of December 31, 1998, Wells Management was
managing in excess of __________________ square feet of office buildings and
shopping centers. Its compensation for management of commercial properties will
be 4.5% of gross revenues. A special one-time initial rent-up or leasing fee may
be paid on the first leases for newly constructed properties. This fee must be
competitive for the geographic area of the property, and the amount of this fee
received by Wells Management will be reduced by any amount paid to an outside
broker. The general partners believe these terms will be no less favorable to
the partnership than those customary for similar services in the relevant
geographic area. Depending upon the location of certain partnership properties
and other circumstances, unaffiliated property management companies may be
retained to render property management services for some partnership properties.
(See "Compensation of the General Partners and Affiliates.")
In the event that Wells Management assists a tenant with tenant
improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5% of the cost of the tenant improvements.
Wells Management derives all of its income from its property management and
leasing operations. For the fiscal year ended December 31, 1997, Wells
Management reported $1,182,558 in gross operating revenues and $270,180 in net
income, and for the nine month period ended September 30, 1998, Wells Management
reported $1,208,126 in gross operating revenues and $441,745 in net income.
Wells Real Estate Funds, Inc. is the sole shareholder of Wells Management,
and Mr. Wells is the President and sole Director of Wells Management. (See
"Conflicts of Interest.") The other principal officers of Wells Management are
as follows:
Name Positions
---- ---------
Michael C. Berndt Vice President and Chief Financial Officer
M. Scott Meadows Vice President of Property Management
Robert H. Stroud Vice President of Leasing
Michael L. Watson Vice President of Development
The property manager will hire, direct and establish policies for the
partnership's employees who will have direct responsibility for each property's
operations, including resident managers and assistant managers, as well as
building and maintenance personnel. Some or all of the other partnership
employees may be employed on a part-time basis and may also be employed by one
or more of the following:
. the general partners;
. the property manager;
. other partnerships organized by the general partners and their
affiliates; and
44
<PAGE>
. other persons or entities owning properties managed by the property
manager.
The property manager will also direct the purchase of equipment and supplies and
will supervise all maintenance activity.
The management fees to be paid to Wells Management will cover, without
additional expense to the partnership, the property manager's general overhead
costs such as its expenses for rent and utilities. However, certain salaries
and other employee-related expenses, travel and other out-of-pocket expenses of
personnel of Wells Management, other than controlling persons of the general
partners or their affiliates, may be reimbursed by the partnership to the extent
such expenses are directly related to the management of a specific partnership
property.
The principal office of Wells Management is located at 3885 Holcomb Bridge
Road, Norcross, Georgia 30092.
DEALER MANAGER
Wells Investment Securities, Inc. (the Dealer Manager), a member firm of
the National Association of Securities Dealers, Inc. ("NASD"), was organized in
May 1984 for the purpose of participating in and facilitating the distribution
of securities of Wells Programs.
The Dealer Manager will provide certain wholesaling, sales promotional and
marketing assistance services to the partnership in connection with the
distribution of the units offered pursuant to this prospectus. It may also sell
a limited number of units at the retail level. (See "Plan of Distribution.")
Wells Real Estate Funds, Inc. is the sole shareholder of the Dealer
Manager, and Mr. Wells is the President and sole Director. (See "Conflicts of
Interest.") Brian M. Conlon serves as Vice President of the Dealer Manager.
IRA CUSTODIAN
Wells Advisors, Inc. was organized in 1991 for the purpose of acting as a
non-bank custodian for IRAs investing in the securities of Wells Programs.
Wells Advisors charges no fees for such services. Wells Advisors was approved
by the Internal Revenue Service to act as a qualified non-bank custodian for
IRAs on March 20, 1992. In circumstances where Wells Advisors acts as an IRA
custodian, the authority of Wells Advisors is limited to holding the units on
behalf of the beneficiary of the IRA and making distributions or reinvestments
in units solely at the discretion of the beneficiary of the IRA. Wells Advisors
is not authorized to vote any of the units held in any IRA except in accordance
with the written instructions of the beneficiary of the IRA. Mr. Wells is the
President and sole Director and owns 50% of the common stock and all of the
preferred stock of Wells Advisors.
ESTIMATED USE OF PROCEEDS
The following table sets forth information concerning the estimated use of
the gross proceeds of the offering of units made hereby for each of the
partnerships. Many of the figures set forth below
45
<PAGE>
represent the best estimate of the general partners since they cannot be
precisely calculated at this time. The percentage of the gross proceeds of the
offering of units to be invested in partnership properties for each of the
partnerships is estimated to be approximately 84%.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
---------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $1,250,000 100% $35,000,000 100%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (2) 118,750 9.5% 3,325,000 9.5%
Organization and Offering Expenses (3) 37,500 3% 1,050,000 3%
---------- ---- ----------- ----
Amount Available for Investment (4) $1,093,750 87.5% $30,625,000 87.5%
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 37,500 3% $ 1,050,000 3%
Acquisition Expenses (6) 6,250 .5% 175,000 .5%
Initial Working Capital Reserve (7) (7) - (7) -
---------- ---- ----------- ----
Amount Invested in Properties (4)(8) $1,050,000 84% $29,400,000 84%
========== ==== =========== ====
</TABLE>
_________________________
(Footnotes to "Estimated Use of Proceeds")
1. The amounts shown for gross offering proceeds do not reflect the possible
discounts in commissions and other fees as described in "Plan of
Distribution."
2. Includes selling commissions equal to 7% of aggregate gross offering
proceeds which commissions may be reduced under certain circumstances and a
dealer manager fee equal to 2.5% of aggregate gross offering proceeds, both
of which are payable to the Dealer Manager, an affiliate of the general
partners. The Dealer Manager, in its sole discretion, may reallow selling
commissions of up to 7% of gross offering proceeds to other broker-dealers
participating in this offering attributable to the units sold by them and
may reallow out of its dealer manager fee up to 1.5% of gross offering
proceeds in marketing fees to broker-dealers participating in this offering
based on such factors as the volume of units sold by such participating
broker-dealers, marketing support provided by such participating broker-
dealers and bona fide conference fees incurred. In no event shall the total
underwriting compensation, including selling commissions, the dealer manager
fee and underwriting expense reimbursements, exceed 10% of gross offering
proceeds, except for an additional .5% of gross offering proceeds which may
be paid as a reimbursement of expenses incurred for due diligence purposes
and which is included in the organization and offering expenses described in
Footnote 3 below. (See "Plan of Distribution.")
3. Organization and offering expenses consist of estimated legal, accounting,
printing and other accountable offering expenses other than selling
commissions and the dealer manager fee and reimbursements to the general
partners and their affiliates for payments to nonaffiliated broker-dealers
of certain bona fide due diligence expenses in an amount not to exceed .5%
of gross offering proceeds. The general partners and their affiliates will
be responsible for the payment of organization and offering expenses other
than selling commissions and the dealer manager fee to the extent they
exceed 3% of gross offering proceeds without recourse against or
reimbursement by the partnership.
4. Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the offering and,
thereafter, the working capital reserves of the
46
<PAGE>
partnership, may be invested in short-term, highly-liquid investments
including government obligations, bank certificates of deposit, short-term
debt obligations and interest-bearing accounts.
5. The partnership will pay acquisition and advisory fees, defined generally as
the total of all fees and commissions paid by any party to any person in
connection with the purchase, development or construction of property by the
partnership, to the general partners or their affiliates in connection with
the acquisition of the partnership's properties up to a maximum amount of 3%
of gross offering proceeds. Acquisition and advisory fees do not include
acquisition expenses.
6. Acquisition expenses include legal fees and expenses, travel expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance premiums and other closing
costs and miscellaneous expenses relating to the selection, acquisition and
development of partnership properties. It is anticipated that substantially
all of such items will be directly related to the acquisition of specific
partnership properties and will be capitalized rather than currently
deducted by the partnership.
7. Because the partnership will purchase properties on an all cash basis and
the vast majority of leases for the properties acquired by the partnership
will provide for tenant reimbursement of operating expenses, it is not
anticipated that a permanent reserve for maintenance and repairs of
partnership properties will be established. However, to the extent that the
partnership has insufficient funds for such purposes, the general partners
will advance to the partnership on an interest-free basis an aggregate
amount of up to 1% of gross offering proceeds for maintenance and repairs of
partnership properties. The general partners also may, but are not required
to, establish reserves from gross offering proceeds, out of cash flow
generated by operating properties or out of nonliquidating net sale
proceeds, defined generally to mean the net cash proceeds received by the
partnership from any sale or exchange of partnership properties.
8. Includes amounts anticipated to be invested in partnership properties net of
fees and expenses. It is estimated that approximately 84% of the proceeds
from the sale of units will be used to acquire properties, and under no
circumstances shall the partnership commit less than 80% of capital
contributions to investment in properties, as required under the NASAA
Guidelines.
COMPENSATION OF THE GENERAL PARTNERS AND AFFILIATES
The following table summarizes and discloses all of the compensation and
fees including reimbursement of expenses to be paid by the partnership to the
general partners and their affiliates during the various phases of the
organization and operation of the partnership.
<TABLE>
<CAPTION>
Form of Compensation Determination Estimated Maximum
and Entity Receiving of Amount Dollar Amount (1)
- -------------------- --------- -----------------
<S> <C> <C>
Organizational and Offering Stage
Selling Commissions - The Up to 7% of gross offering proceeds before reallowance of commissions earned $2,450,000 ($87,500 in
Dealer Manager by participating broker-dealers. The Dealer the
</TABLE>
47
<PAGE>
<TABLE>
<S> <C> <C>
Manager intends to reallow 100% of commissions earned to participating event the partnership
broker-dealers. sells only the minimum of
125,000 units)
Dealer Manager Fee - The Up to 2.5% of gross offering proceeds before reallowance to participating $875,000 ($31,250 in
Dealer Manager broker-dealers. The Dealer Manager, in its sole discretion, may reallow a the event the
portion of its dealer manager fee of up to 1.5% of the gross offering partnership sells only
proceeds to be paid to such participating broker-dealers as a marketing fee, the minimum of 125,000
based on such factors as the volume of units sold by such participating units)
broker-dealers, marketing support and bona fide conference fees incurred.
Reimbursement of Up to 3% of gross offering proceeds. All organization and offering expenses $1,050,000 ($37,500 in
Organization and (excluding selling commissions and the dealer manager fee) will be advanced the event the
Offering Expenses - The by the General Partner and their affiliates and reimbursed by the partnership sells only
General Partners or partnership.(2) the minimum of 125,000
Their Affiliates units)
Acquisition and Development Stage
Acquisition and For the review and evaluation of potential real property $1,050,000
Advisory acquisitions, a fee of up to 3% of gross offering ($37,500 in the
Fees - The General proceeds. event the
Partners partnership
or Their Affiliates sells only the
minimum of
125,000 units)
Reimbursement of Up to .5% of gross offering proceeds for reimbursement of $175,000 ($6,250
Acquisition expenses related to real property acquisitions, such as in the event the
Expenses - The legal fees, travel expenses, property appraisals, title partnership
General Partners insurance premium expenses and other closing costs. sells only the
or Their minimum of
Affiliates 125,000 units)
Operational Stage
Property For supervising the management of the partnership Actual amounts
Management and properties, a fee equal to the lesser of: (A)(1) for are dependent
Leasing Fees - commercial properties which are not leased on a long-term upon results of
Wells Management net lease basis, 4.5% of gross revenues, and (2) in the operations and
Company, Inc. case of commercial properties which are leased on a therefore cannot
long-term (ten or more years) net lease basis, 1% of be determined at
gross revenues plus, in the case of leases to new the present time.
tenants, initial leasing fees equal to 3% of gross
revenues over the first five years of the lease term, or
(B) the amounts charged by unaffiliated persons rendering
comparable services in the same geographic area; plus, a
separate fee for the one-time initial rent-up or
leasing-up of newly constructed properties in an amount
not to exceed the fee customarily charged in arm's-length
transactions by others rendering similar services in the
same geographic area for similar properties.
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
Share of Net Cash A noncumulative amount equal to one-tenth of net cash Actual amounts
From Operations - from operations subordinated in each fiscal year to are dependent
The General Partners distributions of net cash from operations to investors upon results of
electing Cash Preferred Units equal to 10% of their net operations and
capital contributions. therefore cannot
be determined at
the present time.
Liquidation Stage
Subordinated After investors have received a return of their net capital contributions Actual amounts are
Participation in and their Preferential Limited Partner Return, then the general partners dependent upon results
Nonliquidating Net are entitled to receive the following amounts: of operations and
Sale Proceeds and therefore cannot be
Liquidating (a) an amount equal to their capital contributions, determined at the
Distributions - The present time.
General Partners (b) then, if and only in the event that investors have received any Excess
Limited Partner Distributions, 20% of the sum of any such Excess
Limited Partner Distributions plus the amount distributed to the general
partners pursuant to this provision, plus
(c) 20% of remaining residual proceeds available for distribution;
provided, however, that in no event will the general partners receive in
the aggregate more than 15% of sale proceeds remaining after investors
have received a return of their net capital contributions plus a 6% annual
cumulative (noncompounded) return on their net capital contributions.
(See Sections 9.2, 9.3 and 9.4 of the Partnership Agreement.)
Real Estate In connection with the sale of partnership properties, an amount not Actual amounts are
Commissions - or exceeding the lesser of: (A) 50% of the reasonable, customary and dependent upon results
The general partners competitive real estate brokerage commissions customarily paid for the sale of operations and
Their Affiliates of a comparable property in light of the size, type and location of the therefore cannot be
property, or (B) 3% of the gross sales price of each property, subordinated determined at the
to distributions to investors from sale proceeds of an amount which, together present time.
with prior distributions to the investors, will equal (1) 100% of their
capital contributions plus (2) a 6% annual cumulative (noncompounded) return
on their net capital contributions. (See Section 12.6 of the Partnership
Agreement.)
</TABLE>
_________________________
(Footnotes to "Compensation of the General Partners and Affiliates")
1. The estimated maximum dollar amounts are based on the sale of a maximum of
3,500,000 units.
2. In the event that reimbursements of organizational and offering expenses
paid by Wells Real Estate Fund XII, L.P. are made for organization,
registration and offering expenses relating to both of the partnerships, it
is anticipated that Wells Real Estate Fund XIII, L.P. will reimburse Wells
Real Estate Fund XII, L.P. for its pro rata share of such expenses, subject
to the 3% of gross offering proceeds limitation.
49
<PAGE>
In addition, the general partners and their affiliates will be reimbursed
only for the actual cost of goods, services and materials used for or by the
partnership as set forth in Section 11.4 of the Partnership Agreement. The
general partners may be reimbursed for the administrative services necessary to
the prudent operation of the partnership provided that the reimbursement shall
be at the lower of the general partners' actual cost or the amount the
partnership would be required to pay to independent parties for comparable
administrative services in the same geographic location. No payment or
reimbursement will be made for services for which the general partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursement shall be: (1) rent or depreciation, utilities, capital equipment,
other administrative items; and (2) salaries, fringe benefits, travel expenses
and other administrative items incurred by or allocated to any controlling
persons of the general partners or their affiliates.
Since the general partners and their affiliates are entitled to differing
levels of compensation for undertaking different transactions on behalf of the
partnership, such as the property management fees for operating the partnership
properties and the subordinated participation in proceeds from the sale of
partnership properties, the general partners have the ability to affect the
nature of the compensation they receive by undertaking different transactions.
However, the general partners are obligated to exercise good faith and integrity
in all their dealings with respect to partnership affairs pursuant to their
fiduciary duties to the limited partners. (See "Fiduciary Duty of the General
Partners.") As noted above, there are ceilings on certain categories of fees or
expenses payable to the general partners and their affiliates. Because these
fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by the general partners or their affiliates
by reclassifying them under a different category.
CONFLICTS OF INTEREST
The partnership is subject to various conflicts of interest arising out of
its relationship with the general partners and their affiliates, including
conflicts related to the arrangements pursuant to which the general partners and
their affiliates will be compensated by the partnership. (See "Compensation of
the General Partners and Affiliates.")
The general partners of the partnership are Leo F. Wells, III and Wells
Partners, L.P., a Georgia limited partnership having Wells Capital, Inc., a
Georgia corporation, as its sole general partner. Leo F. Wells, III owns all of
the outstanding capital stock of Wells Real Estate Funds, Inc., a Georgia
corporation which owns all of the outstanding capital stock of Wells Capital,
Inc., Wells Investment Securities, Inc. (the Dealer Manager), and Wells
Management Company, Inc. (the Property Manager). See the flow chart showing the
relationship between the general partners and its affiliates in the "Summary of
the Offering" section of this prospectus.
Because the partnership was organized and will be operated by the general
partners, these conflicts will not be resolved through arm's-length negotiations
but through the exercise of the general partners' judgment consistent with their
fiduciary responsibility to the limited partners and the partnership's
investment objectives and policies. (See "Fiduciary Duty of the General
Partners" and "Investment Objectives and Criteria.") These conflicts include,
but are not limited to, the following:
50
<PAGE>
INTERESTS IN OTHER REAL ESTATE PROGRAMS
The general partners and their affiliates are also general partners of
other Wells Programs, including partnerships which have investment objectives
similar to those of the partnership, and it is expected that they will organize
other such partnerships in the future. The general partners and such affiliates
have legal and financial obligations with respect to these other partnerships
which are similar to their obligations to the partnership. As general partners,
they may have contingent liability for the obligations of such partnerships as
well as those of the partnership which, if such obligations were enforced
against the general partners, could result in substantial reduction of the net
worth of the general partners.
In addition, the general partners and their affiliates are currently
sponsoring a real estate investment trust known as Wells Real Investment Trust,
Inc. The registration statement of Wells Real Estate Investment Trust, Inc. was
declared effective by the Securities and Exchange Commission on January 30, 1998
for the offer and sale to the public of up to 16,500,000 shares of common stock
at a price of $10.00 per share.
As described in the "Prior Performance Summary," the general partners have
sponsored the following thirteen other Wells Programs with substantially
identical investment objectives as those of the partnership:
1. Wells Real Estate Fund I ("Wells Fund I"),
2. Wells Real Estate Fund II ("Wells Fund II"),
3. Wells Real Estate Fund II-OW ("Wells Fund II-OW"),
4. Wells Real Estate Fund III, L.P. ("Wells Fund III"),
5. Wells Real Estate Fund IV, L.P. ("Wells Fund IV"),
6. Wells Real Estate Fund V, L.P. ("Wells Fund V"),
7. Wells Real Estate Fund VI, L.P. ("Wells Fund VI"),
8. Wells Real Estate Fund VII, L.P. ("Wells Fund VII"),
9. Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII"),
10. Wells Real Estate Fund IX, L.P. ("Wells Fund IX"),
11. Wells Real Estate Fund X, L.P. ("Wells Fund X"),
12. Wells Real Estate Fund XI, L.P. ("Wells Fund XI"), and
13. Wells Real Estate Investment Trust, Inc. (the "Wells REIT")
All of the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells
Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells
Fund VII, Wells Fund VIII and Wells Fund IX available for investment in real
properties have been invested. As of October 31, 1998, approximately 94% of
the proceeds of the offering of Wells Fund X, 44% of the proceeds of the
offering of Wells Fund XI, and 58% of the proceeds of the offering of the Wells
REIT available for investment in real properties had either been invested in
properties or were committed for investment in properties.
In the event that the partnership, or any other Wells Program or other
entity formed or managed by the general partners or their affiliates is in the
market for similar properties, the general partners will review the investment
portfolio of the partnership and each such affiliated entity. The general
partners will decide which entity will acquire a particular property on the
basis of such factors as, among others:
51
<PAGE>
. the anticipated cash flow of the property to be acquired and the cash
requirements of each program;
. the effect of the purchase on diversification of the portfolio of each
such entity in terms of number of investments, types of commercial
properties, geographic area and industry group of the tenant;
. the estimated income tax effects of the purchase on each such entity;
. the size of the investment;
. the amount of funds available to each entity and the length of time
such funds have been available for investment; and
. in the case of the Wells REIT, the potential effect of leverage on
such investment.
The general partners may acquire, for their own account or for private
placement, properties which they deem not suitable for purchase by the
partnership, whether because of the greater degree of risk, the complexity of
structuring inherent in such transactions, financing considerations or for other
reasons, including properties with potential for attractive investment returns.
OTHER ACTIVITIES OF THE GENERAL PARTNERS AND THEIR AFFILIATES
The partnership will rely on the general partners and their affiliates for
the day-to-day operation of the partnership and the management of its assets.
As a result of their interests in other partnerships and the fact that they have
also engaged and will continue to engage in other business activities, the
general partners and their affiliates will have conflicts of interest in
allocating their time between the partnership and other partnerships and
activities in which they are involved. (See "Risk Factors - Investment Risks.")
However, the general partners believe that they and their affiliates have
sufficient personnel to discharge fully their responsibilities to all
partnerships and ventures in which they are involved.
The partnership will not purchase or lease any property in which the
general partners or any of their affiliates have an interest; provided, however,
that the general partners or any of their affiliates may temporarily enter into
contracts relating to investment in properties to be assigned to the partnership
prior to closing or may purchase property in their own name and temporarily hold
title for the partnership, provided that such property is purchased by the
partnership at a price no greater than the cost of such property, including
acquisition and carrying costs, to the general partners or the affiliate, and
further provided that the general partners or such affiliate may not have held
title to any such property on behalf of the partnership for more than 12 months
prior to the commencement of this offering, that the general partners or their
affiliates shall not sell property to the partnership if the cost of the
property exceeds the funds reasonably anticipated to be available for the
partnership to purchase any such property, and that all profits and losses
during the period any such property is held by the general partners or the
affiliate will accrue to the partnership. In no event may the partnership:
. sell or lease real property to the general partners or any of their
affiliates;
52
<PAGE>
. loan partnership funds to the general partners or any of their
affiliates; or
. enter into agreements with the general partners or their affiliates
for the provision of insurance covering the partnership or any
partnership property.
COMPETITION
Conflicts of interest will exist to the extent that the partnership may
acquire properties in the same geographic areas where other properties owned by
the general partners and their affiliates are located. In such a case, a
conflict could arise in the leasing of partnership properties in the event that
the partnership and another program managed by the general partners or their
affiliates were to compete for the same tenants in negotiating leases, or a
conflict could arise in connection with the resale of partnership properties in
the event that the partnership and another program managed by the general
partners or their affiliates were to attempt to sell similar properties at the
same time. Conflicts of interest may also exist at such time as the partnership
or affiliates of the general partners managing property on behalf of the
partnership seek to employ developers, contractors or building managers as well
as under other circumstances. The general partners will seek to reduce
conflicts relating to the employment of developers, contractors or building
managers by making prospective employees aware of all such properties seeking to
employ such persons. In addition, the general partners will seek to reduce
conflicts which may arise with respect to properties available for sale or rent
by making prospective purchasers or lessees aware of all such properties.
However, these conflicts cannot be fully avoided in that the general partners
may establish differing compensation arrangements for employees at different
properties or differing terms for resales or leasing of the various properties.
AFFILIATED DEALER MANAGER
Since Wells Investment Securities, Inc. (the Dealer Manager) is an
affiliate of the general partners, the partnership will not have the benefit of
an independent due diligence review and investigation of the type normally
performed by an unaffiliated, independent underwriter in connection with the
offering of securities. (See "Plan of Distribution.")
AFFILIATED PROPERTY MANAGER
Since it is anticipated that partnership properties will be managed and
leased by Wells Management Company, Inc. (the Property Manager), the partnership
will not have the benefit of independent property management. (See
"Management.")
LACK OF SEPARATE REPRESENTATION
Holland & Knight LLP ("Holland & Knight") is counsel to the partnership,
the general partners, the Dealer Manager and their affiliates in connection with
this offering and may in the future act as counsel to the partnership, the
general partners, the Dealer Manager and their affiliates. There is a
possibility that in the future the interests of the various parties may become
adverse. In the event that a dispute were to arise between the partnership, the
general partners, the Dealer Manager or their affiliates, the general partners
will cause the partnership to retain separate counsel for such matters as and
when appropriate.
53
<PAGE>
JOINT VENTURES WITH AFFILIATES OF THE GENERAL PARTNERS
The partnership is likely to enter into one or more joint venture
agreements with Wells Programs for the acquisition, development or improvement
of properties. (See "Investment Objectives and Criteria - Joint Venture
Investments.") The general partners and their affiliates may have conflicts of
interest in determining which Wells Program should enter into any particular
joint venture agreement. The co-venturer may have economic or business
interests or goals which are or which may become inconsistent with the business
interests or goals of the partnership. In addition, should any such joint
venture be consummated, the general partners may face a conflict in structuring
the terms of the relationship between the interest of the partnership and the
interest of the affiliated co-venturer and in managing the joint venture. Since
the general partners and their affiliates will control both the partnership and
the affiliated co-venturer, agreements and transactions between the co-venturers
with respect to any such joint venture will not have the benefit of arm's-length
negotiation of the type normally conducted between unrelated co-venturers. (See
"Risk Factors - Investment Risks.")
RECEIPT OF FEES AND OTHER COMPENSATION BY GENERAL PARTNERS AND AFFILIATES
Partnership transactions involving the purchase and sale of partnership
properties may result in the receipt of commissions, fees and other compensation
by the general partners and their affiliates, including acquisition and advisory
fees, the dealer manager fee, property management and leasing fees, real estate
brokerage commissions, and participation in distributions of net cash from
operations, nonliquidating net sale proceeds and liquidating distributions.
However, the fees and compensation payable to the general partners and their
affiliates relating to sale of partnership properties are subordinated to the
return to the limited partners of their capital contributions plus cumulative
returns thereon. Subject to their fiduciary duties and specific restrictions
set forth in the Partnership Agreement, the general partners have considerable
discretion with respect to all decisions relating to the terms and timing of all
partnership transactions. Therefore, the general partners may have conflicts of
interest concerning certain actions taken on behalf of the partnership,
particularly due to the fact that such fees will generally be payable to the
general partners and their affiliates regardless of the quality of the
partnership properties acquired or the services provided to the partnership.
(See "Compensation of the General Partners and Affiliates.")
TAX AUDIT PROCEEDING
In the event of an audit of the federal income tax returns of the
partnership by the IRS, it is possible that the interests of the general
partners in such tax audit could become inconsistent with or adverse to the
interests of the investors. Further, it is possible that federal income tax
adjustments proposed by the IRS could be adverse to investors electing Tax
Preferred Units while being neutral or potentially advantageous to investors
electing Cash Preferred Units. Expenses of contesting any such audit incurred
by the partnership may reduce the amount of net cash from operations available
for distribution to investors electing Cash Preferred Units, which could also
result in a conflict of interest. In this regard, the general partners who are
primarily responsible for contesting federal income tax adjustments proposed by
the IRS may be subject to various conflicts of interest in connection with the
negotiation and settlement of issues raised by the IRS in a federal income tax
audit. (See "Federal Income Tax Consequences.")
54
<PAGE>
The agreements and arrangements among the partnership, the general partners
and their affiliates have been established by the general partners, and the
general partners believe the amounts to be paid thereunder to be reasonable and
customary under the circumstances. In an effort to establish standards for
minimizing and resolving these potential conflicts, the general partners have
agreed to the guidelines and limitations set forth in Section 11.3 of the
Partnership Agreement entitled "Limitations on Powers of the General Partners"
and in Article XIII of the Partnership Agreement entitled "Transactions Between
General Partners and the Partnership." Among other things, these provisions:
. set forth the specific conditions under which the partnership may own
or lease property jointly or in a partnership with an affiliate of the
general partners;
. prohibit the partnership from purchasing or leasing an investment
property from the general partners or their affiliates;
. prohibit loans by the partnership to the general partners or their
affiliates;
. prohibit the commingling of partnership funds; and
. prohibit the general partners from merging or consolidating the
partnership with another partnership or a corporation or converting
the partnership to a real estate investment trust unless the
transaction complies with certain terms and conditions including first
obtaining a majority vote of the investors.
In addition, as described below, the general partners have a fiduciary
obligation to act in the best interests of both the investors in the partnership
and the investors in other programs in which they act as general partners and
will use their best efforts to assure that the partnership will be treated at
least as favorably as any other such program.
FIDUCIARY DUTY OF THE GENERAL PARTNERS
The general partners will be accountable to the partnership as fiduciaries
and, consequently, will be required to exercise good faith and integrity in all
their dealings with respect to partnership affairs. Where the question has
arisen, courts have held that a limited partner may institute legal action on
behalf of himself or all other similarly situated limited partners, a class
action, to recover damages for a breach by a general partner of his fiduciary
duty or on behalf of the partnership, a partnership derivative action, to
recover damages from third parties. The Georgia Revised Uniform Limited
Partnership Act (GRULPA) specifically permits a limited partner of a Georgia
limited partnership to bring a derivative action on behalf of the partnership
if:
. the general partner or partners of the partnership have refused to
bring the action on behalf of the partnership or it is apparent that
an effort to cause such general partner or partners to bring the
action would not be likely to succeed; and
. the limited partner was a partner at the time the transaction
complained of occurred or such partner became a partner by operation
of law or pursuant to the terms of the
55
<PAGE>
partnership agreement by assignment from a person who was a partner at
the time of such transaction.
Under GRULPA, a general partner of a Georgia limited partnership has the
same liabilities to the partnership and the other partners as a partner in a
partnership without limited partners. Accordingly, in any action alleging a
breach of fiduciary duty by the general partners to either the limited partners
or the partnership, it is not anticipated that the general partners would be
able to successfully assert as a defense the general presumption which is often
referred to as the "business judgment rule: that actions taken by the directors
of a corporation on behalf of the corporation are reasonable. However, since
any such action would involved a rapidly developing and changing area of the
law, investors who believe that a breach of fiduciary duty by the general
partners may have occurred should consult with their own counsel.
Under GRULPA, a general partner of a Georgia limited partnership generally
owes a duty of loyalty and a duty of care to his partners except to the extent
of acceptable limitations in the partnership agreement. It is acceptable under
GRULPA to limit the duties and liabilities of a general partner with the
exception that liabilities may not be limited for intentional misconduct or a
knowing violation of law, or for any transaction for which the general partner
received a personal benefit in violation or breach of any provision of the
partnership agreement.
The Partnership Agreement provides that the general partners shall not be
liable to the partnership or any partner for any liability arising out of any
act or failure to act which the general partners in good faith determined was in
the best interest of the partnership, provided that the general partners shall
be liable for any liabilities resulting from a general partner's:
. own fraud, negligence, misconduct or knowing violation of law;
. breach of fiduciary duty to the partnership or any partner; or
. breach of the Partnership Agreement, regardless of whether or not any
such act was first determined by such general partner, in good faith,
to be in the best interest of the partnership.
In the absence of such limitations in a partnership agreement, a general
partner of a limited partnership would generally be liable under state law for
damages caused by a breach of fiduciary duty or a breach of the partnership
agreement, regardless of whether or not such person received any personal
benefit. However, because the limitations on the general partners' duties and
liabilities in the Partnership Agreement are not as broad as under state law
regarding the duties of fiduciaries generally, limited partners may have a more
limited right of action than they would otherwise have absent the foregoing
provisions in the Partnership Agreement.
In addition, the Partnership Agreement provides that the partnership shall
indemnify the general partners and their affiliates from and against liabilities
and related expenses, including attorneys' fees, incurred in dealing with third
parties while acting on behalf of or performing services for the partnership
arising out of any act or failure to act which the general partners in good
faith determined was in the best interest of the partnership, provided that the
general partners shall not be indemnified by the partnership for any liabilities
resulting from a general partner's:
56
<PAGE>
. own fraud, negligence, misconduct or knowing violation of law;
. breach of fiduciary duty to the partnership or any partner; or
. breach of the Partnership Agreement, regardless of whether or not any
such act was first determined by such general partner, in good faith,
to be in the best interest of the partnership.
Any indemnification of the general partners is recoverable only out of the
assets of the partnership and not from the investors. The indemnification
provisions contained in the Partnership Agreement are generally consistent with
the provisions of GRULPA, and the general partners will not be indemnified for a
violation of the duty of care to their partners to the extent any such violation
constitutes negligence or misconduct.
Notwithstanding the foregoing, the partnership will not indemnify the
general partners or any person acting as a broker-dealer with respect to the
units from any liabilities incurred by them arising under federal and state
securities laws unless:
. there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular
person seeking indemnification;
. such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction as to the particular person seeking
indemnification; or
. a court of competent jurisdiction approves a settlement of the claims
against the particular person seeking indemnification and finds that
indemnification of the settlement and related costs should be made.
In addition, prior to seeking a court approval for indemnification, the
general partners are required to apprise the court of the position of the
Securities and Exchange Commission and various securities regulatory authorities
with respect to indemnification for securities violations.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the registrant has been
informed 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.
PRIOR PERFORMANCE SUMMARY
The information presented in this section represents the historical
experience of real estate programs managed by the general partners and their
affiliates. Investors in the partnership should not assume that they will
experience returns, if any, comparable to those experienced by investors in such
prior real estate programs.
57
<PAGE>
The individual general partner, Leo F. Wells, III, has served as a general
partner of a total of twelve publicly offered real estate limited partnerships.
These twelve limited partnerships and the year in which their offerings were
completed are:
1. Wells Real Estate Fund I (1986)
2. Wells Real Estate Fund II (1988)
3. Wells Real Estate Fund II-OW (1988)
4. Wells Real Estate Fund III, L.P. (1990)
5. Wells Real Estate Fund IV, L.P. (1992)
6. Wells Real Estate Fund V, L.P. (1993)
7. Wells Real Estate Fund VI, L.P. (1994)
8. Wells Real Estate Fund VII, L.P. (1995)
9. Wells Real Estate Fund VIII, L.P. (1996)
10. Wells Real Estate Fund IX, L.P. (1996)
11. Wells Real Estate Fund X, L.P. (1997)
12. Wells Real Estate Fund XI, L.P. (1998).
The Prior Performance Tables included in the back of this prospectus set
forth information as of the dates indicated regarding certain of these prior
programs as to (1) experience in raising and investing funds (Table I); (2)
compensation to sponsor (Table II); and (3) annual operating results of prior
programs (Table III). No information is given as to results of completed
programs or sales or disposals of property because, to date, none of the prior
programs have sold any of their properties.
In addition to the foregoing real estate limited partnerships, the general
partners and their affiliates are currently also sponsoring a public offering on
behalf of the Wells REIT.
In addition to the real estate programs sponsored by the general partners
discussed above, the general partners are also sponsoring an index mutual fund
which invests in various REIT stocks known as the Wells S&P REIT Index Fund (the
"Fund"). The Fund seeks to provide investment results corresponding to the
performance of the S&P REIT Index by investing in the REIT stocks included in
the S&P REIT Index. The Fund began its offering on January 12, 1998, and as of
December 31, 1998, the Fund had raised $_____________ from ___________
investors.
PUBLICLY OFFERED UNSPECIFIED REAL ESTATE PROGRAMS
The general partners and their affiliates have previously sponsored the
above listed twelve publicly offered real estate limited partnerships and one
real estate investment trust offered on an unspecified property or "blind pool"
basis. The total amount of funds raised from investors in the offerings of
these twelve publicly offered limited partnerships and the Wells REIT, as of
December 31, 1998, was approximately $___________, and the total number of
investors in such programs was approximately ______.
The investment objectives of each of the other Wells Programs are
substantially identical to the investment objectives of the partnership. All of
the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW,
Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII,
Wells Fund VIII and Wells Fund IX available for investment in real properties
have been invested in properties. As of October 31, 1998, approximately 94% of
the proceeds of the offering of Wells Fund X, 44% of the proceeds of the
offering of Wells Fund XI, and 58% of the
58
<PAGE>
proceeds of the offering of the Wells REIT available for investment in real
properties had either been invested in properties or were committed for
investment in properties. For the fiscal year ended December 31, 1998,
approximately ____________ of the aggregate gross rental income of these
thirteen publicly offered programs was derived from tenants which are U.S.
corporations, each of which has net worth of at least $100,000,000 or whose
lease obligations are guaranteed by another corporation with a net worth of at
least $100,000,000.
Because of the cyclical nature of the real estate market, decreases in net
income of the public partnerships could occur at any time in the future when
economic conditions decline. None of the prior programs has liquidated or sold
any of its real properties to date and, accordingly, no assurance can be made
that prior programs will ultimately be successful in meeting their investment
objectives. (See "Risk Factors.")
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by the previously sponsored Wells Programs, as of December
31, 1998, was approximately $___________ of which $___________ (or approximately
____%) had not yet been expended on the development of certain of the projects
which are still under construction. Of the aggregate amount, approximately ___%
was or will be spent on acquiring or developing office buildings, and
approximately ___% was or will be spent on acquiring or developing shopping
centers. Of the aggregate amount, approximately ___% was or will be spent on
new properties, ___% on existing or used properties and ___% on construction
properties. Following is a table showing a breakdown of the aggregate amount of
the acquisition and development costs of the properties purchased by these
thirteen publicly offered programs as of December 31, 1998:
<TABLE>
<CAPTION>
Type of Property New Used Construction
---------------- --- ---- ------------
<S> <C> <C> <C>
Office Buildings ___% ___% ___%
Shopping Centers ___% ___% ___%
</TABLE>
WELLS FUND I terminated its offering on September 5, 1986, and received
gross proceeds of $35,321,000 representing subscriptions from 4,895 limited
partners. $24,679,000 of the gross proceeds were attributable to sales of Class
A Units, and $10,642,000 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund I have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund I owns
interests in the following properties:
. a medical office building in Atlanta, Georgia;
. two commercial office buildings in Atlanta, Georgia;
. a shopping center in DeKalb County, Georgia;
. a shopping center in Knoxville, Tennessee;
. a shopping center in Cherokee County, Georgia; and
59
<PAGE>
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia.
The prospectus of Wells Fund I provided that the properties purchased by
Wells Fund I would typically be held for a period of eight to twelve years, but
that the general partners may exercise their discretion as to whether and when
to sell the properties owned by Wells Fund I and the partnership is under no
obligation to sell the properties at any particular time. Wells Fund I acquired
its properties between 1985 and 1987, and has not yet liquidated or sold any of
its properties. Further, the properties of Wells Fund I may not be sold for
some time in the future.
WELLS FUND II AND WELLS FUND II-OW terminated their offerings on September
7, 1988, and received aggregate gross proceeds of $36,870,250 representing
subscriptions from 4,659 limited partners. $28,829,000 of the gross proceeds
were attributable to sales of Class A Units, and $8,041,250 of the gross
proceeds were attributable to sales of Class B Units. Limited partners in Wells
Fund II and Wells Fund II-OW have no right to change the status of their units
from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own
all of their properties through a joint venture, which owns interests in the
following properties:
. a shopping center in Cherokee County, Georgia;
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia;
. a two story office building in Charlotte, North Carolina;
. a four story office building in Houston, Texas;
. a restaurant property in Roswell, Georgia; and
. a combined retail and office development in Roswell, Georgia.
WELLS FUND III terminated its offering on October 23, 1990, and received
gross proceeds of $22,206,310 representing subscriptions from 2,700 limited
partners. $19,661,770 of the gross proceeds were attributable to sales of Class
A Units, and $2,544,540 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund III have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund III
owns interests in the following properties:
. a four story office building in Houston, Texas;
. a restaurant property in Roswell, Georgia;
. a combined retail and office development in Roswell, Georgia;
. a two story office building in Greenville, North Carolina;
. a shopping center in Stockbridge, Georgia; and
60
<PAGE>
. a two story office building in Richmond, Virginia.
WELLS FUND IV terminated its offering on February 29, 1992, and received
gross proceeds of $13,614,655 representing subscriptions from 1,286 limited
partners. $13,229,150 of the gross proceeds were attributable to sales of Class
A Units, and $385,505 of the gross proceeds were attributable to sales of Class
B Units. Limited partners in Wells Fund IV have no right to change the status
of their units from Class A to Class B or vice versa. Wells Fund IV owns
interests in the following properties:
. a shopping center in Stockbridge, Georgia;
. a four story office building in Jacksonville, Florida;
. a two story office building in Richmond, Virginia; and
. two story office buildings in Stockbridge, Georgia.
WELLS FUND V terminated its offering on March 3, 1993, and received gross
proceeds of $17,006,020 representing subscriptions from 1,667 limited partners.
$15,209,666 of the gross proceeds were attributable to sales of Class A Units,
and $1,796,354 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund V who purchased Class B Units are
entitled to change the status of their units to Class A, but limited partners
who purchased Class A Units are not entitled to change the status of their units
to Class B. After taking into effect conversion elections made by limited
partners subsequent to their subscription for units, as of December 31, 1998,
$___________ of units of Wells Fund V were treated as Class A Units, and
$___________ of units were treated as Class B Units. Wells Fund V owns
interests in the following properties:
. a four story office building in Jacksonville, Florida;
. two story office buildings in Stockbridge, Georgia;
. a four story office building in Hartford, Connecticut;
. two restaurant properties in Stockbridge, Georgia; and
. a three story office building in Appleton, Wisconsin.
Wells Fund V experienced an operating loss of $18,089 in 1992 (at which
time it only owned interests in the Jacksonville, Florida property which was
under construction and the first office building in Stockbridge, Georgia which
was under construction), recognized net income of $354,999 in 1993 (at which
time it had also acquired an interest in the Hartford, Connecticut property and
the second office building in Stockbridge, Georgia was under construction),
recognized net income of $561,721 in 1994 (at which time it owned interests in
all of the properties listed above for which it currently holds an ownership
interest, with the exception that only one of the two restaurants had been
developed on the tract of land in Stockbridge, Georgia), recognized net income
of $689,639 in 1995, recognized net income of $505,650 in 1996 and recognized
net income of $559,801 in 1997.
61
<PAGE>
WELLS FUND VI terminated its offering on April 4, 1994, and received gross
proceeds of $25,000,000 representing subscriptions from 1,793 limited partners.
$19,332,176 of the gross proceeds were attributable to sales of Class A Units,
and $5,667,824 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund VI are entitled to change the status of
their units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscription
for units, as of December 31, 1998, $____________ of units of Wells Fund VI were
treated as Class A Units, and $___________ of units were treated as Class B
Units. Wells Fund VI owns interests in the following properties:
. a four story office building in Hartford, Connecticut;
. two restaurant properties in Stockbridge, Georgia;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a three story office building in Appleton, Wisconsin;
. a shopping center in Cherokee County, Georgia;
. a combined retail and office development in Roswell, Georgia;
. a four story office building in Jacksonville, Florida; and
. a shopping center in Clemmons, North Carolina.
Wells Fund VI recognized net income of $31,428 in 1993 (at which time it
only owned an interest in the Hartford, Connecticut property), recognized net
income of $700,896 in 1994 (at which time it owned only interests in (1) the
four story office building in Hartford, Connecticut; (2) the retail building and
an undeveloped tract of land in Stockbridge, Georgia; and (3) the three story
office building in Appleton, Wisconsin), recognized net income of $901,828 in
1995 (at which time each of the following properties was under construction: (1)
one of the retail buildings in Stockbridge, Georgia, (2) the combined retail and
office development in Roswell, Georgia, (3) the office building in Jacksonville,
Florida, and (4) the shopping center in Clemmons, North Carolina), recognized
net income of $589,053 in 1996 and recognized net income of $795,654 in 1997.
WELLS FUND VII terminated its offering on January 5, 1995, and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners. $16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VII are entitled to change the
status of their units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for units, as of December 31, 1998, $____________ of units in
Wells Fund VII were treated as Class A Units, and $____________ of units were
treated as Class B Units. Wells Fund VII owns interests in the following
properties:
. a three story office building in Appleton, Wisconsin;
62
<PAGE>
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a shopping center in Cherokee County, Georgia;
. a combined retail and office development in Roswell, Georgia;
. a two story office building in Alachua County, Florida near
Gainesville;
. a four story office building in Jacksonville, Florida;
. a shopping center in Clemmons, North Carolina; and
. a retail development in Clayton County, Georgia.
Wells Fund VII recognized net income of $203,263 in 1994 (at which time it
only owned an interest in the three story office building in Appleton, Wisconsin
and an undeveloped tract of land in Stockbridge, Georgia), recognized net income
of $804,043 in 1995 (at which time it only owned interests in the office
building in Appleton, Wisconsin, the developments in Stockbridge, Georgia, the
office building in Alachua County, Florida, the office building in Jacksonville,
Florida, the tract of land in Clemmons, North Carolina, which was under
construction, and the retail building in Stockbridge, Georgia, which was under
construction), recognized net income of $452,776 in 1996 and recognized net
income of $733,149 in 1997.
WELLS FUND VIII terminated its offering on January 4, 1996, and received
gross proceeds of $32,042,689 representing subscriptions from 2,241 limited
partners. $26,135,339 of the gross proceeds were attributable to sales of Class
A Status Units, and $5,907,350 were attributable to sales of Class B Status
Units. Limited partners in Wells Fund VIII are entitled to change the status of
their units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscriptions
for units and certain repurchases made by Wells Fund VIII, as of December 31,
1998, $________________ of units in Wells Fund VIII were treated as Class A
Status Units, and $_______________ of units were treated as Class B Status
Units. Wells Fund VIII owns interests in the following properties:
. a two story office building in Alachua County, Florida near
Gainesville;
. a four story office building in Jacksonville, Florida;
. a shopping center in Clemmons, North Carolina;
. a retail development in Clayton County, Georgia;
. a four story office building in Madison, Wisconsin;
. a one story office building in Farmers Branch, Texas;
. a two story office building in Orange County, California; and
63
<PAGE>
. a two story office building in Boulder County, Colorado.
Wells Fund VIII recognized net income of $273,914 in 1995 (at which time it
only owned interests in the office building in Alachua County, Florida, the
office building in Jacksonville, Florida, which was under construction, and the
tract of land in Clemmons, North Carolina, which was under construction) and
recognized net income of $936,590 in 1996 and recognized net income of
$1,102,567 in 1997.
WELLS FUND IX terminated its offering on December 30, 1996, and received
gross proceeds of $35,000,000 representing subscriptions from 2,098 limited
partners. $29,359,310 of the gross proceeds were attributable to sales of Class
A Status Units, and $5,640,690 were attributable to sales of Class B Status
Units. After taking into effect conversion elections made by limited partners
subsequent to their subscriptions for units, as of December 31, 1998,
$______________ of units in Wells Fund IX were treated as Class A Status Units,
and $_______________ of units were treated as Class B Status Units. Wells Fund
IX owns interests in the following properties:
. a one story office building in Farmers Branch, Texas;
. a four story office building in Madison, Wisconsin;
. a two story office building in Orange County, California;
. two two story office buildings in Boulder County, Colorado;
. a three story office building in Knox County, Tennessee in the
Knoxville metropolitan area;
. a one story office and warehouse building in Weber County, Utah;
. a three story office building in Boulder County, Colorado; and
. a one story office building in Oklahoma City, Oklahoma.
Wells Fund IX recognized net income of $298,756 in 1996 and recognized net
income of $1,091,766 in 1997.
WELLS FUND X terminated its offering on December 30, 1997, and received
gross proceeds of $27,128,912 representing subscriptions from 1,806 limited
partners. $21,160,992 of the gross proceeds were contributable to sales of
Class A Status Units, and $5,967,920 were attributable to sales of Class B
Status Units. After taking into effect conversion elections made by limited
partners subsequent to their subscriptions for units as of December 31, 1998,
$__________________ of units in Wells Fund X were treated as Class A Status
Units and $____________ of units were treated as Class B Status Units. Wells
Fund X owns interests in the following properties:
. a three story office building in Knox County, Tennessee in the
Knoxville metropolitan area;
. a two story office building in Boulder County, Colorado;
64
<PAGE>
. a one story office and warehouse building in Weber County, Utah;
. a three story office building in Boulder County, Colorado;
. a one story office building in Oklahoma City, Oklahoma;
. a one story office and warehouse building in Orange County,
California; and
. a two story office and manufacturing building in Alameda County,
California.
Wells Fund X recognized net income of $278,025 in 1997.
WELLS FUND XI began its offering on December 31, 1997, and terminated its
offering on December 30, 1998. Wells Fund XI received gross proceeds of
$__________________ representing subscriptions from ___________ limited
partners. $______________ of the gross proceeds were attributable to sales of
Class A Status Units and $________ were attributable to sales of Class B Status
Units. Wells Fund XI owns interests in the following properties:
. a three story office building in Knox County, Tennessee in the
Knoxville metropolitan area;
. a one story office building located in Oklahoma City, Oklahoma;
. a two story office building in Boulder County, Colorado;
. a three story office building in Boulder County, Colorado;
. a one story office and warehouse building in Weber County, Utah;
. a one story office and warehouse building in Orange County,
California; and
. a two story office and manufacturing building in Alameda County,
California.
THE WELLS REIT began its offering on January 30, 1998. As of December 31,
1998, the Wells REIT had received gross proceeds of $___________ representing
subscriptions from _________ stockholders. The Wells REIT owns interests in the
following properties:
. a three story office building in Knox County, Tennessee in the
Knoxville metropolitan area;
. a one story office building located in Oklahoma City, Oklahoma;
. a two story office building in Boulder County, Colorado;
. a three story office building in Boulder County, Colorado;
. a one story office and warehouse building in Weber County, Utah;
65
<PAGE>
. a one story office and warehouse building in Orange County,
California; and
. a two story office and manufacturing building in Alameda County,
California.
The information set forth above should not be considered indicative of
results to be expected from the partnership.
The foregoing properties in which the above twelve limited partnerships
have invested have all been acquired and developed on an all cash basis.
The general partners of the partnership, Leo F. Wells, III and Wells
Partners, L.P., are also the general partners of Wells Fund IV, Wells Fund V,
Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X and
Wells Fund XI. Wells Capital, Inc., the general partner of Wells Partners,
L.P., and Leo F. Wells, III are the general partners of Wells Fund I, Wells Fund
II, Wells Fund II-OW and Wells Fund III. Wells Capital, Inc. is also the
advisor to the Wells REIT.
Potential investors are encouraged to examine the Prior Performance Tables
included in the back of the prospectus for more detailed information regarding
the prior experience of the general partners. In addition, upon request,
prospective investors may obtain from the general partners without charge copies
of offering materials and any reports prepared in connection with any of the
Wells Programs, including a copy of the most recent Annual Report on Form 10-K
filed with the Securities and Exchange Commission. For a reasonable fee, the
partnership will also furnish upon request copies of the exhibits to any such
Form 10-K. Any such request should be directed to the general partners.
Additionally, Table VI contained in Part II of the Registration Statement, which
is not part of this prospectus, gives certain additional information relating to
properties acquired by the Wells Programs. The partnership will furnish,
without charge, copies of such table upon request.
DESCRIPTION OF THE UNITS
ELECTION OF CASH PREFERRED UNITS OR TAX PREFERRED UNITS
INITIAL ELECTION
Upon subscription for units being offered hereby, investors must elect
whether such units will be initially treated as Cash Preferred Units or Tax
Preferred Units. Regardless of which status is selected for the unit, each unit
shall have a purchase price of $10.00 per unit, less any discounts which are
specifically authorized by the "Plan of Distribution" section of this
prospectus. The choice of Cash Preferred Units or Tax Preferred Units is merely
an election of the status of units that entitles the investors to different
rights and priorities as to distributions of cash from operations and
liquidating distributions and as to the allocation of deductions for
depreciation and other tax losses. In all other respects, the units have the
same rights and privileges. Each unit, when issued, will be fully paid and
nonassessable, which means it cannot be assessed to pay any debts of the
partnership.
RIGHT TO CHANGE ELECTION
Investors' elections of Cash Preferred Units or Tax Preferred Units made in
the initial Subscription Agreements shall be effective immediately upon
acceptance. Thereafter, unless
66
<PAGE>
prohibited by applicable state law or otherwise limited as set forth below,
investors have the right to change their prior election one time during each
quarterly accounting period by mailing or delivering written notice to the
partnership which will be executed by the trustee or authorized agent in the
case of retirement plans. Any such changed election shall be effective the first
day of the next quarterly accounting period following the receipt by the
partnership of written notice of such election. In order to assist investors in
determining whether to change their election of Cash Preferred Units or Tax
Preferred Units, investors may obtain information as to the current levels of
units outstanding designated as Cash Preferred Units and Tax Preferred Units at
any time from the general partners at the address or toll free telephone number
set forth on the first page of this prospectus. Pursuant to the Partnership
Agreement, units acquired and held by the general partners or their affiliates
shall at all times be treated as Cash Preferred Units, and the general partners
and their affiliates shall not have the right to elect to have units
beneficially owned by them treated as Tax Preferred Units.
LIMITATIONS IMPOSED IN CONNECTION WITH DEFERRED COMMISSION OPTION
Subscribers for units may agree with their participating broker-dealers and
Wells Investment Securities, Inc. to have sales commissions due with respect to
the purchase of their units paid over a seven year period pursuant to a
"deferred commission option" rather than payment in full at the time of sale.
Any investor purchasing units pursuant to the deferred commission option must
elect upon subscription to have a sufficient number of units treated as Cash
Preferred Units, in the discretion of the general partners, to generate at least
the amount of net cash from operations distributable with respect to such units
needed to satisfy the deferred commission obligations each year with respect to
the total number of units purchased by such investor. In addition, investors
purchasing units pursuant to the deferred commission option will have limited
rights to elect to have the status of their units changed from Cash Preferred
Units to Tax Preferred Units for a period of six years after the termination of
the offering since investors owning units purchased pursuant to the deferred
commission option must at all times own a sufficient number of units designated
as Cash Preferred Units, in the discretion of the general partners, to generate
enough net cash from operations to allow the partnership to satisfy the deferred
commission obligations with respect to the total number of units purchased
pursuant to the deferred commission option. (See "Plan of Distribution.")
CASH PREFERRED UNITS
Limited partners electing Cash Preferred Units are entitled to an annual
10% noncumulative distribution preference as to distributions of net cash from
operations. However, investors electing Cash Preferred Units will, except in
limited circumstances, be allocated none of the partnership's net loss,
depreciation or amortization deductions for tax purposes. Thus, tax benefits
resulting from deductions for net loss, depreciation and amortization will not
be available to investors electing Cash Preferred Units during the initial
period of partnership operations.
Upon a distribution of proceeds from the sale of properties, each limited
partner electing Tax Preferred Units is first entitled to a distribution of an
amount which, when added to any net cash from operations previously distributed
to such limited partner, will equal the amount of net cash from operations
previously paid to the investors electing Cash Preferred Units. Thereafter,
investors electing both Cash Preferred Units and Tax Preferred Units are
entitled to an amount equal to their net capital contributions. Thereafter,
investors electing Cash Preferred Units are entitled to a 10% cumulative
noncompounded return on their net capital contributions. (See "Distributions
and Allocations.")
67
<PAGE>
Because deductions for depreciation and other tax losses will initially be
allocated to investors electing Tax Preferred Units, Cash Preferred Units will
be generally more suitable for investors which are qualified retirement plans,
including IRAs, or are otherwise not income tax sensitive and which are
primarily interested in current distributions of net cash from operations and
the potential appreciation in value of the partnership's real estate
investments.
TAX PREFERRED UNITS
Limited partners electing Tax Preferred Units will receive a
disproportionately larger share of partnership income tax deductions because all
of the limited partners' share of partnership net loss, depreciation and
amortization deductions will be allocated to investors electing Tax Preferred
Units until their capital account balances have been reduced to zero. Since the
allocations of net loss, depreciation and amortization deductions to investors
electing Tax Preferred Units will reduce their capital account balances, and
since liquidation proceeds of the partnership will be distributed among the
partners in accordance with their capital account balances, investors electing
Tax Preferred Units bear substantially greater risk of loss of their capital
contributions than do investors electing Cash Preferred Units.
Limited partners electing Tax Preferred Units will not receive any net cash
from operations. Since the preferential allocation of net cash from operations
to investors electing Cash Preferred Units is intended to be a timing preference
only, each investor electing Tax Preferred Units is entitled to a distribution
of proceeds from the sale of properties in an amount which, when added to any
net cash from operations previously distributed to such limited partner, will
equal the amount of net cash from operations previously paid to the investors
electing Cash Preferred Units. Following such distributions to investors
electing Tax Preferred Units, all limited partners are entitled to a return of
their net capital contributions. Then, limited partners electing Tax Preferred
Units are entitled to a 15% cumulative noncompounded return on their net capital
contributions. Since limited partners electing Cash Preferred Units only
receive a 10% cumulative noncompounded return, investors electing Tax Preferred
Units receive a higher return upon distribution of proceeds from the sale of
properties. (See "Distributions and Allocations.")
Accordingly, Tax Preferred Units will be generally more suitable for
investors who are not seeking current cash flow distributions but have a desire
to participate to a greater extent in "passive" losses expected to be generated
by the partnership's operations or have a desire to participate to a greater
extent in the potential appreciation of the partnership's real estate
investments. (See "Federal Income Tax Consequences - Passive Loss
Limitations.") Each prospective investor should carefully consider the
distribution and allocation information contained in the "Distributions and
Allocations" section of the prospectus before determining whether to elect Cash
Preferred Units or Tax Preferred Units, or some combination of each.
EFFECT OF CHANGE OF STATUS OF UNITS
A limited partner who changes the status of his units from Cash Preferred
Units to Tax Preferred Units will, upon the effective date of such change and
until the limited partner changes back to Cash Preferred Units, be entitled to
the benefits associated with electing Tax Preferred Units. A limited partner
who changes the status of his units from Tax Preferred Units to Cash Preferred
Units will, from the effective date of such change until the limited partner
changes back to Tax Preferred Units, be entitled to the benefits associated with
electing Cash Preferred Units. Distributions of
68
<PAGE>
proceeds from the sale of properties will be prorated to each limited partner
for each calendar quarter in which his units were treated as Cash Preferred
Units, during which time he will be entitled to an annual return of 10% on his
net capital contribution. For each calendar quarter in which such units were
treated as Tax Preferred Units, each investor will be entitled to an annual
return of 15% on his net capital contribution.
DISTRIBUTIONS AND ALLOCATIONS
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Net cash from operations, defined in the Partnership Agreement to mean
generally the partnership's cash flow from operations, after payment of all
operating expenses and adjustments for reserves, if any, will be distributed in
each year as follows and in the following priority:
. First, to limited partners electing Cash Preferred Units on a per unit
basis until they have received a 10% annual return on their net
capital contributions, defined in the Partnership Agreement to mean
generally the amount of cash contributed to the partnership reduced by
prior distributions of net proceeds from any sale of partnership
properties;
. Then, to the general partners until they have received an amount equal
to 10% of the total amount thus far distributed; and
. Then, 90% to limited partners electing Cash Preferred Units and 10% to
the general partners.
Notwithstanding the foregoing, limited partners electing Cash Preferred Units
who have purchased units pursuant to the deferred commission option shall for a
period of six years after termination of the offering have deducted and withheld
from distributions of net cash from operations otherwise payable to such limited
partners an annual amount equal to $0.10 per unit purchased pursuant to the
deferred commission option, which amounts shall instead be used by the
partnership to pay commissions due with respect to such units. (See "Plan of
Distribution.")
It is anticipated that distributions of net cash from operations will be
made on a quarterly basis, unless limited partners elect to receive
distributions on a monthly basis. (See "Monthly Distributions" below.)
Distributions of net cash from operations will be allocated among the limited
partners based on the ratio which the number of units owned by each limited
partner electing Cash Preferred Units as of the last day of the preceding
quarter bears to the total number of units designated as Cash Preferred Units
outstanding. A transferee of units will be deemed the owner of such units as of
the first day of the quarter following the quarter during which the transfer
occurred and, therefore, will not participate in distributions made with respect
to the quarter in which such transfer occurs.
69
<PAGE>
DISTRIBUTION OF NET SALE PROCEEDS
Nonliquidating net sale proceeds, defined in the Partnership Agreement to
mean generally the net proceeds from any sale or exchange of partnership
properties, will be distributed generally as follows and in the following
priority:
. First, to limited partners electing units which have at any time been
treated as Tax Preferred Units on a per unit basis until each such
limited partner has received an amount which, when added to any net
cash from operations previously distributed to such limited partner,
will equal the amount of net cash from operations previously paid or
deemed paid to limited partners electing units which at all times have
been treated as Cash Preferred Units;
. Then, to the limited partners on a per unit basis until each limited
partner has received or has been deemed to have received an amount
equal to his net capital contribution;
. Then, to the limited partners on a per unit basis until each limited
partner has received or has been deemed to have received aggregate
distributions equal to a 10% annual cumulative, noncompounded return
on his net capital contribution;
. Then, to limited partners on a per unit basis until each limited
partner has received or has been deemed to have received aggregate
distributions equal to his Preferential Limited Partner Return,
defined as the sum of (1) a 10% annual cumulative return on his net
capital contribution with respect to such unit for all periods during
which such unit was treated as Cash Preferred Units, and (2) a 15%
annual cumulative return on his net capital contribution with respect
to such unit for all periods during which such unit was treated as Tax
Preferred Units;
. Then, to the general partners until they have received an amount equal
to their capital contributions;
. Then, if and only in the event that limited partners have received any
Excess Limited Partner Distributions, to the general partners until
they have received an amount equal to 20% of the sum of any such
Excess Limited Partner Distributions plus the amount distributed to
the general partners pursuant to this provision; and
. Then, 80% to the limited partners on a per unit basis and 20% to the
general partners;
provided, however, that in no event will the general partners receive in the
aggregate more than 15% of the amount remaining after limited partners have
received a return of their net capital contributions plus a 6% annual return.
It is the intent of the foregoing limitation that the general partners receive
no more of the net proceeds from the sale of partnership properties than is
allowed pursuant to applicable provisions of the NASAA Guidelines. Any such
excess amounts otherwise distributable to the general partners will instead be
reallocated and distributed to the limited partners on a per unit basis.
70
<PAGE>
Notwithstanding the foregoing, in the event the partnership sells any
partnership property at a net sale price which is less than the purchase price
originally paid for such property, prior to the foregoing distribution of
nonliquidating net sale proceeds, limited partners electing Cash Preferred Units
shall first receive distributions of nonliquidating net sale proceeds in an
amount equal to the following: the excess of the original purchase price of the
partnership property sold over the sale price of such partnership property, but
not greater than the amount of special allocations of deductions for
depreciation, amortization and cost recovery with respect to such partnership
property previously made to limited partners electing Tax Preferred Units. The
general partners have included the foregoing provision in the Partnership
Agreement for distributions of nonliquidating net sale proceeds in favor of
limited partners electing Cash Preferred Units in order to ensure that limited
partners electing Tax Preferred Units will bear the actual economic risk of loss
in the event a partnership property is sold at a loss, in order to support the
special allocation of depreciation, amortization and cost recovery deductions to
limited partners electing Tax Preferred Units.
Potential limited partners should be aware that their share of
distributions of proceeds from the sale of properties may be less than their net
capital contributions unless the partnership's aggregate proceeds from the sale
of properties are sufficient to fund the sum of (1) the required payments to
each limited partner holding units which have been treated as Tax Preferred
Units in an amount which, when added to any net cash from operations previously
distributed to such limited partner, will equal the amount of net cash from
operations previously paid to limited partners holding units which at all times
were treated as Cash Preferred Units on a per unit basis, plus (2) the amount
required to repay aggregate net capital contributions to all limited partners.
LIQUIDATING DISTRIBUTIONS
Liquidating distributions, defined in the Partnership Agreement to mean
generally the distribution of the net proceeds from a dissolution and
termination of the partnership or from the sale of substantially all of the last
remaining assets of the partnership, will be distributed among the general
partners and the limited partners in accordance with each such partner's
positive capital account balance, after the allocation of gain on sale and other
appropriate capital account adjustments.
RETURN OF UNUSED CAPITAL CONTRIBUTIONS
Funds not expended, committed or reserved for working capital purposes by
the later of the second anniversary of the effective date of the Registration
Statement or one year after the termination of the offering will be returned to
limited partners, without reduction for front-end fees or selling commissions
relating to such uncommitted funds and without interest thereon. For purposes
of the foregoing, funds will be deemed to have been committed and will not be
returned to the extent that such funds would be required to complete the
acquisition of partnership properties with respect to which contracts,
agreements in principle or letters of understanding have been executed,
regardless of whether such property is actually acquired. Any funds reserved in
order to make contingent payments in connection with the acquisition of any
partnership property will be classified as committed whether or not any such
payments are actually made.
PARTNERSHIP ALLOCATIONS
Since the partnership does not intend to borrow funds, no partner's capital
account will be allocated items that will cause the capital account to have a
deficit balance. This means that investors electing Tax Preferred Units cannot
be allocated aggregate tax deductions in excess of their aggregate
71
<PAGE>
capital contributions to the partnership. (See "Federal Income Tax
Consequences -Deductibility of Losses - Limitations - Basis Limitation.")
NET LOSS
Net loss, defined in the Partnership Agreement to mean generally the net
losses of the partnership for federal income tax purposes, but excluding
deductions for depreciation, amortization and cost recovery, which will be
allocated separately as set forth below, for each fiscal year shall be allocated
as follows:
. First, 99% to limited partners electing Tax Preferred Units and 1% to
the general partners until the capital accounts of all such partners
have been reduced to zero;
. Then, to any partner having a positive balance in his capital account
in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
. Then, 100% to the general partners.
Notwithstanding the foregoing, in any fiscal year with respect to which the
partnership incurs an aggregate net loss, interest income of the partnership
shall be specially allocated to limited partners electing Cash Preferred Units
and the net loss of the partnership for such fiscal year shall be determined
without regard to such interest income.
All deductions for depreciation, amortization and cost recovery for each
fiscal year shall be allocated as follows:
. First, 99% to limited partners electing Tax Preferred Units and 1% to
the general partners until the capital accounts of all such partners
have been reduced to zero;
. Then, to any partner having a positive balance in his capital account
in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
. Then, 100% to the general partners.
NET INCOME
Net income, defined in the Partnership Agreement to mean generally the net
income of the partnership for federal income tax purposes, including any income
exempt from tax, but excluding all deductions for depreciation, amortization and
cost recovery and gain on sale, for each fiscal year shall be allocated as
follows:
. To limited partners electing Cash Preferred Units and to the general
partners in the same proportion as and to the extent that net cash
from operations is distributed or deemed distributed; and
. To the extent net income exceeds distributions of net cash from
operations with respect to such fiscal year, such excess net income
shall be allocated 99% to limited partners electing Cash Preferred
Units and 1% to the general partners.
72
<PAGE>
GAIN ON SALE
Gain on sale, defined in the Partnership Agreement to mean generally the
taxable income or gain from the sale or exchange of partnership properties, for
each fiscal year shall be allocated as follows:
. First, pursuant to the qualified income offset provision described
below;
. Then, to partners having negative capital accounts until all negative
capital accounts have been restored to zero;
. Then, to limited partners holding units which at any time have been
treated as Tax Preferred Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery previously allocated to
them with respect to the specific partnership property, the sale or
other disposition of which resulted in gain on sale being allocated,
but not in excess of the amount of gain on sale recognized by the
partnership pursuant to the sale or other disposition of said
partnership property;
. Then, to the limited partners in amounts equal to the deductions for
depreciation, amortization and cost recovery previously allocated to
said limited partners with respect to the specific partnership
property, the sale or other disposition of which resulted in gain on
sale being allocated;
. Then, to limited partners holding units which at any time have been
treated as Tax Preferred Units on a per unit basis until each such
limited partner has received an amount which, when added to any net
cash from operations previously distributed to such limited partner,
will equal the amount of net cash from operations previously paid to
limited partners holding units which at all times have been treated as
Cash Preferred Units;
. Then, to limited partners on a per unit basis in amounts equal to the
excess of each limited partner's net capital contribution over all
prior distributions to such limited partner of net proceeds from the
sale of partnership properties;
. Then, to the limited partners on a per unit basis until each limited
partner has been allocated an amount equal to the excess of a 10%
cumulative, noncompounded return on his net capital contribution over
prior distributions to such limited partner of net cash from
operations;
. Then, to the limited partners on a per unit basis until each limited
partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return over prior distributions to
such limited partner of net cash from operations;
. Then, to the general partners in an amount equal to their capital
contributions;
. Then if and only to the extent that limited partners have received any
Excess Limited Partner Distributions, to the general partners until
the general partners have been allocated gain on sale equal to 20% of
the sum of any such Excess Limited Partner
73
<PAGE>
Distributions plus any gain on sale allocated to the general partners
pursuant to this provision; and
. Then, 80% to the limited partners and 20% to the general partners;
provided, however, that in no event will the general partners be allocated gain
on sale which would result in distributions to the general partners of more than
15% of the amount remaining after limited partners have received a return of
their net capital contributions plus a 6% annual return. It is the intent of
the foregoing limitation that the general partners receive no more of the net
proceeds from the sale of partnership properties than is allowed pursuant to
applicable provisions of the NASAA Guidelines. Any such excess allocations of
gain on sale will instead be reallocated to the limited partners on a per unit
basis.
The Partnership Agreement contains a "qualified income offset" provision
which provides that in the event that any partner receives an adjustment,
allocation or distribution of certain items which causes a deficit or negative
balance in such partner's capital account, such partner will be allocated items
of income or gain consisting of a pro rata portion of each item of partnership
income, including gross income, and gain for such year in an amount and manner
sufficient to eliminate such deficit balance as quickly as possible. The intent
of the foregoing provision is to prohibit allocations of losses or distributions
of cash to a limited partner which would cause his capital account to become
negative, which would occur in the event that the aggregate amount of losses
allocated and cash distributed to such limited partner exceeded the sum of his
capital contributions plus any income allocated to him, and, in the event such
allocation or distribution did cause his capital account to become negative,
such limited partner would be allocated income or gain in an amount necessary to
bring his capital account back to zero. (See "Federal Income Tax Consequences -
Allocations of Profit and Loss.")
The qualified income offset provision may result in income being specially
allocated to limited partners even in a fiscal year when the partnership has a
net loss from operations or from the sale of property.
Income, losses and distributions of cash relating to units which are
acquired directly from the partnership during the offering will be allocated
among the limited partners on a pro rata basis based on the number of days such
units have been owned by such limited partners.
MONTHLY DISTRIBUTIONS
Limited partners electing Cash Preferred Units may, at their option, elect
to receive distributions of net cash from operations, if any, on a monthly
basis. This program is called the monthly distribution option (the "MDO"). It
should be understood, however, that limited partners electing the MDO will in
all likelihood receive lower distributions per unit, on an annual basis, than
limited partners receiving their distributions on a quarterly basis due to the
fact that income received by the partnership during the early portion of a
quarter will be invested and will earn interest until distribution shortly after
the end of the quarter. This compounding effect will be available to limited
partners selecting the MDO to a lesser degree due to the greater frequency of
their distributions. A limited partner electing Cash Preferred Units may elect
the MDO by sending a completed MDO form to the partnership, which form may be
obtained by calling or writing the partnership.
74
<PAGE>
A limited partner electing Cash Preferred Units who elects the MDO will
begin receiving his distributions on a monthly basis with respect to the
calendar quarter following the calendar quarter in which the general partners
receive the limited partner's written election along with a check for the MDO
fee, described below. Monthly distributions will be paid to the limited partner
during the month following the month to which the distribution is attributable.
For example, if a limited partner elects the MDO during the first calendar
quarter of a year, his election is effective at the beginning of the second
calendar quarter (i.e., April 1). Accordingly, the limited partner would
receive a distribution, if at all, for the first calendar quarter of the year,
and beginning in April, the limited partner electing the MDO would receive
monthly distributions for the remainder of the year, with the first monthly
distribution being paid during the month of May.
There is an annual fee of $20 per limited partner electing the MDO. This
annual fee is designed to cover additional administrative expenses, postage and
handling costs associated with more frequent distributions and will in no event
result in any additional compensation to the general partners or their
affiliates. In the event the actual administrative expenses, postage and
handling costs are less than $20 per limited partner per year, which is not
anticipated, any such savings will be reimbursed to limited partners electing
the MDO. The first fee payment is due at the time of the initial election, and
each subsequent fee payment is due by each December 31. Each limited partner
electing the MDO will receive a bill for the annual fee in conjunction with his
November distribution. Limited partners may elect to have the partnership
deduct subsequent annual MDO fees from their distributions.
A limited partner electing Cash Preferred Units may withdraw from the MDO
by either notifying the general partners in writing or by simply failing to pay
the annual fee on a timely basis, and he will then begin to receive his
distributions on a quarterly basis at the beginning of the following calendar
year. If payment is not received by the due date, then the MDO with respect to
that limited partner is canceled. To reinstate the MDO, the limited partner may
make his $20 payment, and the MDO will again be effective at the beginning of
the calendar quarter following the calendar quarter in which payment is made.
REAL PROPERTY INVESTMENTS
As of the date of this prospectus, the partnership has not acquired nor
contracted to acquire any specific real estate properties. The general partners
are continually evaluating various potential property investments and engaging
in discussions and negotiations with sellers, developers and potential tenants
regarding the purchase and development of properties for the partnership and the
other Wells Programs. At such time during the negotiations for a specific
property as the general partners believe that a reasonable probability exists
that the partnership will acquire such property, this prospectus will be
supplemented to disclose the negotiations and pending acquisition. Based upon
the general partners' experience and acquisition methods, this will normally
occur on the signing of a legally binding purchase agreement for the acquisition
of a specific property, but may occur before or after such signing or upon the
satisfaction or expiration of major contingencies in any such purchase
agreement, depending on the particular circumstances surrounding each potential
investment. A supplement to this prospectus will describe any improvements
proposed to be constructed thereon and other information considered appropriate
for an understanding of the transaction. Further data will be made available
after any pending acquisition is consummated, also by means of a supplement to
this prospectus, if appropriate.
75
<PAGE>
It should be understood that the initial disclosure of any proposed
acquisition cannot be relied upon as an assurance that the partnership will
ultimately consummate such proposed acquisition nor that the information
provided concerning the proposed acquisition will not change between the date of
such supplement and actual purchase.
It is intended that the proceeds of this offering will be invested in
properties in accordance with the partnership's investment policies. In the
event that all of the units offered hereby are sold, it is anticipated that the
partnership will invest in six to eight real estate properties including those
properties purchased in joint ventures. Funds available for investment in
partnership properties which are not expended or committed to the acquisition or
development of specific real properties on or before the later of the second
anniversary of the effective date of the Registration Statement or one year
after the termination of the offering and not reserved for working capital
purposes will be returned to the investors. (See "Distributions and
Allocations" as to when funds shall be deemed committed for this purpose.)
Adequate insurance coverage will be obtained for all properties in which
the partnership will invest.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
As of the date of this prospectus, the partnership had not yet begun active
operations. The partnership will not begin active operations until it has
received and accepted subscriptions for a minimum of 125,000 units ($1,250,000).
Following achievement of such funding level, subscription proceeds may be
released to the partnership from escrow and applied to the payment or
reimbursement of selling commissions and other organization and offering
expenses, leaving estimated net proceeds available for investment and operations
of approximately $1,050,000 after payment of acquisition and advisory fees and
acquisition expenses. (See "Estimated Use of Proceeds.") Thereafter, the
partnership will experience a relative increase in liquidity as additional
subscriptions for units are received, and a relative decrease in liquidity as
net offering proceeds are expended in connection with the acquisition,
development and operation of properties.
As of the initial date of this prospectus, the partnership has not entered
into any arrangements creating a reasonable probability that any specific
property will be acquired by the partnership. The number of partnership
properties to be acquired by the partnership will depend upon the number of
units sold and the resulting amount of the net proceeds available for investment
in properties available to the partnership. (See "Risk Factors.")
The general partners are not aware of any material trends or uncertainties,
favorable or unfavorable, other than national economic conditions affecting real
estate generally, which may be reasonably anticipated to have a material impact
on either capital resources or the revenues or income to be derived from the
operation of real estate properties.
76
<PAGE>
Until required for the acquisition, development or operation of properties,
net offering proceeds will be kept in short-term, liquid investments. Because
the partnership will purchase properties on an all cash basis and the vast
majority of leases for the properties acquired by the partnership will provide
for tenant reimbursement of operating expenses, it is not anticipated that a
permanent reserve for maintenance and repairs of partnership properties will be
established. However, to the extent that the partnership has insufficient funds
for such purposes, the general partners will advance to the partnership an
aggregate amount of up to 1% of gross offering proceeds for maintenance and
repairs of partnership properties. The general partners also may, but are not
required to, establish reserves from gross offering proceeds, out of cash flow
generated by operating properties or out of nonliquidating net sale proceeds.
YEAR 2000 ISSUES
The partnership and the general partners are presently reviewing the
potential impact of Year 2000 compliance issues on its information systems and
business operations. A full assessment of Year 2000 compliance issues was begun
in late 1997 and is expected to be completed by December 31, 1998, but not later
than March 31, 1999. Renovations and replacements of equipment have been and
are being made as warranted as the assessment progresses. The costs incurred
thus far for renovations and replacements have been immaterial. Some testing of
systems has begun and all testing is expected to be complete by June 30, 1999.
As to the status of the partnership's information technology systems, it is
presently believed that all major systems and software packages with the
exception of the accounting and property management package are Year 2000
compliant. The partnership's affiliated entities are purchasing the upgrade for
the accounting and property management package system; however, it is not slated
to be available until the end of the first quarter of 1999. At the present
time, it is believed that all major non-information technology systems are Year
2000 compliant. The cost to upgrade any non-compliant systems is believed to be
immaterial.
The general partners are in the process of confirming with its vendors,
including third-party service providers such as banks, that their systems will
be Year 2000 compliant. Based on the information received thus far, the primary
third-party service providers with which the partnership has relationships have
confirmed their Year 2000 readiness.
The partnership and the general partners rely on computers and operating
systems provided by equipment manufacturers, and also on application software
designed for use with its accounting, property management and investment
portfolio tracking. The partnership and the general partners have preliminarily
determined that any costs, problems or uncertainties associated with the
potential consequences of Year 2000 issues are not expected to have a material
impact on the future operations or financial condition of the partnership. The
general partners will perform due diligence as to the Year 2000 readiness of
each property contemplated for purchase by the partnership.
The partnership's reliance on embedded computer systems (i.e.,
microcontrollers) is limited to facilities related matters, such as office
security systems and environmental control systems.
The partnership and the general partners are currently formulating
contingency plans to cover any areas of concern. Alternate means of operating
the business are being developed in the unlikely circumstance that the computer
and phone systems are rendered inoperable. An offsite facility from
77
<PAGE>
which the partnership could operate is being sought as well as alternate means
of communication with key third-party vendors. A written plan is being developed
for testing and dispensation to each staff member of the general partners and
their affiliates.
SUMMARY OF PARTNERSHIP AGREEMENT
The rights and obligations of the partners in the partnership will be
governed by the Amended and Restated Agreement of Limited Partnership of the
partnership (the "Partnership Agreement"), the form of which is set out in its
entirety as Exhibit "A" to this prospectus. The Partnership Agreement will be
executed and become effective as of the effective date of this prospectus.
Prospective investors should study the Partnership Agreement carefully before
making any investment decision with regard to the units. The following
statements are intended to supplement other statements in this prospectus
concerning the Partnership Agreement and related matters, are intended to be a
summary only and, since they do not purport to be complete, are qualified in
their entirety by reference to the Partnership Agreement.
POWERS OF THE GENERAL PARTNERS
The general partners have full, exclusive and complete authority and
discretion in the management and control of the business of the partnership.
Limited partners have no right or power to take part in the management of, or to
bind, the partnership. (Articles XI and XVI.)
LIABILITIES OF THE LIMITED PARTNERS
The partnership was organized as a limited partnership under the Georgia
Revised Uniform Limited Partnership Act ("GRULPA"). Investors whose
subscriptions are accepted by the general partners will be admitted as limited
partners. Under GRULPA, limited partners have no personal liability for
partnership debts or obligations in excess of their capital contributions.
OTHER ACTIVITIES OF THE GENERAL PARTNERS
The general partners may engage in or possess interests in other business
ventures of every kind and description for their own account, including, without
limitation, the syndication, ownership or management of other real estate. They
shall incur no liability to the partnership, or to the limited partners, as a
result of engaging in any other business or venture.
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS; NONASSESSABILITY OF UNITS
Limited partners are not permitted to participate in the management and
control of the business of the partnership and may not transact any business in
the name of the partnership. Pursuant to the Partnership Agreement, each
limited partner appoints the general partners, with full power and substitution,
as his lawful attorneys-in-fact to act in his name, place and stead: (1) to
amend the Certificate of Limited Partnership and the Partnership Agreement,
including amendments necessary to properly reflect allocations of profits and
losses as may be required for tax purposes; and (2) to take any further action
which the general partners deem necessary or advisable in connection with the
foregoing.
78
<PAGE>
Units acquired by investors pursuant to the Partnership Agreement will be
fully paid and nonassessable. (Section 8.5(d).) No investor has the right to
withdraw all or any portion of his capital contribution until the full and
complete winding up and liquidation of the business of the partnership, except
as otherwise provided by law. (Section 8.10(b).) No investor will be liable
for any debts or obligations of the partnership in excess of his capital
contribution. (Section 16.3.)
VOTING RIGHTS OF THE LIMITED PARTNERS
Limited partners may, with the affirmative vote of those limited partners
holding more than 50% of the units in the aggregate, take action on the
following matters:
. the approval or disapproval of any sale, exchange or pledge of all or
substantially all of the partnership's real properties;
. dissolution of the partnership;
. removal of a general partner or any successor general partner;
. election of a new general partner upon the retirement, withdrawal or
removal of a general partner or upon the death or the occurrence of
another event of withdrawal of a general partner;
. change in the business purpose or investment objectives of the
partnership; and
. amendment to the Partnership Agreement, except as to certain matters
specified in Section 11.2(b) which the general partners alone may
amend without a vote of the limited partners. (Section 16.1.)
In addition, limited partners holding a majority of the units have the right to
authorize a proposed merger or consolidation of the partnership under certain
circumstances. (Section 11.3(u).) Accordingly, limited partners holding a
majority of the units may amend the Partnership Agreement, change the business
purpose or investment objectives of the partnership, remove a general partner
and authorize a merger or consolidation of the partnership. Except as otherwise
provided in the Partnership Agreement in connection with a "partnership roll-up"
transaction as described below, limited partners not voting with the majority on
such transactions will nonetheless be bound by the majority vote and will have
no right to dissent from the majority vote and obtain fair value for their
units. (See "Risk Factors.")
Notwithstanding the foregoing, the Partnership Agreement may not be amended
to change the limited liability of the limited partners without the vote or
consent of all limited partners or to diminish the rights or benefits to which
the general partners or limited partners are entitled without the consent of the
limited partners holding a majority of the units who would be adversely
effected, in the case of diminishing the rights or benefits of the limited
partners, or the majority vote of the general partners, in the case of
diminishing the rights or benefits of the general partners. (Section 16.2.)
79
<PAGE>
Amendments to the Partnership Agreement receiving the requisite vote will
be executed by a general partner on behalf of all limited partners acting
pursuant to the power of attorney contained in the Partnership Agreement.
(Section 19.1.)
MERGERS AND CONSOLIDATIONS
The Partnership Agreement prohibits the general partners from initiating
any transaction in which the partnership is merged or consolidated with any
other partnership or corporation, which type of transaction is commonly referred
to as a "partnership roll-up." The Partnership Agreement further provides that
the general partners shall not be authorized to merge or consolidate the
partnership with any other partnership or corporation or to convert the
partnership into a real estate investment trust, which is often referred to as a
"REIT," unless limited partners owning more than 50% of the units consent in
writing to such transaction. (Section 11.3(u).)
In addition, the Partnership Agreement contains a further provision
prohibiting the general partners from entering into any acquisition, merger,
conversion or consolidation unless the partnership obtains a current appraisal
of the partnership's assets by an independent appraiser. Limited partners who
vote against or dissent from the proposal have the choice of: (1) accepting the
securities offered in the proposed roll-up; or (2) one of the following: (a)
remaining as limited partners in the partnership and preserving their interests
in the partnership on the same terms and conditions as existed previously; or
(b) receiving cash in an amount equal to their pro rata share of the appraised
value of the net assets of the partnership. (Section 11.3(u).)
SPECIAL PARTNERSHIP PROVISIONS
Leo F. Wells, III, who owns 100% of the issued and outstanding stock of
Wells Real Estate Funds, Inc., which owns all of the issued and outstanding
stock of Wells Capital, Inc., the sole general partner of Wells Partners, L.P.,
has agreed that he will not sell or otherwise voluntarily transfer or convey a
majority or controlling interest in the outstanding stock of Wells Real Estate
Funds, Inc. to any non-affiliated person or entity unless limited partners
owning more than 50% of the units consent in writing to any such sale, transfer
or conveyance. (Section 17.1(a).)
The Partnership Agreement also prohibits the general partners and their
affiliates from receiving any rebates or give-ups or participating in any
reciprocal business arrangements which would circumvent the provisions of the
Partnership Agreement. (Section 12.7(a).)
REMOVAL OF GENERAL PARTNERS
The Partnership Agreement provides that a general partner may be removed
and a new general partner elected upon the written consent or affirmative vote
of limited partners owning more than 50% of the units. (Section 17.1(d).) If a
general partner is removed, the fair market value of the interest of the removed
general partner in the partnership will be determined by independent appraisers
and will be paid to him or it as provided in Section 20.4 of the Partnership
Agreement. Payment of this amount may be made by the delivery of a promissory
note of the partnership for such fair market value payable in equal consecutive
annual installments over a period of not less than five years commencing on the
first anniversary of the date of such note. Such promissory note shall bear an
annual interest rate of 9%. Within 120 days after the determination of the fair
market value of the former general partner's interest, the partnership may, with
the consent of a majority in interest of the
80
<PAGE>
limited partners, sell such interest to one or more persons who may be
affiliates of the remaining general partner or general partners, and admit such
person or persons to the partnership as substitute general partners; provided,
however, that the purchase price to be paid to the partnership for the
partnership interest of the former general partner shall not be less than its
fair market value as determined by the appraisal described above. Such
substitute general partner or partners may pay said purchase price in
installments in the manner set forth above.
ASSIGNABILITY OF GENERAL PARTNERS' INTERESTS
With the consent of all other general partners and limited partners holding
more than 50% of the units, after providing 90 days written notice to the other
general partners and limited partners, a general partner may designate a
successor or additional general partner, in each case with such participation in
such general partner's interest as such general partner and such successor or
additional general partner may agree upon, provided that the interests of the
limited partners are not adversely affected thereby. Generally, except in
connection with such a designation, no general partner shall have the right to
retire or withdraw voluntarily from the partnership or to sell, transfer or
assign his or its interest without the consent of the limited partners holding
more than 50% of the units. (Section 17.1.)
BOOKS AND RECORDS; RIGHTS TO INFORMATION; ANNUAL AUDITS
The general partners are required to maintain at the partnership's
principal office full and accurate books and records for the partnership. All
limited partners have the right to inspect, examine and obtain copies at their
reasonable cost of such books and records at all reasonable times. In addition,
an alphabetical list of the names, addresses and business telephone numbers of
all limited partners, along with the number of units owned by each of them,
shall be available for inspection and copying by the limited partners or their
designated representatives. (Section 15.1.) Annual audits of the partnership's
affairs will be conducted by such firm of independent certified public
accountants as may from time to time be engaged by the partnership. (Section
15.2(b).)
MEETINGS OF LIMITED PARTNERS
There will generally be no annual or periodic meetings of limited partners.
However, the general partners are required to call a meeting of the limited
partners upon the written request of limited partners holding 10% or more of the
outstanding units. In such event, a detailed statement of the action proposed,
including a verbatim statement of the wording of any resolution proposed for
adoption by the limited partners and any proposed amendment to the Partnership
Agreement, shall be included with the notice of the meeting. (Section 16.4.)
TRANSFERABILITY OF UNITS
There are a number of restrictions on the transferability of units. Except
for transfers to family members and transfers by gift, inheritance or divorce,
no units may be transferred unless the proposed transferee meets the minimum
suitability standards set forth in this prospectus. Investors transferring less
than all of their units must transfer a number of units such that, after the
transfer, both the transferor and transferee shall own no less than the minimum
number of units required to be purchased by an investor, unless such transfer is
made on behalf of a retirement plan, or by gift, inheritance, divorce, or to an
affiliate. Payment of a transfer fee in an amount sufficient to cover
81
<PAGE>
transfer costs, as established by the general partners, is a condition to the
effectiveness of any such transfer. Further, all transfers of units must be made
pursuant to documentation satisfactory in form and substance to the general
partners, including, without limitation, confirmation by the transferee that the
transferee has been informed of all pertinent facts relating to the liquidity
and marketability of the units.
Additional restrictions on transfers of units are imposed on the residents
of various states under the securities laws of such states. Further, no unit
may be sold, assigned or exchanged if the sale of such unit, when added to the
total of all other sales or exchanges of units within the period of 12
consecutive months prior to the proposed date of sale or exchange, would, in the
opinion of counsel for the partnership, result in the termination of the
partnership under Section 708 of the Code dealing with transfers of 50% or more
of the outstanding interests of a partnership unless the partnership and the
transferring holder shall have received a ruling from the IRS that the proposed
sale or exchange will not cause such a termination. In addition, investors
purchasing units pursuant to the deferred commission option will have limited
rights to transfer their units for a period of six years after the termination
of the offering since investors owning units purchased pursuant to the deferred
commission option must at all times own a sufficient number of units designated
as Cash Preferred Units, in the discretion of the general partners, to generate
enough net cash from operations to allow the partnership to satisfy the deferred
commission obligations with respect to the total number of units purchased
pursuant to the deferred commission option. (Section 17.3.)
In addition to the foregoing restrictions, the partnership contains
substantial restrictions on the transfer or assignment of units in order to
prevent the partnership from being deemed a "publicly traded partnership."
These provisions are based on restrictions described in the Section 7704
Regulations described in the "Federal Income Tax Consequences" section of the
prospectus, the most significant of which prohibits the transfer during any
taxable year of more than 2% of the total interests in the partnership's capital
or profits excluding transfers by gift, transfers at death, transfers between
family members, distributions from a qualified retirement plan and block
transfers, which are defined as transfers by a partner during any 30 calendar
day period of partnership interests representing more than 2% of the total
interest in a partnership's capital or profits. Further, the partnership
provides that any transfer or assignment of units which the general partners
believe will cause the partnership to be treated as a publicly traded
partnership will be void ab initio and will not be recognized by the
partnership. (See "Federal Income Tax Consequences - Publicly Traded
Partnerships" and Section 17.3(g) of the Partnership Agreement.)
Transferees of units are not eligible to participate in the partnership's
distribution reinvestment plan with respect to investment of their distributions
from the partnership in additional units of the same partnership. Transferees
are not disqualified, however, from participation in the partnership's
distribution reinvestment plan with respect to investment of their distributions
from the partnership in units issued by subsequent limited partnerships
sponsored by the general partners, if (1) such plan is established, and (2) the
transferee meets the plan's requirements for participation. (See "Distribution
Reinvestment Plan.")
An assignee of units shall not become a substituted limited partner in
place of his assignor unless the assignee shall have expressly agreed to become
a party to the Partnership Agreement. (Section 17.4.) An assignee of units who
does not become a substituted limited partner shall be entitled to receive
distributions attributable to the units properly transferred to him (Section
17.5), but shall not have any of the other rights of a limited partner,
including the right to vote as a limited
82
<PAGE>
partner and the right to inspect and copy the partnership's books. Assignments
of units are restricted similarly to transfers of units.
PARTNERSHIP BORROWING
The general partners are prohibited from borrowing to finance the
acquisition, construction or ownership of the partnership's properties.
However, the partnership may incur debt for the following limited purposes: (1)
in the event of unforeseen circumstances in which the partnership's working
capital reserves and other cash resources available to the partnership are
insufficient for operating purposes; and (2) in order to finance property
improvements, when the general partners deem such improvements to be necessary
or appropriate to protect the capital previously invested in the properties, to
protect the value of the partnership's investment in a particular property or to
make a particular property more attractive for sale or lease. The aggregate
amount of partnership borrowings at any given time may not exceed 25% of the
total purchase price of partnership properties. (See "Investment Objectives and
Criteria - Borrowing Policies" and Section 11.3(e) of the Partnership
Agreement.)
REPURCHASE OF UNITS
After a period of one year following the termination of the offering of
units, the partnership may establish a repurchase reserve of up to 5% of cash
flow in any year, subject to the various restrictions and limitations set forth
below. (Sections 8.11 and 11.3(h).) The establishment of the repurchase
reserve is in the sole discretion of the general partners, and if established,
the repurchase reserve may be terminated at any time in the sole discretion of
the general partners. If such a reserve is established, the Partnership
Agreement provides that under certain circumstances the partnership may, in the
sole discretion of the general partners and upon the request of a limited
partner, repurchase the units held by such limited partner; provided, that no
such repurchase may be made if either (1) following the repurchase such limited
partner's interests would not be fully redeemed but such limited partner would
hold less than the minimum investment in the offering (100 units) or (2) such
repurchase would impair the capital or operations of the partnership. In no
event will a limited partner be permitted to have his units repurchased prior to
termination of the offering. Units owned by the general partners or their
affiliates may not be repurchased by the partnership. Further, in order to
prevent the classification of the partnership as an investment company under the
Investment Company Act of 1940 and to prevent the partnership from being deemed
a "publicly traded partnership" under the Code, the opportunity of limited
partners to have their units repurchased has been substantially restricted under
the Partnership Agreement, as described above.
A limited partner wishing to have units repurchased must mail or deliver a
written request to the partnership, executed by his or its trustee or authorized
agent in the case of qualified profit sharing, pension and other retirement
trusts, indicating his or its desire to have such units repurchased. Such
requests will be considered by the general partners in the order in which they
are received. Although the repurchase reserve will not be established, if at
all, until at least one year after the termination of the offering, limited
partners are not required to hold units for any specified period of time prior
to making such a redemption request.
If the general partners decide to honor a request, they will notify the
requesting limited partner in writing of such fact, of the purchase price for
the repurchased units and of the effective date of the repurchase transaction,
which will be not less than 60 nor more than 75 calendar days
83
<PAGE>
following the receipt of the written request by the partnership, and will
forward to such limited partner the documents necessary to effect such
repurchase transaction. The purchase price per unit will be equal to 85% of the
fair market value of the units until three years from the effective date of the
Registration Statement and 90% of the fair market value of the units thereafter.
For the first three full fiscal years following the year in which the offering
of units terminates, the fair market value of the units will be deemed to be
their initial purchase price of $10.00. Thereafter, the fair market value
utilized for purposes of establishing the purchase price per unit will be the
estimated value of units to be obtained annually for ERISA purposes. (See
"Investment by Tax-Exempt Entities and ERISA Considerations - Annual
Valuations"). The fair market value will be based on annual appraisals of
partnership properties performed by the general partners and not by an
independent appraiser. The general partners will, however, obtain an opinion of
an independent third party annually that their estimate of the fair market value
of each unit for such year is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. Fully executed documents must be
returned to the partnership at least 30 days prior to the effective date. The
partnership will, as soon as possible following return of such documents from
the limited partner, repurchase the units of the limited partner, provided, that
if insufficient amounts are then available in the repurchase reserve to
repurchase all of such units, only a portion of such units will be repurchased;
and provided further, that the partnership may not repurchase less than all of
the units of such limited partner if as a result thereof the limited partner
would own less than the minimum investment in the offering (100 units). In the
event that insufficient funds are available in the repurchase reserve to
repurchase all of such units, the limited partner requesting such repurchase
will be deemed to have priority for subsequent partnership repurchases over
other limited partners who request repurchases thereafter. Units repurchased by
the partnership will be canceled.
In addition to the other restrictions described herein, the Partnership
Agreement provides that:
. repurchases out of the repurchase reserve may not exceed in the
aggregate more than 2% of total gross offering proceeds throughout the
life of the partnership excluding repurchases of units relating to the
death or legal incapacity of the owner or a substantial reduction in
the owner's net worth or income, defined to mean an involuntary loss
of not less than 50% in income or net worth during the year in which
such repurchase occurs; and
. not more than 2% of the outstanding units may be purchased in any
year, provided in each case that the partnership has sufficient cash
to make the purchase and that the purchase will not be in violation of
any other applicable legal requirements. (Section 8.11(k).)
Due to the various restrictions and limitations relating to the potential
establishment of a repurchase reserve by the partnership, in considering an
investment in the partnership, prospective investors should not assume that they
will be able to resell their units to the partnership. (See "Risk Factors.")
In addition, prospective investors should consider that a resale of their units
to the partnership may result in adverse tax consequences to the limited
partner. (See "Federal Income Tax Consequences - Sales of Limited Partnership
Units.")
84
<PAGE>
DISTRIBUTION REINVESTMENT PLAN
It is anticipated that a distribution reinvestment plan (the "distribution
reinvestment plan") will be available which will be designed to enable investors
electing Cash Preferred Units to have their distributions of net cash from
operations from the partnership invested in additional units of the partnership
during the offering or in units issued by subsequent limited partnerships
sponsored by the general partners or their affiliates which have substantially
identical investment objectives as the partnership. (Section 8.15.) In
addition, in the event the distribution reinvestment plan is effected, it is
anticipated that investors in Wells Fund III and investors holding Class A Units
(or Class A Status Units) in Wells Fund IV, Wells Fund V, Wells Fund VI, Wells
Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X, Wells Fund XI, and
shares of the Wells REIT will have the opportunity to have their distributions
of net cash from operations invested in units in the partnership during the
offering period.
Units to be issued by the partnership pursuant to the distribution
reinvestment plan will be available only until the termination of its offering.
The general partners in their discretion may elect not to provide a distribution
reinvestment plan or to terminate any existing distribution reinvestment plan.
Investors will not be eligible to participate in the distribution reinvestment
plan with respect to units designated as Tax Preferred Units since no
distributions of net cash from operations are payable with respect to such
units. Investors who acquire their units outside the offering (i.e.,
transferees of units) may not participate in the distribution reinvestment plan
with respect to units in the partnership in which they are limited partners, but
may have their distributions from the partnership invested in units of a
subsequent limited partnership sponsored by the general partners or their
affiliates if such a distribution reinvestment plan is made available by the
general partners in their discretion.
Investors participating in the distribution reinvestment plan may purchase
fractional units and shall not be subject to minimum investment requirements,
although the general partners may, at their option, impose certain minimum
investment requirements and other restrictions with respect to purchases of
units pursuant to the distribution reinvestment plan. Investors electing to
participate in the distribution reinvestment plan will receive with each
confirmation a notice advising such investor that he is entitled to change his
election with respect to subsequent distributions by returning a notice to the
partnership. If sufficient units are not available for purchase pursuant to the
distribution reinvestment plan, the partnership will remit all excess
distributions of net cash from operations to the participants.
Net cash from operations may only be reinvested in units issued by
subsequent limited partnerships sponsored by the general partners or their
affiliates if:
. prior to the time of such reinvestment, the limited partner has
received the final prospectus and any supplements thereto offering
interests in the subsequent limited partnership and such prospectus
allows investment pursuant to a distribution reinvestment plan;
. a registration statement covering the interests in the subsequent
limited partnership has been declared effective under the Securities
Act of 1933;
. the offer and sale of such interests is qualified for sale under the
applicable state securities laws;
85
<PAGE>
. the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership;
. the participant qualifies under applicable investor suitability
standards as contained in the prospectus for the subsequent limited
partnership; and
. the subsequent limited partnership has substantially identical
investment objectives as the partnership.
Investors who invest in subsequent limited partnerships pursuant to a
distribution reinvestment plan will become, and will be treated as, limited
partners in such subsequent limited partnership in all respects and, as such,
will receive the same applicable reports as other limited partners in the
subsequent limited partnership as required by the then applicable NASAA
Guidelines.
Each limited partner electing to participate in the distribution
reinvestment plan agrees that if at any time he fails to meet the applicable
real estate limited partnership investor suitability standards or cannot make
the other investor representations or warranties set forth in the then current
real estate limited partnership prospectus, the subscription agreement or
partnership agreement relating thereto, he will promptly notify the general
partners in writing.
Subscribers should note that affirmative action must be taken to change or
withdraw from participation in the distribution reinvestment plan. Change in or
withdrawal from participation in the distribution reinvestment plan shall be
effective only with respect to distributions made more than 30 days following
receipt by the general partners of written notice of such change or withdrawal.
In the event a limited partner transfers his units, such transfer shall
terminate the limited partner's participation in the distribution reinvestment
plan as of the first day of the quarter in which such transfer is effective.
Selling commissions not to exceed 7% and dealer management fees not to
exceed 2.5% may be paid by the partnership with respect to units purchased
pursuant to the distribution reinvestment plan. Payment of selling commissions
may be subject to certain minimum levels of additional investment. Each holder
of units is permitted to identify, change or eliminate the name of his account
executive at a participating dealer. Identification of such account executive
may be retained, changed or eliminated for subsequent distributions. In the
event that no account executive is identified at any time during the offering,
or in the event that the account executive is not employed by a broker-dealer
having a valid selling agreement with the Dealer Manager, no selling commission
will be paid with respect to distributions which are then being reinvested, and
the partnership will retain for additional investments in real estate any
amounts otherwise payable as selling commissions. All holders of units, based
on the number of units owned by each of them, will receive the benefit of
savings realized by the partnership from investors who do not identify account
executives. Accordingly, the economic benefit to investors who do not identify
account executives will be diluted and shared with all holders, including those
for whose contributions the partnership has paid selling commissions.
Unless the general partners are otherwise notified in writing, units issued
pursuant to the distribution reinvestment plan will initially be treated as Cash
Preferred Units. Limited partners purchasing units pursuant to the distribution
reinvestment plan will have the same rights and be treated in the same manner as
if such units were issued pursuant to the offering.
86
<PAGE>
Following the reinvestment, each participant will be sent a statement and
accounting showing the distributions received, the number and price of units
purchased, and the total amount of units acquired under the distribution
reinvestment plan. Taxable participants will incur tax liability for
partnership income allocated to them even though they shall have elected not to
receive their distributions in cash but rather to have their distributions held
in their account under the distribution reinvestment plan. (See "Risk Factors -
Federal Income Tax Risks.")
The partnership reserves the right to amend any aspect of the distribution
reinvestment plan effective with respect to any distribution paid subsequent to
the notice, provided that the notice is sent to participants in the distribution
reinvestment plan at least ten days before the record date for a distribution.
The partnership also reserves the right to terminate the distribution
reinvestment plan for any reason at any time, by sending written notice of
termination to all participants.
Nothing contained herein shall be construed as obligating the general
partners or their affiliates to continue to offer units in subsequent real
estate limited partnerships or to include a distribution reinvestment plan as
part of the offering of such partnerships or to permit reinvestment of
distributions therein.
PROXY TO LIQUIDATE
At any time commencing eight years after the termination of the offering,
if the general partners receive written requests from limited partners holding
10% or more of the outstanding units directing that the general partners
formally proxy the limited partners to determine whether the assets of the
partnership should be liquidated (the "proxy to liquidate"), the general
partners will send a proxy to liquidate to each limited partner. The general
partners shall not be required to send proxies to liquidate to the limited
partners more frequently than once during every two year period. If the proxy
to liquidate results in limited partners owning more than 50% of the units
without regard to units owned or otherwise controlled by the general partners
voting in favor of a liquidation of the partnership, the assets of the
partnership will be fully liquidated within 30 months from the close of the 45
day deadline applicable to the proxy to liquidate. (Section 20.2.)
DISSOLUTION AND TERMINATION
The partnership is to continue until December 31, 2030, but may be
dissolved earlier as provided in the partnership agreement or by law. (Article
VI.) The partnership will also be dissolved upon:
. the decision by holders of more than 50% of the units to dissolve and
terminate the partnership;
. the retirement, withdrawal or removal of a general partner unless
within 90 days from the date of such event:
(1) the remaining general partner, if any, elects to continue the
business of the partnership; or
(2) if there is no remaining general partner, a majority in interest
of the limited partners elect to continue the business of the
partnership;
87
<PAGE>
. the sale or disposition of all interests in real property and other
assets of the partnership;
. the effective date of the occurrence of an event of withdrawal of the
last remaining general partner unless, within 120 days from such
event, a majority in interest of the limited partners elect to
continue the business of the partnership; or
. the happening of any other event causing the dissolution of the
partnership under the laws of Georgia. (Section 20.1.)
In addition to the foregoing events, the general partners may also
terminate the offering, compel a termination and dissolution of the partnership,
or restructure the partnership's affairs, upon notice to all limited partners
and without the consent of any limited partner, if upon the advice of counsel to
the partnership, either (1) the partnership's assets constitute "Plan Assets,"
as such term is defined for purposes of ERISA, or (2) any of the transactions
contemplated in the Partnership Agreement constitute "prohibited transactions"
under ERISA. (Section 20.1(h).)
In the event the partnership is dissolved, the assets of the partnership
shall be converted to cash. In such event, the general partners shall be given
a reasonable amount of time to collect any notes receivable with respect to the
sale of partnership assets and to collect any other outstanding debts. All cash
on hand shall be distributed first to creditors to satisfy debts and liabilities
of the partnership, other than loans or advances made by partners to the
partnership, including the establishment of reserves deemed reasonably necessary
to satisfy contingent or unforeseen liabilities or obligations of the
partnership. Any remaining cash will then be used to repay loans or advances
made by any of the partners to the partnership and to pay any fees due the
general partners. The balance, if any, shall be distributed among the partners
in accordance with the positive balance in their capital accounts as of the date
of distribution. Upon completion of the foregoing distributions, the
partnership shall be terminated. (Section 9.3.)
INVESTMENT BY TAX-EXEMPT ENTITIES AND
ERISA CONSIDERATIONS
GENERAL
The General Partners have attempted to structure the partnership in such a
manner that it will be an attractive investment vehicle for qualified plans,
IRAs and other entities which are tax-exempt under the Code. In considering an
investment in the partnership of a portion of the assets of a retirement plan,
however, the plan's fiduciary should consider all applicable provisions of the
Code and ERISA. In this regard, IRAs which are not sponsored or endorsed by an
employer or by an employee organization and Keogh Plans under which only
partners or a sole proprietor are participants generally are not subject to the
provisions of ERISA; however, fiduciaries of such accounts should review
carefully the exceptions set forth below.
In general, qualified plan fiduciaries should consider:
. whether the investment is in accordance with the documents and
instruments governing such qualified plan;
88
<PAGE>
. whether the investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
. whether the investment will result in "unrelated business taxable
income" to the qualified plan or to an investing IRA, Keogh Plan or
other tax-exempt entity (See "Federal Income Tax Consequences -
Investment by Qualified Plans and Other Tax-Exempt Entities");
. whether there is sufficient liquidity for the qualified plan after
taking this investment into account;
. the need to value the assets of the qualified plan annually; and
. whether the investment would constitute or give rise to a prohibited
transaction under either Section 406 of ERISA or Section 4975 of the
Code.
ERISA also requires generally that the assets of employee benefit plans be
held in trust and that the trustee, or a duly authorized investment manager
within the meaning of Section 3(38) of ERISA, have exclusive authority and
discretion to manage and control the assets of the plan. All fiduciaries of
employee benefit plans subject to ERISA have certain duties imposed on them by
ERISA and, as noted above, certain transactions between an employee benefit plan
and the parties in interest with respect to such plan including fiduciaries are
prohibited. The Code imposes similar prohibitions on retirement plans, and IRAs
and Keogh Plans covering only self-employed individuals which are not subject to
ERISA are, nevertheless, subject to the "prohibited transaction" rules under the
Code. For purposes of both ERISA and the Code, any person who exercises any
authority or control with respect to the management or disposition of the assets
of a retirement plan is considered to be a fiduciary of such retirement plan
subject to certain exceptions not here relevant.
MINIMUM DISTRIBUTION REQUIREMENTS
Potential investors who intend to purchase units in their IRAs, and any
trustee of an IRA or other fiduciary of a retirement plan considering an
investment in units, should take into consideration the limited liquidity of an
investment in the units as it relates to applicable minimum distribution
requirements under the Code for the IRA or other retirement plan. If the units
are still held in the IRA or retirement plan and the partnership properties have
not yet been sold at such time as mandatory distributions are required to
commence to the IRA beneficiary or qualified plan participant, Section 401(a)(9)
of the Code will likely require that a distribution in kind of the units be made
to the IRA beneficiary or qualified plan participant. Any such distribution in
kind of units must be included in the taxable income of the IRA beneficiary or
qualified plan participant for the year in which the units are received at the
then current fair market value of the units without any corresponding cash
distributions with which to pay the income tax liability arising out of any such
distribution. (See "Risk Factors - Federal Income Tax Risks.") The fair market
value of any such distribution in kind will be only an estimated value per unit
and there can be no assurance that such estimated value could actually be
realized by a limited partner because (1) estimates do not necessarily indicate
the price at which units could be sold and (2) no public market for units exists
or is likely to develop. (See "Annual Valuation" below.)
89
<PAGE>
PLAN ASSETS - GENERALLY
ERISA provides a comprehensive statutory scheme regarding the investment in
and management of a retirement plan's assets. As noted above, any person who
exercises any authority or control over the management or disposition of a
plan's assets is considered to be a fiduciary of such plan. In order to avoid
such characterization, the general partners have used their best efforts to
structure the partnership so that the assets of the partnership will not be
deemed to be assets of the retirement plans investing as limited partners ("Plan
Assets").
In the event that the assets of the partnership were deemed to be Plan
Assets, however, the general partners would be deemed fiduciaries of the
retirement plans investing as limited partners and, accordingly, certain
contemplated transactions between the partnership and the general partners could
be deemed to be "prohibited transactions." Additionally, if the assets of the
partnership were deemed to be Plan Assets, the standards of prudence and other
provisions of Title I of ERISA applicable to investments by retirement plans
would extend as to all plan fiduciaries to the general partners with respect to
investments made by the partnership.
PLAN ASSETS - DEFINITION
The definition of Plan Assets is not set forth in ERISA or the Code, but
was addressed initially by the Department of Labor in 1975 by the adoption of
Interpretive Bulletin 75-2. This interpretation provided that the assets of a
corporation or partnership in which an employee benefit plan invested would not
generally be treated as assets of such plan. The Department stated that:
Generally, investment by a plan in securities (within the meaning of
section 3(20) of the Employee Retirement Income Security Act of 1974) of a
corporation or partnership will not, solely by reason of such investment,
be considered to be an investment in the underlying assets of such
corporation or partnership so as to make such assets of the entity "plan
assets" and thereby make a subsequent transaction between the party in
interest and the corporation or partnership a prohibited transaction under
Section 406 of the Act.
In 1986, the Department of Labor issued regulations (the "Plan Asset
Regulations") relating to the definition of Plan Assets. The Plan Asset
Regulations adopted the general statement set forth in the Interpretive
Bulletin, however, it limited the applicability of such statement by further
providing that the assets of entities in which retirement plans make equity
investments will be treated as Plan Assets unless such investments are (1) in
publicly offered securities, (2) in securities offered by an investment company
registered under the Investment Company Act of 1940, or (3) within one of the
other specific exemptions set forth below. As the partnership is not a
registered investment company, the exemptions contained in the Plan Asset
Regulations which may apply to an investment in the partnership include that it
may be an investment:
. in "publicly offered securities," defined generally as interests which
are freely transferable, widely-held and registered with the
Securities and Exchange Commission;
. in which equity participation by "benefit plan investors" is not
significant; or
. in a "real estate operating company."
90
<PAGE>
The Plan Asset Regulations provide that equity participation in an entity by
benefit plan investors is "significant" if at any time 25% or more of the value
of any class of equity interest is held by benefit plan investors. The term
"benefit plan investors" is broadly defined for this purpose to include any
employee pension or welfare benefit plan, whether or not subject to ERISA, any
plan described in Section 4975(e)(1) of the Code and any entity whose underlying
assets include Plan Assets by reason of plan investment in the entity. We
typically have equity participation by "benefit plan investors" that is
significant. Therefore, the general partners do not anticipate that the
partnership will qualify for the exemption for investments in which equity
participation by benefit plan investors is not significant.
PLAN ASSET REGULATIONS - AVAILABLE EXEMPTIONS
PUBLICLY OFFERED SECURITIES EXEMPTION
As noted above, if a retirement plan acquires "publicly offered
securities," the assets of the issuer of the securities are not deemed to be
Plan Assets under the Plan Asset Regulations. The definition of publicly
offered securities requires that such securities must be "widely-held," "freely
transferable" and must satisfy certain registration requirements under federal
securities laws. Although the partnership should satisfy the registration
requirements under this definition, the determinations of whether a security is
"widely-held" and "freely transferable" are inherently factual matters.
Under the Plan Asset Regulations, a class of securities will be "widely-
held" if it is held by 100 or more persons. The General Partners anticipate
that this requirement will be met; however, even if the units are deemed to be
widely-held, the "freely transferable" requirement must also be satisfied in
order for the partnership to qualify for this exemption. In this regard, the
Plan Asset Regulations provide several examples of restrictions on
transferability which, absent unusual circumstances, will not, either alone or
in any combination, cause the rights of ownership to be considered not "freely
transferable." One such example provided in the Plan Asset Regulations is an
offering, such as this offering, in which the minimum investment is $10,000 or
less. The allowed restrictions are based upon restrictions commonly found in
public real estate limited partnerships which are imposed to comply with state
and federal law, to assure continued eligibility for favorable tax treatment and
to avoid certain practical administrative problems. The partnership is intended
to satisfy the freely transferable requirement set forth in the Plan Asset
Regulations with respect to the units.
It should be noted in this regard, however, that because certain adverse
tax consequences can result if the partnership were to be characterized as a
"publicly traded partnership" under Section 7704 of the Code (See "Federal
Income Tax Consequences - Publicly Traded Partnerships"), certain additional
restrictions on the transferability of units have been incorporated into the
partnership which are intended to prevent such reclassification of the
partnership (the "Section 7704 Restrictions"). The Plan Asset Regulations
provide specifically that any "restriction on, or prohibition against, any
transfer or assignment which would either result in a termination or
reclassification of the entity for federal or state tax purposes" will
ordinarily not alone or in combination with other restrictions affect a finding
that securities are "freely transferable." The Plan Asset Regulations were
promulgated prior to the enactment of Section 7704 of the Code, however, so the
incorporation of the Section 7704 Restrictions into the Partnership Agreement
potentially has the
91
<PAGE>
effect of making the freely transferable requirement, and thus the "publicly
offered securities" exemption, unavailable to the partnership.
On the other hand, if the Department of Labor interprets the Section 7704
Restrictions in the partnership consistently with the specific exemption
language in the Plan Asset Regulations set forth above, the partnership should
qualify for the freely transferable requirement and, thus, the publicly offered
securities exemption contained in the Plan Asset Regulations because the Section
7704 Restrictions in the Partnership Agreement are intended only to prohibit
transfers which would result in a reclassification of the entity for federal
tax purposes. Because of the factual nature of such a determination, however,
and the lack of further guidance as to the meaning of the term "freely
transferable," particularly in light of the Section 7704 Restrictions, there can
be no assurance that the partnership will, in fact, qualify for this exemption.
REAL ESTATE OPERATING COMPANY EXEMPTION
Even if the partnership were not to qualify for the "publicly offered
securities" exemption, the Plan Asset Regulations also provide an exemption with
respect to securities issued by a "real estate operating company." An entity is
a real estate operating company if, during the relevant valuation periods
defined in the Plan Asset Regulations, at least 50% of its assets other than
short-term investments pending long-term commitment or distribution to investors
valued at cost, are invested in real estate which is managed or developed and
with respect to which the partnership has the right to participate substantially
in the management or development activities. The partnership intends to devote
more than 50% of its assets to the management and development of real estate.
An example in the Plan Asset Regulations indicates, however, that, although
some management and development activities may be performed by independent
contractors, rather than by the entity itself, if over one-half of an entity's
properties are acquired subject to long-term leases under which substantially
all management and maintenance activities with respect to the properties are the
responsibility of the tenants, then the entity may not be eligible for the real
estate operating company exemption. There can be no assurance that the
partnership will be able to structure its operations to satisfy the requirements
of this exemption, and due to the uncertainty of the application of the
standards set forth in the examples in the Plan Asset Regulations and lack of
further guidance as to the meaning of the term "real estate operating company,"
there can be no assurance as to the partnership's ability to qualify for the
real estate operating company exemption.
PLAN ASSET CONSEQUENCES - PROHIBITED TRANSACTION EXCISE TAX
If the partnership were deemed to hold Plan Assets, issues relating to the
"prohibited transaction" concepts of ERISA and the Code arise by virtue of (1)
the general partners' ownership of interests in the partnership, and (2) the
possible recharacterization of the relationship between the general partners or
the partnership and any retirement plan which may purchase units. Section 406
of ERISA and Section 4975 of the Code prohibit retirement plans from engaging in
certain transactions involving Plan Assets with specified parties. The
specified parties are referred to as "parties in interest," as defined in
Section 3(14) of ERISA, and as "disqualified persons," as defined in Section
4975(e)(2) of the Code. These definitions include both parties owning threshold
percentage interests in the investment entity and "persons providing services to
the plan," and certain of their affiliates. Thus, if the partnership is deemed
to hold Plan Assets, each general partner could be characterized as a
"fiduciary" with respect to such assets, and would thus be a "party in interest"
92
<PAGE>
under ERISA and a "disqualified person" under the Code with respect to investing
retirement plans. If the general partners' interest in the partnership were
deemed to exceed certain threshold levels set forth in the Code and ERISA, the
partnership, itself, could be deemed to be a disqualified person and the
investment in units by retirement plans could be a prohibited transaction. The
general partners do not believe such thresholds have been exceeded with respect
to their interest in the partnership or that the partnership should be deemed to
be a party in interest or a disqualified person for this reason or otherwise.
If a general partner were to be characterized as a fiduciary with respect
to investing retirement plans, various transactions between the general partners
or their affiliates and the partnership could constitute prohibited transactions
because a fiduciary may not deal with Plan Assets in its own interest or
represent a person whose interests are adverse to those of the plan in a
transaction involving Plan Assets. In addition, it could be argued that,
because the general partners share in certain partnership distributions and tax
allocations in a manner disproportionate to their capital contributions to the
partnership, the general partners are being compensated directly out of Plan
Assets rather than the partnership assets in exchange for the provision of
services, i.e., establishment of the partnership and making it available as an
investment to retirement plans. If this were the case, absent a specific
exemption applicable to the transaction, a prohibited transaction could be
deemed to have occurred between investing retirement plans and the general
partners.
If it is determined by the Department of Labor or the IRS that a prohibited
transaction has occurred, the general partners and any party in interest that
has engaged in any such transaction would be required to eliminate the
prohibited transaction by reversing the transaction and making good to the
retirement plan any loss resulting from the prohibited transaction. In
addition, each party in interest would be liable to pay an excise tax equal to
15% of the amount involved in the transaction for each year in which the
transaction remains uncorrected. Moreover, if the fiduciary or party in
interest does not correct the transaction within a specified period, the party
in interest could also be liable for an additional excise tax in an amount equal
to 100% of the amount involved. Plan fiduciaries who make the decision to
invest in units could, under certain circumstances, be liable as co-fiduciaries
for actions taken by the partnership or the general partners.
Special rules apply to an investing IRA. If the partnership were deemed to
be a party in interest or disqualified person, as described above, with respect
to an IRA, the tax-exempt status of the IRA could be lost by reason of such
investment because a transaction between the partnership and the account would
be deemed under Section 4975 of the Code to constitute a prohibited transaction.
It should be noted that even if the assets of the partnership are not
deemed to be Plan Assets under the Plan Asset Regulations, as the general
partners anticipate, Interpretive Bulletin 75-2 indicates that in certain
circumstances an investment in the partnership by a retirement plan may still be
a prohibited transaction. For example, if a retirement plan may, by reason of
its investment, compel the partnership to invest in a property or engage in
transactions which such retirement plan could not enter into directly under the
prohibited transaction rules, then the provisions of Interpretive Bulletin 75-2
and the Plan Asset Regulations would not preclude recharacterization of such
investment as a prohibited transaction. The general partners have represented
in this regard that no such arrangements will be entered into with investing
retirement plans, and therefore it is unlikely that these provisions of
Interpretive Bulletin 75-2 would be invoked by the Department of Labor.
93
<PAGE>
ANNUAL VALUATION
Fiduciaries of retirement plans are required to determine annually the fair
market value of the assets of such retirement plans, typically, as of the close
of a plan's fiscal year. To enable the fiduciaries of retirement plans subject
to the annual reporting requirements of ERISA to prepare reports relating to an
investment in the partnership, the general partners are required to furnish an
annual statement of estimated unit value to the investors. For the first three
full fiscal years following the termination of the offering, the value of a unit
will be deemed to be $10.00, and no valuations will be performed. Thereafter,
the annual statement will report the estimated value of each unit based upon the
estimated amount a unit holder would receive if all partnership assets were sold
as of the close of the partnership's fiscal year for their estimated values and
if such proceeds without reduction for selling expenses, together with the other
funds of the partnership, were distributed in liquidation of the partnership.
Such estimated values will be based upon annual valuations of partnership
properties performed by the general partners, but no independent appraisals will
be obtained. While the general partners are required under the Partnership
Agreement to obtain the opinion of an independent third party stating that their
estimates of value are reasonable, such general partner valuations may not
satisfy the requirements imposed upon fiduciaries under ERISA for all retirement
plans.
The estimated value per unit will be reported to limited partners in the
partnership's next annual or quarterly report on Form 10-K or 10-Q sent to the
limited partners for the period immediately following completion of the
valuation process. There can be no assurance that:
. the estimated value per unit will actually be realized by the
partnership or by the limited partners upon liquidation in part
because estimates do not necessarily indicate the price at which
properties could be sold; or
. limited partners could realize estimated net asset value if they were
to attempt to sell their units, because no public market for units
exists or is likely to develop.
FEDERAL INCOME TAX CONSEQUENCES
The following discussion is intended to summarize all of the federal income
tax considerations material to an investment in the partnership. This summary
is based upon the Code, Treasury Regulations including Temporary and Proposed
Regulations promulgated thereunder ("Regulations"), current positions of the
Internal Revenue Service (the "IRS") contained in Revenue Rulings and Revenue
Procedures and other administrative actions of the IRS and existing judicial
decisions in effect as of the date of this prospectus.
Investors should note that it is not feasible to comment on all aspects of
federal, state and local tax laws that may affect each limited partner in the
partnership. The federal income tax considerations discussed below are
necessarily general in nature, and their application may vary depending upon a
limited partner's particular circumstances. Further, the discussion below is
directed primarily to individual taxpayers who are citizens of the United
States. Accordingly, persons who are trusts, corporate investors in general,
corporate investors that are subject to specialized rules such as Subchapter S
corporations and any potential investor who is not a United States citizen are
cautioned to consult their own personal tax advisors before investing in the
partnership.
94
<PAGE>
No representations are made in this prospectus as to state and local tax
consequences. The partnership does not intend to request a ruling from the IRS
with respect to any of the federal income tax matters discussed below, and on
certain matters no ruling could be obtained even if requested.
Investors should also note that a great deal of uncertainty exists with
respect to certain recently enacted and amended provisions of the Code. There
can be no assurance that the present federal income tax laws applicable to
limited partners and the operation of the partnership will not be further
changed prospectively or retroactively by additional legislation, by new
Regulations, by judicial decisions or by administrative interpretations, any of
which could adversely affect a limited partner, nor is there any assurance that
there will not be a difference of opinion as to the interpretation or
application of current federal income tax laws.
For the foregoing reasons, each prospective investor is urged to consult
with his own tax advisor with respect to the federal, state and local income tax
consequences arising from the purchase of units. Nothing in this prospectus or
any prior or subsequent communication from the general partners, their
affiliates, employees or any professional associated with this offering is or
should be construed as legal or tax advice to a potential investor in the
partnership. Investors should be aware that the IRS may not agree with all tax
positions taken by the partnership and that legislative, administrative or
judicial decisions may reduce or eliminate anticipated tax benefits of an
investment in the partnership.
Investors electing Cash Preferred Units are not anticipated to receive
much, if any, of the tax benefits associated with an investment in the
partnership. Therefore, any discussion in this prospectus of the availability
and extent of income tax benefits to limited partners will apply principally to
investors electing Tax Preferred Units.
Prospective Investors who are Fiduciaries of Retirement Plans should
Carefully Read "Investment by Tax-Exempt Entities and ERISA Considerations" and
"Investment by Qualified Plans and Other Tax-Exempt Entities" in this section.
The partnership will furnish to each partner and any assignee of units on
an annual basis the information necessary for the preparation and timely filing
of his federal income tax return. Investors should note that information
returns filed by the partnership will be subject to audit by the IRS and that
the Commissioner of the IRS has announced that the IRS will devote greater
attention to the proper application of the tax laws to partnerships. (See
"Audits" below.)
TAX OPINION
The partnership retained Holland & Knight LLP ("Counsel") to render an
opinion concerning the material federal income tax issues relating to an
investment in the partnership (the "Tax Opinion"). Potential investors should
be aware that the opinions of Counsel are based upon the accuracy of the facts
described in this prospectus and facts represented to Counsel by the general
partners. The opinions of Counsel assume further that the partnership will be
operated strictly in accordance with the Partnership Agreement. The accuracy of
such facts and representations is absolutely critical to the accuracy of the Tax
Opinion, and any alteration of the facts may adversely affect the opinions
rendered. Furthermore, the opinions of Counsel are based upon existing law,
applicable Regulations and current published administrative positions of the IRS
contained in Revenue Rulings, Revenue Procedures and judicial decisions, all of
which are subject to change either
95
<PAGE>
prospectively or retroactively. Changes in the Code and the Regulations
subsequent to the date of the Tax Opinion are not addressed in the Tax Opinion,
and any such changes could have a material adverse effect upon the tax treatment
of an investment in the partnership.
In reliance on certain representations and assumptions described in this
prospectus and in the Tax Opinion, and subject to the qualifications set forth
in this prospectus and in the Tax Opinion, Counsel in the Tax Opinion concludes
that, in the aggregate, substantially more than half of the material federal
income tax benefits, in terms of their financial impact on a typical investor,
will more likely than not be realized by an investor in the partnership, and
that the following material tax issues are more likely than not to have a
favorable outcome on the merits for federal income tax purposes if challenged by
the IRS, litigated and judicially decided:
. The partnership will be classified as a partnership for federal income
tax purposes and not as an association taxable as a corporation;
. The partnership will not be classified as a "publicly traded
partnership" under Section 7704 of the Code since the partnership
limits transfers of units, except for transfers of units which satisfy
applicable safe harbors from "publicly traded partnership" status
adopted by the IRS;
. A limited partner's interest in the partnership will be treated as a
passive activity;
. Partnership items of income, gain, loss, deduction and credit will be
allocated among the general partners and the limited partners
substantially in accordance with the allocation provisions of the
Partnership Agreement;
. The activities contemplated by the partnership will be considered
activities entered into for profit by the partnership; and
. The partnership is not currently required to register as a tax shelter
with the IRS under Section 6111 of the Code prior to the offer and
sale of the units based upon the general partners' representation that
the "tax shelter ratio," which is generally determined by dividing an
investor's share of aggregate deductions from the investment,
determined without regard to income, by the amount of the investor's
capital contributions, with respect to an investment in the
partnership will not exceed 2 to 1 for any investor as of the close of
any year in the partnership's first five calendar years.
Investors should note that any statement that it is "more likely than not"
that a tax position would be sustained means that in Counsel's judgment at least
a 51% chance of prevailing exists if the IRS were to challenge the allowability
of such tax position and such challenge were to be litigated and judicially
decided.
It should be further noted that Counsel is unable to form an opinion as to
the probable outcome of certain material tax aspects of the transactions
described in this prospectus if challenged by the IRS, litigated and judicially
decided. These aspects include:
96
<PAGE>
. the issue of whether the partnership will be considered to hold any or
all of its properties primarily for sale to customers in the ordinary
course of business; and
. the issue of whether the partnership will be classified as a "tax
shelter" under Section 6662(d) of the Code for purposes of determining
certain potential exemptions from the applicability of the accuracy-
related penalty provisions of the Code. (See "Risk Factors - Federal
Income Tax Risks.")
In addition, potential investors should note that the IRS may also attempt
to disallow or limit some of the tax benefits derived from an investment in the
partnership by applying certain provisions of the Code at the individual or
partner level rather than at the partnership level. In this connection, Counsel
gives no opinion or conclusion as to the tax consequences to limited partners
with regard to any material tax issue which impacts at the individual or partner
level and is dependent upon an individual limited partner's tax circumstances.
These issues include, but are not limited to, the potential imposition of the
alternative minimum tax, investment interest deductibility limitations and the
application of Section 183 of the Code, limiting deductions attributable to
activities not entered into for profit, at the partner level. Accordingly,
potential investors are urged to consult with and rely upon their own tax
advisors with respect to all tax issues which impact at the partner or
individual level.
As of the date of the Tax Opinion, no properties have been acquired by the
partnership, nor has the partnership entered into any contracts to acquire any
properties. Therefore, it is impossible at this time for Counsel to opine on
the application of the federal income tax law to the specific facts which will
exist when properties are acquired by the partnership.
Neither the Tax Opinion nor this description of the tax consequences of an
investment in the partnership will have any binding effect or official status of
any kind, and no assurance can be given that the conclusions reached in the Tax
Opinion will be sustained by a court if such conclusions are contested by the
IRS. Accordingly, the Tax Opinion should not be viewed as a guarantee that the
income tax effects described in this prospectus will be achieved, nor should it
be viewed as a guarantee that a court would hold that there is "substantial
authority" for the positions taken by the partnership with respect to any income
tax issue.
PARTNERSHIP STATUS GENERALLY
The ability to obtain the income tax attributes anticipated from an
investment in units depends upon the classification of the partnership as a
partnership for federal income tax purposes and not as an association taxable as
a corporation. Regulations regarding entity classification have been issued
under Section 7701 of the Code which, in effect, operate to allow a business
entity that is not otherwise required to be classified as a corporation (an
"eligible entity") to elect its classification for federal income tax purposes.
Under Section 301.7701-3(b) of the Regulations, an "eligible entity" that has at
least two members will be treated as a partnership in the absence of an
election. Accordingly, while the general partners do not intend to request a
ruling from the IRS as to the classification of the partnership for income tax
purposes, unless the partnership is deemed to be taxable as a corporation
pursuant to the application of the publicly traded partnership rules discussed
below, the partnership will qualify as an "eligible entity" and need not make
any election to be treated as a partnership for federal income tax purposes.
97
<PAGE>
In the event that the partnership, for any reason, were to be treated for
federal income tax purposes as an association taxable as a corporation, the
partners of the partnership would be treated as stockholders with the following
results, among others: (1) the partnership would become a taxable entity subject
to the federal income tax imposed on corporations; (2) items of income, gain,
loss, deduction and credit would be accounted for by the partnership on its
federal income tax return and would not flow through to the partners; and (3)
distributions of cash would generally be treated as dividends taxable to the
partners at ordinary income rates, to the extent of current or accumulated
earnings and profits, and would not be deductible by the partnership in
computing its income tax.
Based upon these entity classification regulations, IRS rulings and
judicial decisions under Section 7701(a) of the Code, however, all of which are
subject to change, and based upon certain representations of the general
partners and other assumptions, Counsel has concluded that the partnership will
more likely than not be treated as a partnership for federal income tax purposes
and not as an association taxable as a corporation. In rendering such opinion,
Counsel has also relied upon the fact that the partnership is duly organized as
a limited partnership under the laws of the State of Georgia and upon the
representation by the general partners that the partnership will be organized
and operated strictly in accordance with the provisions of the Partnership
Agreement.
The remaining summary of federal income tax consequences in this section
assumes that the partnership will be classified as a partnership for federal
income tax purposes.
PUBLICLY TRADED PARTNERSHIPS
Classification of the partnership as a "publicly traded partnership" could
result in (1) the partnership being taxable as a corporation (See "Partnership
Status Generally" above), and (2) the treatment of net income of the partnership
as portfolio income rather than passive income (See "Passive Loss Limitations"
below).
A publicly traded partnership is generally defined under Section 7704 of
the Code as any partnership whose interests are traded on an established
securities market or are readily tradeable on a secondary market or the
substantial equivalent thereof. In addition, Regulations have been issued (the
"Section 7704 Regulations") which provide guidance with respect to such
classification standards, including certain safe harbor standards which, if
satisfied, preclude classification as a publicly traded partnership.
The Section 7704 Regulations contain definitions of what constitutes an
established securities market and a secondary market or the substantial
equivalent thereof. They also set forth what transfers may be disregarded in
determining whether such definitions are satisfied with respect to the
activities of a partnership. The general partners do not believe that units in
the partnership are traded on an established securities market or a secondary
market or a substantial equivalent thereof as defined in the Section 7704
Regulations. The general partners have also represented that they do not intend
to cause the units to be traded on an established securities market or a
secondary market in the future.
98
<PAGE>
SECTION 7704 SAFE HARBORS
As noted above, the Section 7704 Regulations provide certain safe harbors
(the "secondary market safe harbors") which, after taking into consideration all
transfers other than those deemed disregarded, may be satisfied in order to
avoid classification of such transfers as being made on a secondary market or
the substantial equivalent thereof. One of the secondary market safe harbors
provides that interests in a partnership will not be considered tradeable on a
secondary market or the substantial equivalent thereof if the sum of the
partnership interests transferred during any taxable year, other than certain
disregarded transfers, does not exceed 2% of the total interest in the
partnership's capital or profits. Disregarded transfers include, among other
things, transfers by gift, transfers at death, transfers between family members,
distributions from a qualified retirement plan and block transfers, which are
defined as transfers by a partner during any 30 calendar day period of
partnership units representing more than 2% of the total interest in a
partnership's capital or profits.
A second safe harbor from classification as a publicly traded partnership,
dealing with redemption and repurchase agreements, is also provided in the
Section 7704 Regulations. The Section 7704 Regulations also make it clear that
the failure to satisfy a safe harbor provision under the Regulations will not
cause a partnership to be treated as a publicly traded partnership if, after
taking into account all facts and circumstances, partners are not readily able
to buy, sell or exchange their partnership interests in a manner that is
comparable, economically, to trading on an established securities market.
The partnership limits unit transfers of all types to transfers of units
which satisfy an applicable safe harbor contained in the Section 7704
Regulations or any other applicable safe harbor from "publicly traded
partnership" status which may be adopted by the IRS. The general partners have
represented that the partnership will be operated strictly in accordance with
the Partnership Agreement, and they have also represented that they will void
any transfers or assignments of units if they believe that such transfers or
assignments will cause the partnership to be treated as a publicly traded
partnership under the Section 7704 Regulations or any other guidelines adopted
by the IRS in the future.
Based upon the representations of the general partners, and assuming the
partnership will be operated strictly in accordance with the terms of the
Partnership Agreement, Counsel has concluded that it is more likely than not the
partnership will not be classified as a publicly traded partnership under
Section 7704 of the Code. Due to the complex nature of the safe harbor
provisions contained in the Section 7704 Regulations, however, and because any
determination in this regard will necessarily be based upon future facts not yet
in existence at this time, no assurance can be given that the IRS will not
challenge this conclusion or that the partnership will not, at some time in the
future, be deemed to be a publicly traded partnership.
QUALIFYING INCOME EXEMPTION
Even if the partnership were deemed to be a publicly traded partnership,
however, Section 7704(c) of the Code provides an exception to taxation of such
an entity as a corporation if 90% or more of the gross income of such entity for
each taxable year consists of "qualifying income." Qualifying income includes
interest, real property rents and gain from the sale or other disposition of
real property, but qualifying income does not include real property rents which
are contingent on the profits of the lessees or income from the rental or lease
of personal property.
99
<PAGE>
The general partners intend to operate the partnership in such a manner as
to qualify for the 90% qualifying income exception. (See "Investment Objectives
and Criteria.") Investors should note, however, that even if the partnership
satisfies the qualifying income exception, being deemed to be a publicly traded
partnership would result in certain other material adverse tax consequences to
limited partners, including the treatment of net income of the partnership as
portfolio income rather than passive income. (See "Passive Loss Limitations"
below.)
GENERAL PRINCIPLES OF PARTNERSHIP TAXATION
Under the Code, no federal income tax is paid by a partnership.
Accordingly, if as anticipated the partnership is treated as a partnership for
federal income tax purposes, the partnership will not be treated as a separate
taxable entity subject to federal income tax. Each partner will, instead, be
required to report on his federal income tax return for each year his
distributive share of the partnership's items of income, gain, loss, deduction
or credit for that year, without regard to whether any actual cash distributions
have been made to him. Investors should note that a partner's share of the
taxable income of the partnership, and the income tax liability resulting
therefrom, may exceed such partner's cash distributions from the partnership.
ANTI-ABUSE RULES
As noted under "General Principles of Partnership Taxation" above,
partnerships are not liable for income taxes imposed by the Code. The
Regulations set forth broad "anti-abuse" rules applicable to partnerships,
however, which rules authorize the Commissioner of the IRS to recast
transactions involving the use of partnerships either to reflect the underlying
economic arrangement or to prevent the use of a partnership to circumvent the
intended purpose of any provision of the Code. The general partners are not
aware of any fact or circumstance which could cause the Commissioner to exercise
his authority under these rules; however, if any of the transactions entered
into by the partnership were to be recharacterized under these rules, or the
partnership, itself, were to be recast as a taxable entity under these rules,
material adverse tax consequences to all of the partners would occur as
otherwise described in this prospectus.
DEDUCTIBILITY OF LOSSES - LIMITATIONS
The deductibility of a limited partner's distributive share of the
partnership's items of loss is subject to a series of limitations.
BASIS LIMITATION
A limited partner may not deduct his share of partnership losses and
deductions in excess of the adjusted basis of his partnership interest
determined as of the end of the taxable year. Allocated losses which exceed a
limited partner's basis will not be allowed, however, they may be carried over
indefinitely and claimed as a deduction in a subsequent year to the extent that
such limited partner's adjusted basis in his units has increased above zero. A
limited partner's adjusted basis in his units will include his cash investment
in the partnership along with his pro rata share of any partnership liabilities
as to which no partner is personally liable. A limited partner's basis will be
increased by his distributive share of the partnership's taxable income and
decreased (but not below zero) by his distributive share of the partnership's
losses. Cash distributions which are made to a limited partner, if any, will
also decrease the basis in his units and will generally constitute a return of
capital to the
100
<PAGE>
extent of such basis. In the event that a limited partner has no remaining basis
in his units, however, cash distributions will generally be taxable to him as
gain from the sale of his units. (See "Sales of Limited Partnership Units"
below.)
PASSIVE LOSS LIMITATION
Section 469 of the Code substantially restricts the ability of many
taxpayers including individuals, estates, trusts, certain closely-held
corporations and certain personal service corporations to deduct losses derived
from so-called "passive activities." Passive activities generally include any
activity involving the conduct of a trade or business in which the taxpayer does
not materially participate, including the activity of a limited partnership in
which the taxpayer is a limited partner, and certain rental activities,
including the rental of real estate. In the opinion of Counsel, it is more
likely than not that a limited partner's interest in the partnership will be
treated as a passive activity. Accordingly, income and loss of the partnership,
other than interest or other similar income earned on temporary investments and
working capital reserves, which income will constitute portfolio income, will
constitute passive activity income and passive activity loss, as the case may
be, to limited partners.
Losses from passive activities are generally deductible only to the extent
of a taxpayer's income or gains from passive activities and will not be allowed
as an offset against other income, including salary or other compensation for
personal services, active business income or "portfolio income," which includes
nonbusiness income derived from dividends, interest, royalties, annuities and
gains from the sale of property held for investment. Passive activity losses
that are not allowed in any taxable year are suspended and carried forward
indefinitely and allowed in subsequent years as an offset against passive
activity income in future years.
Upon a taxable disposition of a taxpayer's entire interest in a passive
activity to an unrelated party, suspended losses with respect to that activity
will then be allowed as a deduction against:
. first, income or gain from that activity including gain recognized on
such disposition;
. then, income or gain for the taxable year from other passive
activities; and
. finally, non-passive income or gain.
Regulations provide, however, that similar undertakings which are under common
control and owned by pass-through entities such as partnerships are generally
aggregated into a single activity. Accordingly, it is unlikely that suspended
passive activity losses derived from a specific partnership property would be
available to limited partners to offset non-passive income from other sources
until the sale or other disposition of all partnership properties has been
consummated.
Section 469(k) of the Code provides that the passive activity loss rules
will be applied separately with respect to items attributable to each publicly
traded partnership. Accordingly, if the partnership were deemed to be a
publicly traded partnership, partnership losses, if any, would be available only
to offset future non-portfolio income of the partnership. In addition, if the
partnership were deemed to be a publicly traded partnership which is not treated
as a corporation because of the qualifying income exception, partnership income
would generally be treated as portfolio income rather than passive income. (See
"Publicly Traded Partnerships" above.)
101
<PAGE>
AT RISK LIMITATION
The deductibility of partnership losses is limited further by the "at risk"
limitations set forth in Section 465 of the Code. Limited partners who are
individuals, estates, trusts and certain closely-held corporations are not
allowed to deduct partnership losses in excess of the amounts which such limited
partners are determined to have "at risk" at the close of the partnership's
year. Generally, a limited partner's "amount at risk" will include only the
amount of his cash capital contribution to the partnership. A limited partner's
"amount at risk" will be reduced by his allocable share of partnership losses
and by partnership distributions and increased by his allocable share of
partnership income. Any deductions which are disallowed under this limitation
may be carried forward indefinitely and utilized in subsequent years to the
extent that a limited partner's "amount at risk" is increased in those years.
ALLOCATIONS OF PROFIT AND LOSS
Allocations of net income, net loss, depreciation, amortization and cost
recovery deductions and gain on sale are described in this prospectus in the
section entitled "Distributions and Allocations." The terms "net income" and
"net loss" are defined in the Partnership Agreement to mean the net income or
loss realized or recognized by the partnership for a fiscal year, as determined
for federal income tax purposes, including any income exempt from tax, but
excluding all deductions for depreciation, amortization and cost recovery and
gain on sale.
The general partners do not intend to request a ruling from the IRS with
respect to whether the allocations of profits and losses in the Partnership
Agreement will be recognized for federal income tax purposes. The IRS may
attempt to challenge the allocations of profits and losses made by the
partnership, which challenge, if successful, could adversely affect the limited
partners by changing their respective shares of taxable income or loss. No
assurance can be given that the IRS will not also challenge one or more of the
special allocation provisions contained in the Partnership Agreement.
Section 704(a) of the Code provides generally that partnership items of
income, gain, loss, deduction and credit are to be allocated among partners as
set forth in the relevant partnership agreement. Section 704(b) provides,
however, that if an allocation to a partner under the partnership agreement of
income, gain, loss, deduction or credit or items thereof does not have
substantial economic effect, such allocation will instead be made in accordance
with the partner's interest in the partnership determined by taking into account
all facts and circumstances.
Regulations issued under Section 704(b) of the Code (the "Section 704(b)
Regulations") provide complex rules for determining (1) whether allocations will
be deemed to have economic effect, (2) whether the economic effect of
allocations will be deemed to be substantial, and (3) whether allocations not
having substantial economic effect will nonetheless be deemed to be made in
accordance with a partner's interest in the partnership.
ECONOMIC EFFECT
The Section 704(b) Regulations provide generally that an allocation will be
considered to have economic effect if the following three requirements are met:
102
<PAGE>
. partners' capital accounts are determined and maintained in accordance
with the Section 704(b) Regulations;
. upon the liquidation of the partnership, liquidating distributions are
made in accordance with the positive capital account balances of the
partners after taking into account all capital account adjustments for
the year during which such liquidation occurs; and
. the partnership agreement contains a "qualified income offset"
provision and the allocation in question does not cause or increase a
deficit balance in a partner's capital account at the end of the
partnership's taxable year.
The Partnership Agreement (1) provides for the determination and
maintenance of capital accounts pursuant to the Section 704(b) Regulations, and
(2) provides that liquidation proceeds are to be distributed in accordance with
capital accounts. (See "Distributions and Allocations.") With regard to the
third requirement, Section 1.704-1(b)(2)(ii)(d) provides that a partnership
agreement contains a "qualified income offset" if it provides that a partner who
unexpectedly receives an adjustment, allocation or distribution of certain items
which causes a deficit or negative capital account balance which means generally
that the sum of losses allocated and cash distributed to a partner exceeds the
sum of his capital contributions to the partnership and any income allocated to
such partner, will be allocated items of income and gain in an amount and manner
sufficient to eliminate the deficit balance as quickly as possible. The
Partnership Agreement contains a qualified income offset provision. It should
be noted in this regard that the qualified income offset provision in the
Partnership Agreement has the effect of prohibiting a limited partner from being
allocated items of loss or deduction which would cause his capital account to be
reduced below zero.
In addition to the allocation provisions described above, the Partnership
Agreement also contains a provision specially allocating deductions for
depreciation, amortization and cost recovery to limited partners electing Tax
Preferred Units up to the amount which would reduce their capital accounts to
zero. In an attempt to ensure that limited partners electing Tax Preferred
Units will bear the risk of actual economic loss in the event that a partnership
property is sold at a loss, as required under the Section 704(b) Regulations,
the partnership further provides for a special allocation of nonliquidating net
sale proceeds in favor of limited partners electing Cash Preferred Units which
applies only if a partnership property is sold for less than its original
purchase price. Under this provision, limited partners electing Cash Preferred
Units are allocated the first proceeds from the sale of properties in an amount
equal to the excess of the original purchase price of such partnership property
over the sale price of the partnership property sold but not in excess of the
amount of the special allocation to limited partners electing Tax Preferred
Units of deductions for depreciation, amortization and cost recovery with
respect to the specific partnership property sold.
The Partnership Agreement also provides for a special allocation of gain on
sale to limited partners electing Tax Preferred Units in an amount equal to the
deductions for depreciation, amortization and cost recovery which were
previously allocated to such units. Accordingly, a limited partner who acquires
units from a prior owner should note that this special allocation of gain on
sale attributable to deductions for depreciation, amortization and cost recovery
previously allocated to the prior limited partner could have the effect of
allocating substantial income to him upon a sale or other disposition of a
partnership property, even though such new limited partner would not have
received any benefit from such prior allocation of deductions.
103
<PAGE>
SUBSTANTIALITY
Even if the allocations of profits and losses of a partnership are deemed
to have economic effect under the Section 704(b) Regulations, however, an
allocation will not be upheld unless the economic effect of such allocation is
"substantial." In this regard, the Section 704(b) Regulations generally provide
that the economic effect of an allocation is "substantial" if there is a
reasonable possibility that the allocation will affect the dollar amounts to be
received by partners from a partnership, independent of tax consequences.
Conversely, the economic effect of an allocation is presumed not to be
substantial if there is a strong likelihood that the net adjustments to the
partner's capital account for any taxable year will not differ substantially
from the net adjustments which would have been made for such year in the absence
of such allocation and the total tax liability of the partners for such year is
less than it would have been in the absence of such allocations. The economic
effect will also be presumed not to be substantial where:
. the partnership agreement provides for the possibility that the
allocation will be largely offset by one or more other allocations;
. the net adjustments to the partners' capital accounts for the taxable
years to which the allocations relate will not differ substantially
from the net adjustments which would have been recorded in such
partners' respective capital accounts for such years if the original
allocations and the offsetting allocations were not contained in the
partnership agreement; and
. the total tax liability of the partners for such year is less than it
would have been in the absence of such allocations.
With respect to the foregoing rule, the Section 704(b) Regulations state that
original allocations and offsetting allocations will not be deemed to not be
substantial if, at the time the allocations become part of the partnership
agreement, there is a strong likelihood that the offsetting allocations will
not, in large part, be made within five years after the original allocations are
made. The Section 704(b) Regulations further state that for purposes of testing
substantiality, the adjusted tax basis of partnership property will be presumed
to be the fair market value of such property, and adjustments to the adjusted
tax basis of partnership property such as depreciation or cost recovery
deductions will be presumed to be matched by corresponding changes in the
property's fair market value.
There are no assurances that the IRS will not challenge the special
allocation of partnership deductions for depreciation, amortization and cost
recovery to limited partners electing Tax Preferred Units or other allocations
set forth in the Partnership Agreement on the basis that such allocations are
either "not substantial," within the meaning of the Section 704(b) Regulations,
or otherwise fail to comply with the Section 704(b) Regulations.
PARTNER'S INTEREST IN THE PARTNERSHIP
If the allocations of profits and losses set forth in a partnership
agreement are deemed not to have substantial economic effect, the allocations
are then to be made in accordance with the partners' interests in the
partnership as determined by taking into account all facts and circumstances.
The Section 704(b) Regulations provide in this regard that a partner's interest
in a partnership will be
104
<PAGE>
determined by taking into account all facts and circumstances relating to the
economic arrangement of the partners, including:
. the partners' relative contributions to the partnership;
. the interests of the partners in economic profits and losses (if
different from those in taxable income or loss);
. the interests of the partners in cash flow and other nonliquidating
distributions; and
. the rights of the partners to distributions of capital upon
liquidation.
Since the Partnership Agreement (1) provides for the determination and
maintenance of capital accounts in accordance with the Section 704(b)
Regulations, (2) provides that liquidation proceeds will be distributed to the
partners in accordance with capital accounts, (3) contains a qualified income
offset provision, and (4) shifts the economic risk of loss to the limited
partners electing Tax Preferred Units, Counsel has concluded that it is more
likely than not that partnership items of income, gain, loss, deduction and
credit will be allocated among the general partners and the limited partners
substantially in accordance with the allocation provisions of the Partnership
Agreement. In reaching this conclusion, Counsel has made the following
assumptions:
. that allocations of deductions for depreciation, amortization and cost
recovery to such limited partners will be matched by corresponding
reductions in the fair market value of the partnership's property; and
. the accuracy of the representations of the general partners, including
that the partnership will be operated strictly in accordance with the
terms of the Partnership Agreement.
TAXABLE INCOME WITHOUT CASH DISTRIBUTIONS
A partner in a partnership is required to report his allocable share of the
partnership's taxable income on his personal income tax return regardless of
whether or not he has received any cash distributions from the partnership. For
example, a limited partner electing Cash Preferred Units who participates in the
distribution reinvestment plan will be allocated his share of the partnership's
net income and gain on sale, including net income and gain on sale allocable to
units acquired pursuant to the distribution reinvestment plan, even though such
partner would receive no cash distributions from the partnership. In addition,
a limited partner electing Cash Preferred Units who purchases units pursuant to
the deferred commission option will be allocated his share of the partnership's
net income with respect to such units even though net cash from operations
otherwise distributable to such limited partner will instead be paid to third
parties to satisfy the deferred commission obligations with respect to such
units for a period of six years after the termination of the offering. (See
"Plan of Distribution.") The Partnership Agreement also provides for a
"qualified income offset," as described above, which could result in the
allocation of income or gain to a limited partner in the absence of cash
distributions from the partnership. There are no assurances that a limited
partner will not be allocated items of partnership income or gain in an amount
which gives rise to an income tax liability in excess of cash, if any, received
from the partnership for the tax year in question, and investors are urged to
consult with their personal tax advisors in this regard.
105
<PAGE>
INVESTMENT BY QUALIFIED PLANS AND OTHER TAX-EXEMPT ENTITIES
UNRELATED BUSINESS TAXABLE INCOME ("UBTI")
Any person who is a fiduciary of an IRA, Keogh Plan, qualified plan or
other tax-exempt entity (collectively referred to as "Exempt Organizations")
considering an investment in the units should be aware that there is a risk that
income allocable to units owned by Exempt Organizations may be subject to
federal income tax. This would occur in the event any portion of the
partnership's income is deemed to be UBTI, generally defined as income derived
from any unrelated trade or business carried on by a tax-exempt entity or by a
partnership of which it is a member. A trustee of a charitable remainder trust
should be aware that if any portion of the income derived from the trust's
ownership of units is deemed to be UBTI, the trust will lose its exemption from
income taxation with respect to all of its income for the tax year in question.
(See "Investment by Charitable Remainder Trusts" below.) A tax-exempt limited
partner other than a charitable remainder trust which has UBTI in any tax year
from all sources of more than $1,000 will be subject to taxation on such income.
The general partners have used their best efforts to structure the
partnership's activities to avoid having any of the partnership's income
characterized as UBTI, and the types of partnership income and gain allocable to
investing Exempt Organizations should not generally constitute UBTI. If,
however, the partnership were either to be deemed to hold partnership properties
primarily for sale to customers in the ordinary course of business (See
"Property Held Primarily for Sale" below), or the partnership were to own "debt-
financed property," i.e., property which is subject to "acquisition
----
indebtedness," then a portion of such income or gain would constitute UBTI to
investing Exempt Organizations.
The portion of income or gain from "debt-financed property" that will
constitute UBTI to investing Exempt Organizations is based on the ratio borne by
the "average acquisition indebtedness" incurred with respect to such property to
the basis of the property. In computing this ratio, "average acquisition
indebtedness" means the highest amount of the acquisition indebtedness with
respect to such property during the 12 month period ending on the date of sale
and, in determining the portion of income which is UBTI from sources other than
a sale, "average acquisition indebtedness" means the average monthly level of
acquisition indebtedness during the taxable year for the year in which such
income was recognized.
Acquisition indebtedness includes:
. indebtedness incurred in acquiring or improving property;
. indebtedness incurred before the acquisition or improvement of
property if such indebtedness would not have been incurred but for
such acquisition or improvement; and
. indebtedness incurred after the acquisition or improvement of property
if such indebtedness would not have been incurred but for such
acquisition or improvement and the incurrence of such indebtedness was
reasonably foreseeable at the time of such acquisition or improvement.
106
<PAGE>
The partnership will under no circumstances incur indebtedness to acquire
partnership properties. Thereafter, the partnership's authority to incur
indebtedness may be exercised only in limited circumstances. Specifically, the
general partners have the authority to incur indebtedness on behalf of the
partnership only in the event that they deem such borrowing necessary to finance
improvements of its properties, to protect the capital previously invested in a
property, to protect the value of the partnership's investment in a property or
to make a property more attractive for sale or lease. (See "Investment
Objectives and Criteria - Borrowing Policies.") The general partners have
represented, however, that they will not cause the partnership to incur
indebtedness unless the partnership first receives an opinion of counsel or an
opinion from its tax accountants that the proposed indebtedness more likely than
not will not cause income of the partnership to be characterized as UBTI to
investing Exempt Organizations. Investors should be aware, however, that any
such opinion would be based upon various representations and assumptions, and
would have no binding effect on the IRS or any court. Accordingly, no assurance
can be given that the conclusions reached in any such opinion, if contested,
would be sustained by a court, or that any such indebtedness to be obtained by
the partnership in the future would not cause the income allocated to limited
partners that are Exempt Organizations to be taxed as UBTI.
MINIMUM DISTRIBUTION REQUIREMENTS
Any person who is a fiduciary of an Exempt Organization considering an
investment in units should also consider the impact of minimum distribution
requirements under the Code. Section 401(a)(9) of the Code provides generally
that certain minimum distributions from retirement plans must be made commencing
no later than the April 1st following the calendar year during which the
recipient attains age 70?. Accordingly, if units are held by retirement plans,
and partnership properties have not yet been sold, at such time as mandatory
distributions are required to commence to an IRA beneficiary or a qualified plan
participant, it is likely that a distribution in kind of the units will be
required to be made. A distribution of units will be includable in the taxable
income of said IRA beneficiary or qualified plan participant for the year in
which the units are received at the fair market value of the units without any
corresponding cash distributions with which to pay the income tax liability
arising out of any such distribution.
In certain circumstances, a distribution in kind of units may be deferred
beyond the date set for required distributions, but only upon a showing of
compliance with the minimum distribution requirements of the Code by reason of
distributions from other retirement plans established for the benefit of the
recipient. Compliance with these requirements is complex, however, and
potential investors are urged to consult with and rely upon their individual tax
advisors with regard to all matters concerning the tax effects of distributions
from retirement plans. No assurances can be given that partnership properties
will be sold or otherwise disposed of in a fashion which would permit sufficient
liquidity in any retirement plan holding units for the retirement plan to be
able to avoid making a mandatory distribution in kind of units. ("See "Risk
Factors.")
INVESTMENT BY CHARITABLE REMAINDER TRUSTS
A charitable remainder trust ("CRT") is a trust created to provide income
for the benefit of at least one non-charitable beneficiary for life or a term of
up to 20 years, with the property comprising the trust corpus then transferred
to a charitable beneficiary upon the expiration of the trust. Upon the creation
of a CRT, the grantor would normally be entitled to a charitable income tax
deduction equal to the current fair market value of the remainder interest which
will ultimately pass to charity. A
107
<PAGE>
CRT is also exempt from federal income taxation if the trust is established and
maintained in compliance with highly complex rules contained in the Code and
underlying Treasury Regulations. Among these rules is a provision that if any
portion of the income recognized by a CRT is deemed to be UBTI, all of the CRT's
income for the taxable year in which UBTI is incurred, from whatever sources
derived, will be subject to income taxation at the trust level. As set forth
above in "Investment by Qualified Plans and Other Tax-Exempt Entities," the
general partners have used their best efforts to structure the partnership's
activities to avoid having any of the partnership's income characterized as
UBTI. Accordingly, unless the partnership incurs indebtedness for the purpose of
acquiring or improving real properties, and hence is deemed to be holding
property subject to "acquisition indebtedness," or is deemed to hold its
properties primarily for sale to customers in the ordinary course of business,
under current law the partnership's income should not be deemed to constitute
UBTI to tax-exempt investors. (See "Investment by Qualified Plans and Other Tax-
Exempt Entities" above.)
SYNDICATION AND ORGANIZATIONAL EXPENSES
A current deduction is not allowed for expenses incurred in connection with
organizing the partnership or syndicating the partnership. Amounts which
qualify as organizational expenses, as well as other start-up expenditures, may,
however, if so elected, be amortized ratably over 60 months. Syndication
expenses, which are neither deductible nor amortizable, include costs and
expenses incurred in connection with promoting and marketing the units such as
sales commissions, professional fees and printing costs. There are no assurances
that the IRS will not attempt to recharacterize as nondeductible syndication
expenses certain costs and expenses which the general partners intend to cause
the partnership to amortize over 60 months.
ACTIVITIES NOT ENGAGED IN FOR PROFIT
Section 183 of the Code limits deductions attributable to activities "not
engaged in for profit." The term "not engaged in for profit" describes any
activity other than an activity that constitutes a trade or business or an
activity that is engaged in for the production or collection of income. In
general, an activity will be considered as entered into for profit where there
is a reasonable expectation of profit in the future. The determination of
whether an activity is engaged in for profit is based upon the facts and
circumstances of each case.
Based upon the following factors, Counsel has concluded that it is more
likely than not that the activities contemplated by the partnership will be
considered activities entered into for profit by the partnership:
. the investment objectives of the partnership;
. the representations of the general partners that the partnership will
be operated in a business-like manner in all material respects and
strictly in accordance with the Partnership Agreement and this
prospectus; and
. assuming the determination as to whether the activities of the
partnership are activities entered into for profit under Section 183
is made at the partnership level.
108
<PAGE>
Notwithstanding any determination made with respect to the partnership in this
regard, however, the IRS may apply Section 183 to limited partners,
individually, and since the determination of whether an activity is deemed to be
engaged in for profit is based upon facts and circumstances that exist from time
to time, no assurance can be given that Section 183 of the Code may not be
applied in the future at the partner level to limit deductions allocable to
limited partners from partnership operations. Counsel in the Tax Opinion gives
no opinion as to the application of Section 183 of the Code at the partner
level. Accordingly, prospective investors should consult with their own tax
advisors regarding the impact of Section 183 on their particular situations.
TAXATION OF REAL ESTATE OPERATIONS
CHARACTERIZATION OF LEASES
The partnership has the authority to purchase properties and lease them
back to the sellers of such properties pursuant to "sale-leaseback" transactions
as described in "Investment Objectives and Criteria." The tax benefits
described herein associated with ownership of a property, such as depreciation
or cost recovery deductions, depend on having the lease in any such leaseback
transaction treated as a "true lease," under which the partnership is treated as
the owner of the property for federal income tax purposes, rather than having
such transaction treated as a conditional sale of the property or a financing
transaction entered into with the seller of such property.
The general partners will use their best efforts to structure any such
sale-leaseback transaction to insure that the lease will be characterized as a
"true lease" and the partnership will be treated as the owner of the property in
question for federal income tax purposes. The partnership will not seek an
advance ruling from the IRS or obtain an opinion of counsel that it will be
treated as the owner of any leased properties for federal income tax purposes,
however, and a determination by the IRS that the partnership is not the owner of
leased properties could result in substantial adverse tax consequences.
Investors electing Tax Preferred Units would be deprived of deductions for
depreciation and cost recovery in such case. In addition, if a sale-leaseback
transaction were to be recharacterized as a financing for federal income tax
purposes, any partnership income derived from such leaseback would be treated as
interest which is portfolio income, rather than passive activity income which
may be offset by passive activity losses generated by the partnership or from
investments in other passive activities. (See "Passive Loss Limitations"
above.)
DEPRECIATION AND COST RECOVERY
It is currently anticipated that the real property improvements acquired or
constructed by the partnership and any personal property acquired by the
partnership will be depreciated for tax purposes using the Alternative
Depreciation System set forth in Section 168 of the Code for partnerships such
as the partnership having both taxable and tax-exempt partners; i.e., real
property improvements will be depreciated on a straight-line basis over a
recovery period of 40 years, and personal property acquired by the partnership
will be depreciated over a recovery period of 12 years on a straight-line basis.
PROPERTY HELD PRIMARILY FOR SALE
The partnership has been organized for the purpose of acquiring and
developing real estate for investment and rental purposes. If the partnership
were at any time deemed for tax purposes to be
109
<PAGE>
a "dealer" in real property, defined as one who holds real estate primarily for
sale to customers in the ordinary course of business, however, any gain
recognized upon a sale of such real property would be taxable as ordinary
income, rather than as capital gain, and would constitute UBTI to limited
partners which are Exempt Organizations.
Under existing law, whether property is held primarily for sale to
customers in the ordinary course of business must be determined from all the
facts and circumstances surrounding the particular property and sale in
question. The partnership intends to acquire real estate and construct
improvements thereon for investment and rental only and to engage in the
business of owning and operating such improvements. The partnership will sell
such property only as, in the opinion of the general partners, is consistent
with the partnership's investment objectives. Accordingly, the general partners
do not anticipate that the partnership will be treated as a dealer with respect
to any of its properties. However, there is no assurance that the IRS will not
take a contrary position. Because the issue is dependent upon facts which will
not be known until the time a property is sold or held for sale, and due to the
lack of directly applicable judicial authority in this area, Counsel is unable
to render an opinion as to whether the partnership will be considered to hold
any or all of its properties primarily for sale to customers in the ordinary
course of business.
SALES OF PARTNERSHIP PROPERTIES
Upon the sale of a property, the partnership will recognize gain or loss to
the extent that the amount realized is more or less than the adjusted basis of
the partnership property sold. The amount realized upon the sale of a
partnership property will generally be equal to the sum of the cash received
plus the amount of indebtedness encumbering the property, if any, assumed by the
purchaser or to which the property remains subject upon the transfer of the
property to the purchaser. The adjusted basis of partnership property will in
general be equal to the original cost of the property less depreciation and cost
recovery allowances allowed to the partnership with respect to such property.
Assuming that the partnership is not deemed to be a dealer with respect to
its properties (See "Property Held Primarily for Sale" above), such gain or loss
will generally be taxable under Section 1231 of the Code. A limited partner's
share of the gains or losses resulting from the sale of partnership properties
would generally be combined with any other Section 1231 gains or losses realized
by the limited partner in that year from sources other than the partnership, and
the net Section 1231 gain or loss is generally treated as long-term capital gain
subject to depreciation or cost recovery allowance recapture, if any, or
ordinary loss, as the case may be. Investors should be aware that the amount of
taxable gain allocated to a limited partner with respect to the sale of a
partnership property may exceed the cash proceeds received by such limited
partner with respect to such sale. (See "Risk Factors.")
SALES OF LIMITED PARTNERSHIP UNITS
An investor may be unable to sell any of his units by reason of the
nonexistence of any market therefor. In the event that units are sold, however,
the selling investor will realize gain or loss equal to the difference between
the gross sale price or proceeds received from sale and the investor's adjusted
tax basis in his units. Assuming the investor is not a "dealer" with respect to
such units and has held the units for more than 12 months, his gain or loss will
be long-term capital gain or loss, except for that portion of any gain
attributable to such investor's share of the partnership's "unrealized
receivables" and "inventory items," as defined in Section 751 of the Code, which
portion
110
<PAGE>
would be taxable as ordinary income. Any recapture of cost recovery allowances
taken previously by the partnership with respect to personal property associated
with partnership real properties will be treated as "unrealized receivables" for
this purpose. Investors should note in this regard that Section 6050K of the
Code requires the partnership to report any sale of units to the IRS if any
portion of the gain realized upon such sale is attributable to the transferor's
share of the partnership's "Section 751 property."
DISSOLUTION AND LIQUIDATION OF THE PARTNERSHIP
A dissolution and liquidation of the partnership will involve the
distribution to the partners of the cash remaining after the sale of its assets,
if any, after payment of all the partnership's debts and liabilities. If an
investor receives cash in excess of the adjusted basis of his units, such excess
will be taxable as a gain. If an investor were to receive only cash, he would
recognize a loss to the extent, if any, that the adjusted basis of his units
exceeded the amount of cash received. No loss would be recognized if an
investor were to receive property other than money, unrealized receivables and
"inventory" as defined in Section 751 of the Code. There are a number of
exceptions to these general rules, including but not limited to, (1) the effect
of a special basis election under Section 732(d) of the Code for an investor who
may have acquired his partnership interest within the two years prior to the
dissolution, and (2) the effects of distributing one kind of property to some
partners and a different kind of property to others, as determined under Section
751(b) of the Code.
CAPITAL GAINS AND LOSSES
Ordinary income for individual taxpayers is currently taxed at a maximum
marginal rate of 39.6%. Capital gains, however, are taxed at a maximum marginal
rate of 20% i.e., for gains realized with respect to capital assets held for
----
more than 12 months. The Code also provides, however, that the portion of long-
term capital gain arising from the sale or exchange of depreciable real property
which constitutes depreciation recapture will be taxed at a maximum marginal
rate of 25%, rather than 20%. Capital losses may generally be used to offset
capital gains or may, in the absence of capital gains, be deductible against
ordinary income on a dollar-for-dollar basis up to a maximum annual deduction of
$3,000 ($1,500 in the case of a married individual filing a separate return).
ELECTION FOR BASIS ADJUSTMENTS
Under Section 754 of the Code, a partnership may elect to adjust the basis
of partnership property upon the transfer of an interest in the partnership so
that the transferee of a partnership interest will be treated, for purposes of
calculating depreciation and realizing gain, as though he had acquired a direct
interest in the partnership's assets. As a result of the complexities and added
expense of the tax accounting required to implement such an election, the
general partners do not intend to cause the partnership to make any such
election on behalf of the partnership. As a consequence, depreciation available
to a transferee of units will be limited to the transferor's share of the
remaining depreciable basis of properties, and upon a sale of a property,
taxable income or loss to the transferee of the units will be measured by the
difference between his share of the amount realized upon such sale and his share
of the partnership's tax basis in the property, which may result in greater tax
liability to him than if a Section 754 election had been made. The absence of
such an election by the partnership may result in investors having greater
difficulty in selling their units.
111
<PAGE>
ALTERNATIVE MINIMUM TAX
Alternative minimum tax is payable to the extent that a taxpayer's
alternative minimum tax liability exceeds his regular federal income tax
liability for the taxable year. Alternative minimum tax for individual
taxpayers is a percentage of "alternative minimum taxable income" ("AMTI") in
excess of certain exemption amounts. The first $175,000 of AMTI in excess of
the exemption amount is taxed currently at 26%, and AMTI in excess of $175,000
over the exemption amount is taxed currently at 28%. Alternative minimum
taxable income is generally computed by adding what are called "tax preference
items" to the taxpayer's regular taxable income, with certain adjustments.
While it is not anticipated that an investment in the partnership will give rise
to any specific tax preference items, the amount of alternative minimum tax
imposed depends upon various factors unique to each particular taxpayer.
Accordingly, each investor should consult with his own personal tax advisor
regarding the possible application of the alternative minimum tax.
PENALTIES
Under Section 6662 of the Code, a 20% penalty is imposed on any portion of
an underpayment of tax attributable to a "substantial understatement of income
tax." In general, a "substantial understatement of income tax" will exist if
the actual income tax liability of the taxpayer exceeds the income tax liability
shown on his return by the greater of 10% of the actual income tax liability or
$5,000. Unless the understatement is attributable to a "tax shelter," the
amount of an understatement is reduced by any portion of such understatement
which is attributable to (1) the income tax treatment of any item shown on the
return if there is "substantial authority" for the taxpayer's treatment of such
item on his return or (2) any item with respect to which the taxpayer (a)
adequately discloses on his return the relevant facts affecting the item's
income tax treatment, and (b) there is a reasonable basis for the item's tax
treatment by the taxpayer. In the case of a "tax shelter," which is defined to
be, inter alia, a partnership or other entity that has as "a significant
purpose" the avoidance or evasion of federal income tax, this reduction in the
understatement only will apply in cases where, in addition to having
"substantial authority" for treatment of the item in question, the taxpayer
reasonably believed that the income tax treatment of that item was more likely
than not the proper treatment.
Based on the investment objectives of the partnership, the general partners
believe there are substantial grounds for a determination that the partnership
does not constitute a tax shelter; however, it is possible that the partnership
may be considered a tax shelter for purposes of Section 6662 of the Code and
that certain partnership tax items could be considered tax shelter items within
the meaning of Section 6662. Because the issue is dependent upon facts relating
to future partnership operations and other factual determinations which are not
known at this time, and because of the current lack of administrative and
judicial guidance as to what constitutes a "significant purpose," the
interpretation of which term is uncertain, Counsel is unable to render an
opinion as to whether an investment in the partnership will be considered a tax
shelter for purposes of Section 6662 of the Code.
In addition to the substantial understatement penalty, described above,
Section 6662 of the Code also imposes a 20% penalty on any portion of an
underpayment of tax attributable to (1) any substantial valuation misstatement,
generally where the value or adjusted basis of a property claimed on a return is
200% or more of the correct value or adjusted basis, or (2)negligence, defined
as any failure to make a reasonable attempt to comply with the Code, or a
careless, reckless or intentional disregard of federal income tax rules or
regulations.
112
<PAGE>
TAX SHELTER REGISTRATION
Any entity deemed to be a "tax shelter," as defined in Section 6111 of the
Code, is required to register with the IRS. Regulations issued under Section
6111 define a "tax shelter" as an investment in connection with which an
investor can reasonably infer from the representations made that the "tax
shelter ratio" may be greater than 2 to 1 as of the close of any of the first
five years ending after the date in which the investment is offered for sale.
The "tax shelter ratio" is generally determined by dividing the investor's share
of the aggregate deductions derived from the investment, determined without
regard to income, by the amount of the investor's capital contributions.
The partnership is not intended to constitute a "tax shelter," as so
defined. Further, the general partners have represented that, in the absence of
events which are unlikely to occur, the aggregate amount of deductions derived
from any limited partner's investment in the partnership, determined without
regard to income, will not exceed twice the amount of any such limited partner's
investment in the partnership as of the close of any year in the partnership's
first five calendar years.
Based upon the authority of the Regulations issued under Section 6111 and
the above-described representations of the general partners, Counsel has
concluded that it is more likely than not the partnership is not currently
required to register as a tax shelter with the IRS under Section 6111 of the
Code prior to the offer and sale of the units.
TAX RETURN, TAX INFORMATION AND AUDITS
The partnership will furnish annually to the limited partners, but not to
assignees of limited partners unless they become substitute limited partners,
sufficient information from the partnership's tax return for the limited
partners to prepare their own federal, state and local tax returns. An audit of
the partnership may result in adjustments to the tax return of the partnership
which would require adjustment to each limited partner's personal tax return.
The partners of a partnership either must report partnership items on their
returns consistently with treatment on the partnership information return or
must file statements on Form 8082 with their returns identifying and explaining
the inconsistency. Otherwise, the IRS may treat such inconsistency as a
computational error, recompute and assess the tax without the usual procedural
protection applicable to federal income tax deficiency proceedings, and impose
penalties for negligent or intentional failure to pay tax.
The IRS has undertaken an intensified audit program with respect to
partnerships and partnership returns. While an audit of the partnership should
generally not affect units which are being treated as Cash Preferred Units,
prospective investors intending to elect Tax Preferred Units should be aware
that deductions which are claimed on the partnership's return may be challenged
and disallowed by the IRS. Any such disallowance may deprive investors holding
units treated as Tax Preferred Units of some or all of the tax benefits
incidental to an investment in the partnership.
In the event of an audit of the partnership's tax return, the general
partners will take primary responsibility for contesting federal income tax
adjustments proposed by the IRS. The general partners may extend the statute of
limitations as to all partners and, in certain circumstances, bind the limited
partners to such adjustments. Although the general partners will attempt to
inform each limited partner of the commencement and disposition of any such
audit or subsequent proceedings, limited partners should be aware that their
participation in administrative or judicial proceedings relating to partnership
items will be substantially restricted. An audit of the partnership could
result
113
<PAGE>
in substantial legal and accounting fees required to be paid to substantiate the
reporting positions taken, and any such fees would reduce the cash otherwise
available for distribution to the limited partners. Any such audit may result in
adjustments to the tax returns of the partnership which would require
adjustments to each limited partner's personal income tax return and may require
such limited partners to pay additional taxes plus interest, compounded daily.
In addition, any audit of a limited partner's return could result in adjustments
of other items of income and deductions not related to the partnership.
It should also be noted that in the event the general partners cause the
partnership to elect to be treated as an "Electing Large Partnership" under
Section 6240 of the Code, thereby enabling the partnership to take advantage of
simplified flow-through reporting of partnership items, any adjustments to the
tax returns of the partnership would be accounted for in the year such
adjustments take effect, rather than the tax year to which such adjustments
relate. Further, the general partners will have the discretion in such
circumstances either to pass along adjustments to the partners, or to cause such
adjustments to be borne at the partnership level, which could reduce the cash
otherwise available for distribution to limited partners. Any penalties and
interest could also be borne at the partnership level. To the extent that
elections to change the status of units are made between the years in which a
tax benefit is claimed and an adjustment is made, holders of a particular class
of units may suffer a disproportionate adverse impact with respect to any such
adjustment. Potential investors are urged to consult their own tax advisors
with regard to the effect of simplified pass-through reporting and the changes
to partnership audit procedures in effect as a consequence thereof.
FOREIGN INVESTORS AS LIMITED PARTNERS
Foreign investors may purchase units in the partnership. A foreign
investor who purchases units and becomes a limited partner in the partnership
will generally be required to file a United States tax return on which he must
report his distributive share of the partnership's items of income, gain, loss,
deduction and credit. A foreign investor must pay United States federal income
tax at regular United States tax rates on his share of any net income, whether
ordinary or capital gains. A foreign investor may also be subject to tax on his
distributive share of the partnership's income and gain in his country of
nationality or residence or elsewhere. In addition, distributions of net cash
from operations or proceeds from the sale of properties otherwise payable to a
foreign investor from the partnership or amounts payable upon the sale of a
foreign investor's units may be reduced by United States tax withholdings made
pursuant to applicable provisions of the Code.
Foreign investors should consult their own tax advisors with regard to the
effect of both the United States tax laws and foreign laws on an investment in
the partnership and the potential that the partnership will be required to
withhold federal income taxes from amounts otherwise payable to foreign
investors.
TAX LEGISLATION AND REGULATORY PROPOSALS
Significant tax legislation was enacted in both 1997 and 1998 containing
provisions which altered the federal income tax laws relating to an investment
in partnerships such as the partnership. In addition, legislative proposals
continue to be made which could also significantly change the federal income tax
laws as they relate to an investment in the partnership. It is impossible at
this time, however, to predict whether or in what form any such legislation will
be enacted. Further, the interpretation of changes made by the 1997 and 1998
legislation is uncertain at this time. Each
114
<PAGE>
prospective investor is urged to consult his own tax advisor with respect to his
own tax situation, the effect of any legislative, regulatory or administrative
developments or proposals on an investment in units in the partnership, or other
potential changes in applicable tax laws.
STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above, prospective
investors should consider potential state and local tax consequences of an
investment in the partnership. This prospectus makes no attempt to summarize
the state and local tax consequences to an investor in those states in which the
partnership may own properties or carry on activities. Each investor is urged
to consult his own tax advisor on all matters relating to state and local
taxation, including the following:
. whether the state in which he resides will impose a tax upon his share
of the taxable income of the partnership;
. whether an income tax or other return must also be filed in those
states where the partnership will own properties; and
. whether he will be subject to state income tax withholding in states
where the partnership will own properties.
Because the partnership will conduct its activities and own properties in
different taxing jurisdictions, an investment in the partnership may impose upon
a limited partner the obligation to file annual tax returns in a number of
different states or localities, as well as the obligation to pay taxes to a
number of different states or localities. Additional costs incurred in having
to prepare various state and local tax returns, as well as the additional state
and local tax which may be payable, should be considered by prospective
investors in deciding whether to make an investment in the partnership.
Many states have implemented or are in the process of implementing programs
to require partnerships to withhold and pay state income taxes owed by non-
resident partners relating to income-producing properties located in their
states. For example, all partnerships which own property or do business within
the State of Georgia are subject to a withholding tax in the amount of 4% of
distributions paid to non-resident partners who are to receive annual
distributions of $1,000 or more. The Georgia withholding requirements apply to
all cash distributions except distributions constituting a return of capital and
may have the effect of reducing the amount of cash which the partnership would
otherwise be able to distribute to non-resident limited partners. In addition,
the States of California, Colorado and North Carolina have required certain of
the public real estate programs previously sponsored by the general partners to
withhold and pay state taxes relating to income-producing properties located in
those states. In the event that the partnership is required to withhold state
taxes from cash distributions otherwise payable to limited partners, the amount
of the net cash from operations otherwise payable to such limited partners would
likely be reduced. In addition, such collection and filing requirements at the
state level may result in increases in the partnership's administrative expenses
which would likely have the effect of reducing returns to the limited partners.
(See "Risk Factors.")
Each prospective purchaser of units is urged to consult with his own tax
advisor with respect to the impact of applicable state and local taxes on his
proposed investment in the partnership.
115
<PAGE>
REPORTS TO INVESTORS
Within 75 days after the end of each fiscal year of the partnership, the
general partners will deliver to each investor and any assignee such information
as is necessary for the preparation of his federal income tax return and state
income or other tax returns with regard to jurisdictions in which partnership
properties are located. Within 120 days after the end of the partnership's
fiscal year, the general partners will deliver to each investor and any assignee
an annual report which includes financial statements of the partnership, audited
by independent certified public accountants and prepared in accordance with
generally accepted accounting principles. Such financial statements will
include a profit and loss statement, a balance sheet of the partnership, a cash
flow statement and a statement of changes in partners' capital. The notes to
the annual financial statements will contain a detailed reconciliation of the
partnership's net income for financial reporting purposes to net income for tax
purposes for the periods covered by the report. The annual report for each year
will report on the partnership's activities for that year, identify the source
of partnership distributions, set forth the compensation paid to the general
partners and their affiliates and a statement of the services performed in
consideration therefor, provide a category-by-category breakdown of the general
and administrative expenses incurred, including a breakdown of all costs
reimbursed to the general partners and their affiliates in accordance with
Section 11.4(b) of the partnership, and contain such other information as is
deemed reasonably necessary by the general partners to advise the investors of
the affairs of the partnership.
For as long as the partnership is required to file quarterly reports on
Form 10-Q with the Securities and Exchange Commission, financial information
substantially similar to the financial information contained in each such report
shall be sent to the investors within 60 days after the end of such quarter.
Whether or not such reports are required to be filed, each investor will be
furnished, within 60 days after the end of each of the first three quarters of
the partnership's fiscal year, an unaudited financial report for that period
including a profit and loss statement, a balance sheet and a cash flow
statement. The foregoing reports for any period in which fees are paid to the
general partners or their affiliates for services shall set forth the fees paid
and the services rendered. In addition, until all of the net proceeds from the
offering are expended or committed (or used to establish a working capital
reserve) or returned to the partners, each investor shall be furnished, at least
quarterly within 60 days after the end of each quarter during which the
partnership has acquired real property, an acquisition report describing the
properties acquired since the prior special report and including a description
of locations and of the market upon which the general partners are relying in
projecting successful operation of the properties. The acquisition report shall
include:
. a description of the present or proposed use of the property and its
suitability or adequacy for such use and the terms of any material
lease affecting the property;
. a statement of the appraised value, purchase price, terms of purchase,
all costs related to the acquisition, and an estimate of all proposed
subsequent expenditures for development or other improvements of the
property;
. a statement that title insurance and any required performance bonds or
other assurances in accordance with Section 11.3(k) of the Partnership
Agreement with respect to builders have been or will be obtained on
the property; and
116
<PAGE>
. a statement regarding the amount of proceeds in both dollar amount and
as a percentage of the total amount of the offering held by the
partnership which remain unexpended or uncommitted.
In addition, the acquisition report will identify any real property which the
general partners presently intend to be acquired by or leased to the
partnership, providing its location and a description of its general character.
The appraisal received by the partnership at the time of each acquisition
of property shall be maintained in its records for at least five years
thereafter and, during such time, shall be made available to the investors for
inspection and duplication at reasonable times.
The partnership will distribute annually to investors a report on the
estimated value of each unit in the next annual or quarterly report on Form 10-K
or Form 10-Q sent to investors following the valuation process. Such estimated
value will be based upon annual appraisals of partnership properties performed
by the general partners and not by an independent appraiser. The general
partners are, however, required under the partnership to obtain the opinion of
an independent third party that their estimate of the value of each unit is
reasonable and was prepared in accordance with appropriate methods for valuing
real estate. For the first three full fiscal years following the year in which
the offering of units terminates, the value of the units will be deemed to be
their initial purchase price of $10.00, and no valuation of partnership
properties will be performed. (See "Investment by Tax-Exempt Entities and ERISA
Considerations - Annual Valuation.")
In addition, upon request from any prospective investor or limited partner,
the partnership will provide without charge a copy of the NASAA Guidelines.
PLAN OF DISTRIBUTION
A minimum of 125,000 units and a maximum of 3,500,000 units are being
offered to the public through Wells Investment Securities, Inc. (the "Dealer
Manager"), a registered broker-dealer affiliated with the general partners.
(See "Conflicts of Interest" and "Management.") The units are being offered at
a price of $10.00 per unit on a "best efforts" basis, which means generally that
the Dealer Manager will be required to use only its best efforts to sell the
units and it has no firm commitment or obligation to purchase any of the units.
Except as provided below, the Dealer Manager will receive selling
commissions of 7% of the gross offering proceeds. The Dealer Manager will also
receive 2.5% of the gross offering proceeds in the form of a dealer manager fee
as compensation for acting as the Dealer Manager and for expenses incurred in
connection with coordinating sales efforts, training of personnel and generally
performing "wholesaling" functions. In addition, the partnership may reimburse
the expenses incurred by nonaffiliated dealers for actual due diligence purposes
in the maximum amount of .5% of the gross offering proceeds. The partnership
will not pay referral or similar fees to any accountants, attorneys or other
persons in connection with the distribution of the units. Investors who elect
to participate in the distribution reinvestment plan will be charged selling
commissions and dealer manager fees on units purchased pursuant to the
distribution reinvestment plan on the same basis as investors purchasing units
other than pursuant to the distribution reinvestment plan. Units issued by
117
<PAGE>
the partnership under the distribution reinvestment plan will be available only
until the termination of the offering, as described above.
The Dealer Manager may authorize certain other broker-dealers who are
members of the NASD to sell units. In the event of the sale of units by such
other broker-dealers, the Dealer Manager may reallow its commissions in the
amount of up to 7% of the gross offering proceeds to such participating broker-
dealers. In addition, the Dealer Manager, in its sole discretion, may reallow
to broker-dealers participating in the offering a portion of its dealer manager
fee in the aggregate amount of up to 1.5% of gross offering proceeds to be paid
to such participating broker-dealer as a marketing fee, based on such factors as
the number of units sold by such participating broker-dealer, the assistance of
such participating broker-dealer in marketing the offering and bona fide
conference fees incurred.
In accordance with the Rules of Fair Practice of the National Association
of Securities Dealers, Inc., the total underwriting compensation, including
sales commissions, the dealer manager fee and underwriting expense
reimbursements, may not exceed 10% of gross offering proceeds, except for the
additional .5% of gross offering proceeds which may be paid by the partnership
in connection with due diligence activities.
The general partners have agreed to indemnify the participating broker-
dealers, including the Dealer Manager, against certain liabilities arising under
the Securities Act of 1933, as amended.
The broker-dealers are not obligated to obtain any subscriptions, and there
is no assurance that any units will be sold.
The general partners may at their option purchase units offered hereby at
the public offering price, in which case they would expect to hold such units as
limited partners for investment and not for distribution. Units purchased by
the general partners or their affiliates shall not be entitled to vote on any
matter presented to the limited partners for a vote. No selling commissions
will be payable by the partnership in connection with any units purchased by the
general partners. (See "Risk Factors.")
Payment for units should be made by check payable to "NationsBank, N.A., as
Escrow Agent." Subscriptions will be effective only upon acceptance by the
general partners, and the general partners reserve the right to reject any
subscription in whole or in part. In no event may a subscription for units be
accepted until at least five business days after the date the subscriber
receives this prospectus. Each subscriber will receive a confirmation of the
investor's purchase. Except for purchases pursuant to the distribution
reinvestment plan sponsored by the partnership or reinvestment plans of other
public real estate programs, all accepted subscriptions will be for whole units
and for not less than 100 units ($1,000). (See "Suitability Standards.")
Except in Maine, Minnesota, Nebraska and Washington, investors who have
satisfied the minimum purchase requirement and have purchased units in Wells
Programs or units or shares in other public real estate programs may purchase
less than the minimum number of units discussed above, provided that such
investors purchase a minimum of 2.5 units ($25). After investors have satisfied
the minimum purchase requirement, minimum additional purchases must be in
increments of at least 2.5 units ($25), except for purchases made pursuant to
the distribution reinvestment plan or reinvestment plans of other public real
estate programs.
118
<PAGE>
Subscription proceeds will be placed in an interest-bearing account with
NationsBank, N.A., Atlanta, Georgia (the "Escrow Agent") until such
subscriptions aggregating at least $1,250,000 exclusive of any subscriptions for
units by the general partners or their affiliates have been received and
accepted by the general partners (the "minimum offering"). Any units purchased
by the general partners or their affiliates will not be counted in calculating
the minimum offering. Subscription proceeds held in the escrow account will be
invested in obligations of, or obligations guaranteed by, the United States
government or bank money-market accounts or certificates of deposit of national
or state banks that have deposits insured by the Federal Deposit Insurance
Corporation, including certificates of deposit of any bank acting as depository
or custodian for any such funds, as directed by the general partners. During
the period in which subscription proceeds are held in escrow, interest earned
thereon will be allocated among subscribers on the basis of the respective
amounts of their subscriptions and the number of days that such amounts were on
deposit. Such interest net of escrow expenses will be paid to subscribers upon
the termination of the escrow period. Subscribers may not withdraw funds from
the escrow account.
Investors who desire to establish an IRA for purposes of investing in units
may do so by having Wells Advisors, Inc., a qualified non-bank IRA custodian
affiliated with the general partners, act as their IRA custodian. In the event
that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the
authority of Wells Advisors, Inc. will be limited to holding the units on behalf
of the beneficiary of the IRA and making distributions or reinvestments in units
solely at the discretion of the beneficiary of the IRA. Wells Advisors, Inc.
will not have the authority to vote any of the units held in an IRA except
strictly in accordance with the written instructions of the beneficiary of the
IRA. (See "Management.")
If the minimum offering of the partnership has not been received and
accepted by _____________, 1999, the escrow agent will promptly so notify the
partnership and this offering will be terminated. In such event, the escrow
agent is obligated to use its best efforts to obtain an executed IRS Form W-9
from each subscriber. No later than five business days after termination of the
offering, the escrow agent will refund and return all monies to subscribers and
any interest earned thereon after deducting escrow expenses except for investors
in Maine, Missouri, Ohio and Pennsylvania who will not have escrow expenses
deducted. In the event that a subscriber fails to remit an executed IRS Form W-
9 to the escrow agent prior to the date the escrow agent returns the
subscriber's funds, the escrow agent will be required to withhold from such
funds 31% of the earnings attributable to such subscriber in accordance with IRS
Regulations. Units purchased by the general partners will not be counted for
the purpose of achieving the minimum offering.
Initial subscribers may be admitted to the partnership and the payments
transferred from escrow to the partnership at any time after the partnership has
received and accepted the minimum offering, except that subscribers residing in
New York and Pennsylvania may not be admitted to the partnership until
subscriptions have been received and accepted for at least $2,500,000 from all
sources. The funds representing subscriptions for units from New York and
Pennsylvania residents will not be released from the escrow account until
subscriptions for at least $2,500,000 have been received from all sources.
Subscriptions from New York residents may not be included in determining whether
subscriptions for the minimum offering have been obtained. In addition, certain
other states may impose different requirements than those set forth herein. Any
such additional requirements will be set forth in a supplement to this
prospectus.
119
<PAGE>
The offering of units of Wells Real Estate Fund XII, L.P. will terminate
upon the earlier of (1) _________________, 2000, or (2) the date on which all
$35,000,000 in units of Wells Real Estate Fund XII, L.P. have been sold. The
offering of units of Wells Real Estate Fund XIII, L.P. will begin immediately
upon the termination of the offering of units of Wells Real Estate Fund XII,
L.P. and will continue until and terminate upon the earlier of (1)
_______________, 2001, or (2) the date on which all $35,0000,000 in units of
Wells Real Estate Fund XIII, L.P. have been sold; provided that if the offering
of units of Wells Real Estate Fund XIII, L.P. begins before _____________, 2000,
the general partners may elect to terminate the offering of Wells Real Estate
Fund XIII, L.P. after one year since a number of states may limit the offering
period of Wells Real Estate Fund XIII, L.P. to a maximum of one year.
The proceeds of this offering will be received and held in trust for the
benefit of purchasers of units and will be retained in trust after closing to be
used only for the purposes set forth in the "Estimated Use of Proceeds" section.
After the close of the minimum offering, subscriptions will be accepted or
rejected within 30 days of receipt by the partnership, and if rejected, all
funds shall be returned to subscribers within 10 business days. Investors whose
subscriptions are accepted will be deemed admitted as limited partners of the
partnership on the day on which their subscriptions are accepted.
The general partners may sell units to retirement plans of broker-dealers
participating in the offering, to broker-dealers in their individual capacities,
to IRAs and qualified plans of their registered representatives or to any one of
their registered representatives in their individual capacities for 93% of the
public offering price in consideration of the services rendered by such broker-
dealers and registered representatives in the offering. The net proceeds to the
partnership from such sales will be identical to the partnership's net proceeds
from other sales of units.
In connection with sales of 25,000 or more units ($250,000) to a
"purchaser" as defined below, investors may agree with their registered
representatives to reduce the amount of selling commissions payable to
participating broker-dealers. Such reduction will be credited to the purchaser
by reducing the total purchase price payable by such purchaser. The following
table illustrates the various discount levels:
<TABLE>
<CAPTION>
DOLLAR NET DEALER NET
VOLUME SALES COMMISSIONS PURCHASE MANAGER PROCEEDS TO
-----------------
OF UNITS PRICE FEE PARTNERSHIP
PURCHASED PERCENT PER UNIT PER UNIT PER UNIT PER UNIT
- --------- ------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C>
Under $250,000 7.0% $ 0.70 $ 10.00 $0.25 $9.05
$250,000-$499,999 6.0% $0.5936 $9.8936 $0.25 $9.05
$500,000-$749,999 5.0% $0.4895 $9.7895 $0.25 $9.05
$750,000-$999,999 3.0% $0.2876 $9.5876 $0.25 $9.05
$1,000,000-$1,999,999 1.0% $0.0939 $9.3939 $0.25 $9.05
Over $2,000,000 0.5% $0.0467 $9.3467 $0.25 $9.05
</TABLE>
For example, if an investor purchases 100,000 units in the partnership, he
could pay as little as $939,390 rather than $1,000,000 for the units, in which
event the commission on the sale of such units would be $9,390 ($0.0939 per
unit), and the partnership would receive net proceeds of $905,000 ($9.05 per
unit). The net proceeds to the partnership will not be affected by volume
120
<PAGE>
discounts. In addition, as stated above, the partnership may reimburse
nonaffiliated broker-dealers an additional amount of up to .5% of offering
proceeds for actual due diligence expenses incurred.
Because all investors will be deemed to have contributed the same amount
per unit to the partnership for purposes of tax allocations and distributions of
net cash from operations and sale proceeds, an investor qualifying for a volume
discount will receive a higher return on his investment in the partnership than
investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such units are purchased through the same broker-
dealer. The volume discount shall be prorated among the separate subscribers
considered to be a single "purchaser." Any request to combine more than one
subscription must be made in writing, and must set forth the basis for such
request. Any such request will be subject to verification by the general
partners that all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser" includes:
. an individual, his or her spouse and their children under the age of
21 who purchase the units for his, her or their own accounts;
. a corporation, partnership, association, joint-stock company, trust
fund or any organized group of persons, whether incorporated or not;
. an employees' trust, pension, profit sharing or other employee benefit
plan qualified under Section 401(a) of the Code; and
. all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to investors in
the partnership, the general partners may, in their sole discretion, waive the
"purchaser" requirements and aggregate subscriptions, including subscriptions to
public real estate programs previously sponsored by the general partners, as
part of a combined order for purposes of determining the number of units
purchased, provided that any aggregate group of subscriptions must be received
from the same broker-dealer, including the Dealer Manager. Any such reduction
in selling commission will be prorated among the separate subscribers except
that, in the case of purchases through the Dealer Manager, the Dealer Manager
may allocate such reduction among separate subscribers considered to be a single
"purchaser" as it deems appropriate. An investor may reduce the amount of his
purchase price to the net amount shown in the foregoing table, if applicable.
If such investor does not reduce the purchase price, the excess amount submitted
over the discounted purchase price shall be returned to the actual separate
subscribers for units. Except as provided in this paragraph, separate
subscriptions will not be cumulated, combined or aggregated.
In addition, in order to encourage purchases in amounts of 500,000 or more
units, a potential purchaser who proposes to purchase at least 500,000 units in
the partnership may agree with the general partners and the Dealer Manager to
have the acquisition and advisory fees payable to the general partners with
respect to the sale of such units reduced to 0.5%, to have the dealer manager
fee payable to the Dealer Manager with respect to the sale of such units reduced
to 0.5%, and to have
121
<PAGE>
the selling commissions payable with respect to the sale of such units reduced
to 0.5%, in which event the aggregate fees payable with respect to the sale of
such units would be reduced by $1.10 per unit, and the purchaser of such units
would be required to pay a total of $8.90 per unit purchased, rather than $10.00
per unit. The net proceeds to the partnership would not be affected by such fee
reductions. Of the $8.90 paid per unit, it is anticipated that approximately
$8.40 per unit or approximately 94.4% will be used to acquire partnership
properties and pay required acquisition expenses relating to the acquisition of
partnership properties. All such sales must be made through registered broker-
dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of units made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant
to this Rule, volume discounts can be made available to California residents
only in accordance with the following conditions:
. there can be no variance in the net proceeds to the partnership from
the sale of the units to different purchasers of the same offering;
. all purchasers of the units must be informed of the availability of
quantity discounts;
. the same volume discounts must be allowed to all purchasers of units
which are part of the offering;
. the minimum amount of units as to which volume discounts are allowed
cannot be less than $10,000;
. the variance in the price of the units must result solely from a
different range of commissions, and all discounts allowed must be
based on a uniform scale of commissions; and
. no discounts are allowed to any group of purchasers.
Accordingly, volume discounts for California residents will be available in
accordance with the foregoing table of uniform discount levels based on dollar
volume of units purchased, but no discounts are allowed to any group of
purchasers, and no subscriptions may be aggregated as part of a combined order
for purposes of determining the number of units purchased.
Investors who, in connection with their purchase of units, have engaged the
services of a registered investment advisor with whom the investor has agreed to
pay a fee for investment advisory services in lieu of normal commissions based
on the volume of securities sold may agree with the participating broker-dealer
selling such units and the Dealer Manager to reduce the amount of selling
commissions payable with respect to such sale to zero. The net proceeds to the
partnership will not be affected by eliminating the commissions payable in
connection with sales to investors purchasing through such investment advisors.
All such sales must be made through registered broker-dealers.
Neither the Dealer Manager nor its affiliates will directly or indirectly
compensate any person engaged as an investment advisor by a potential investor
as an inducement for such investment advisor to advise favorably for investment
in the partnership.
122
<PAGE>
In addition, subscribers for units may agree with their participating
broker-dealers and the Dealer Manager to have sales commissions due with respect
to the purchase of their units paid over a seven year period pursuant to a
deferred commission option (the "deferred commission option"). Investors
electing the deferred commission option will be required to pay a total of $9.40
per unit purchased upon subscription, rather than $10.00 per unit, with respect
to which $0.10 per unit will be payable as commissions due upon subscription.
For each of the six years following termination of the offering, $0.10 per unit
will be paid by the partnership as deferred commissions with respect to units
sold pursuant to the deferred commission option, which amounts will be deducted
from and paid out of distributions of net cash from operations otherwise payable
to investors holding such units. The net proceeds to the partnership will not
be affected by the election of the deferred commission option. Under this
arrangement, an investor electing the deferred commission option will pay a 1%
commission upon subscription rather than a 7% commission and, thereafter, for
the next six years, an amount equal to a 1% commission per year will be deducted
from and paid by the partnership out of net cash from operations otherwise
distributable to such investor. (See "Distributions and Allocations -
Distributions of Net Cash From Operations.")
Investors who want to elect the deferred commission option must make the
election on their Subscription Agreement Signature Page, the form of which is
included as Exhibit "B" to this prospectus. Election of the deferred commission
option on the Subscription Agreement shall authorize the general partners to
withhold cash distributions otherwise payable to such investor for the purpose
of paying commissions due under the deferred commission option. Such cash
distributions may be pledged by the Dealer Manager or the general partners to
secure one or more loans, the proceeds of which would be used to satisfy sales
commission obligations.
Each investor purchasing units pursuant to the deferred commission option
must elect upon subscription to have a sufficient number of units treated as
Cash Preferred Units, in the discretion of the general partners, to generate at
least the amount of net cash from operations distributable with respect to such
units needed to satisfy the deferred commission obligations each year with
respect to the total number of units purchased. In addition, investors electing
the deferred commission option will have limited rights to elect to have the
status of their units changed from Cash Preferred Units to Tax Preferred Units
during the initial six years following termination of the offering since
investors owning units purchased pursuant to the deferred commission option must
own a sufficient number of units designated as Cash Preferred Units during the
initial seven years of the partnership to generate enough net cash from
operations to allow the partnership to satisfy the deferred commission
obligations with respect to the total number of units purchased designated as
Cash Preferred Units and Tax Preferred Units. (See "Description of the Units -
Election of Cash Preferred Units or Tax Preferred Units.") Further, taxable
participants electing the deferred commission option will incur tax liability
for partnership income allocated to them with respect to their units even though
distributions of net cash from operations otherwise distributable to such
investors will instead be paid to third parties to satisfy the deferred
commission obligations. (See "Risk Factors - Federal Income Tax Risks.")
123
<PAGE>
SUPPLEMENTAL SALES MATERIAL
In addition to this prospectus, the partnership may utilize certain sales
material in connection with the offering of the units, although only when
accompanied by or preceded by the delivery of this prospectus. In certain
jurisdictions, some or all of such sales material may not be available. This
material may include information relating to this offering, the past performance
of the general partners and their affiliates, property brochures and articles
and publications concerning real estate. In addition, the sales material may
contain certain quotes from various publications without obtaining the consent
of the author or the publication for use of the quoted material in the sales
material.
The offering of units in the partnership is made only by means of this
prospectus. Although the information contained in such sales material does not
conflict with any of the information contained in this prospectus, such material
does not purport to be complete, and should not be considered a part of this
prospectus or the Registration Statement of which this prospectus is a part, or
as incorporated by reference in this prospectus or said Registration Statement
or as forming the basis of the offering of the units.
LEGAL OPINIONS
The legality of the units being offered hereby has been passed upon for the
partnership by Holland & Knight LLP ("Counsel"). The statements under the
caption "Federal Income Tax Consequences" as they relate to federal income tax
matters have been reviewed by Counsel, and Counsel has opined as to certain
income tax matters relating to an investment in the partnership. Counsel has
represented the general partners, as well as affiliates of the general partners,
in other matters and may continue to do so in the future. (See "Conflicts of
Interest.")
EXPERTS
AUDITED FINANCIAL STATEMENTS
The financial statements of Wells Real Estate Fund XII, L.P. and Wells Real
Estate Fund XIII, L.P., as of September 30, 1998, the financial statements and
attached schedule of Wells Partners, L.P. as of December 31, 1997 and 1996, and
for each of the years in the two year period ended December 31, 1997, and the
financial statements of Wells Capital, Inc. and subsidiaries as of December 31,
1997 and 1996, and for each of the years in the two year period ended December
31, 1997, included in this prospectus and elsewhere in the Registration
Statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included herein in reliance upon the authority of said firm as experts in giving
said reports.
UNAUDITED FINANCIAL STATEMENTS
The interim financial information of Wells Partners, L.P. and Wells
Capital, Inc. and subsidiaries as of September 30, 1998 and for the nine month
periods ended September 30, 1998 and 1997, which are included in this
prospectus, have not been audited.
124
<PAGE>
ADDITIONAL INFORMATION
The partnership has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C., a Registration Statement under the Securities
Act of 1933, as amended, with respect to the units offered pursuant to this
prospectus. This prospectus does not contain all the information set forth in
the Registration Statement and the exhibits related thereto filed with the
Commission, reference to which is hereby made. Copies of the Registration
Statement and exhibits related thereto, as well as periodic reports and
information filed by the partnership, may be obtained upon payment of the fees
prescribed by the Commission, or may be examined at the offices of the
Commission without charge, at:
. the public reference facilities in Washington, D.C. at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
. the Northeast Regional Office in New York at 7 World Trade Center,
Suite 1300, New York, New York 10048; and
. the Midwest Regional Office in Chicago, Illinois at 500 West Madison
Street, Suite 1400, Chicago, Illinois 66661-2511.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (the address of such site is http://www.sec.gov).
GLOSSARY
The following are definitions of certain terms used in this prospectus and
not otherwise defined herein or in the partnership:
"CASH PREFERRED UNITS" means units with respect to which the investor
holding such units has made an effective election pursuant to Section 8.16 of
the Partnership Agreement to have such units be treated as Cash Preferred Units
for the applicable accounting period.
"CODE" means the Internal Revenue Code of 1986, as amended.
"EXCESS LIMITED PARTNER DISTRIBUTIONS" means any distributions to limited
partners over the life of their investment in the partnership in excess of the
sum of their net capital contributions plus their Preferential Limited Partner
Return.
"GENERAL PARTNERS" means Leo F. Wells, III, individually and Wells
Partners.
"IRA" means an individual retirement account established pursuant to
Section 408 of the Code.
"NASAA GUIDELINES" means the Statement of Policy Regarding Real Estate
Programs of the North American Securities Administrators Association, Inc.
adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
125
<PAGE>
"PARTNERSHIP" means Wells Real Estate Fund XII, L.P. and/or Wells Real
Estate Fund XIII, L.P., the Georgia limited partnership which were organized
pursuant to the Partnership Agreement.
"PARTNERSHIP AGREEMENT" means the Amended and Restated Agreement of Limited
Partnership in the form attached hereto as Exhibit "A" entered into by the
general partners and Brian M. Conlon, as the initial limited partner, and to be
adopted by each of the limited partners purchasing units in the partnership.
"PREFERENTIAL LIMITED PARTNER RETURN" means with respect to each limited
partner unit the sum of (1) a cumulative (noncompounded) 10% annual return on a
limited partner's net capital contribution with respect to such unit for all
periods during which such unit was treated as a Cash Preferred Unit, and (2) a
cumulative (noncompounded) 15% annual return on such limited partner's net
capital contribution with respect to such unit for all periods during which such
unit was treated as a Tax Preferred Unit. Each limited partner's Preferential
Limited Partner Return shall be calculated from the date on which such limited
partner's capital contribution was made to the partnership.
"REGISTRATION STATEMENT" means the registration statement filed by the
partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the units for sale to
the public.
"TAX PREFERRED UNITS" means units with respect to which the investor
holding such units has made an effective election pursuant to Section 8.16 of
the Partnership Agreement to have such units be treated as Tax Preferred Units
for the applicable accounting period.
"UBTI" means unrelated business taxable income, as that term is defined in
Sections 511 through 514 of the Code.
"WELLS CAPITAL" means Wells Capital, Inc., a Georgia corporation which is
the sole general partner of Wells Partners, L.P.
"WELLS PARTNERS" means Wells Partners, L.P., a Georgia limited partnership
which has Wells Capital, Inc. as its sole general partner and is a General
Partner of the partnership.
"WELLS PROGRAMS" means all public real estate programs sponsored by the
general partners or their affiliates in the past, present or future, including
but not limited to, Wells Real Estate Fund I, Wells Real Estate Fund II, Wells
Real Estate Fund II-OW, Wells Real Estate Fund III, L.P., Wells Real Estate Fund
IV, L.P., Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells
Real Estate Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate
Fund IX, Wells Real Estate Fund X, L.P., Wells Real Estate Fund XI, L.P., Wells
Real Estate Fund XII/XIII, L.P. and Wells Real Estate Investment Trust, Inc.
126
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Audited Financial Statements
Report of Independent Public Accountants 128
Balance Sheets as of December 31, 1997 and 1996 129
Statements of Loss for the years ended December 31, 1997 and 1996 130
Statements of Partners' Capital for the years ended December 31, 1997 and 1996 131
Statements of Cash Flows for the years ended December 31, 1997 and 1996 132
Notes to Financial Statements 133
Schedule I - Market Value of Investments in Partnerships 135
WELLS CAPITAL, INC. AND SUBSIDIARIES
Audited Financial Statements
Report of Independent Public Accountants 136
Consolidated Balance Sheets as of December 31, 1997 and 1996 137
Consolidated Statements of (Loss) Income for the years ended
December 31, 1997 and 1996 138
Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1997 and 1996 139
Consolidated Statements of Cash Flows for the years ended
December 31, 1997 and 1996 140
Notes to Consolidated Financial Statements 141
WELLS REAL ESTATE FUND XII, L.P.
Audited Balance Sheet
Report of Independent Public Accountants 146
Balance Sheet as of September 30, 1998 147
Notes to Balance Sheet 148
WELLS REAL ESTATE FUND XIII, L.P.
Audited Balance Sheet
Report of Independent Public Accountants 151
Balance Sheet as of September 30, 1998 152
Notes to Balance Sheet 153
</TABLE>
127
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Partners of
Wells Partners, L.P.:
We have audited the accompanying balance sheets of WELLS PARTNERS, L.P. (a
Georgia limited partnership) as of December 31, 1997 and 1996 and the related
statements of loss, partners' capital, and cash flows for the years then ended.
These financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Partners, L.P. as of
December 31, 1997 and 1996 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule I, market value of investment
in partnerships, is presented for purposes of additional analysis and is not a
required part of the basic financial statements. This information has not been
subjected to the auditing procedures applied in our audits of the basic
financial statements and, accordingly, we express no opinion on it.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 9, 1998
128
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
ASSETS
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
CASH $ 70 $ 70
INVESTMENT IN PARTNERSHIPS 127,665 128,618
-------- --------
Total assets $127,735 $128,688
======== ========
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL
GENERAL PARTNER $ 6,761 $ 6,771
LIMITED PARTNERS 120,974 121,917
-------- --------
Total partners' capital $127,735 $128,688
======== ========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
129
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF LOSS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----- ------
<S> <C> <C>
EQUITY IN LOSS OF PARTNERSHIPS $ 953 $1,126
===== ======
</TABLE>
The accompanying notes are an integral part of these statements.
130
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
GENERAL LIMITED
PARTNER PARTNERS TOTAL
------- -------- -----
<S> <C> <C> <C>
BALANCE AT DECEMBER 31, 1995 $5,982 $123,032 $129,014
Capital contribution 800 0 800
Net loss (11) (1,115) (1,126)
------ -------- --------
BALANCE AT DECEMBER 31, 1996 6,771 121,917 128,688
Net loss (10) (943) (953)
------ -------- --------
BALANCE AT DECEMBER 31, 1997 $6,761 $120,974 $127,735
====== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
131
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
----- ------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(953) $(1,126)
Adjustment to reconcile net loss to net cash used by operating activities:
Equity in loss of partnerships 953 1,126
----- -------
Net cash used by operating activities 0 0
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in limited partnership 0 (800)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
General partner contributions 0 800
----- -------
NET CHANGE IN CASH 0 0
CASH AT BEGINNING OF YEAR 70 70
----- -------
CASH AT END OF YEAR $ 70 $ 70
===== =======
</TABLE>
The accompanying notes are an integral part of these statements.
132
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Partners, L.P. (the "Partnership") is a limited partnership under the
laws of the state of Georgia. The general partner is Wells Capital, Inc.
("Wells Capital"), a Georgia corporation. The Partnership serves as the
general partner in several affiliated limited partnerships. The Partnership
is currently a general partner in Wells Real Estate Fund IV, L.P., Wells
Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate
Fund VII, L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund
IX, L.P. ("Fund IX"), Wells Real Estate Fund X, L.P. ("Fund X"), and Wells
Real Estate Fund XI, L.P. ("Fund XI"), collectively referred to as the
"Funds". The Partnership also owns limited partnership interests in Beaver
Ruin--Arc Way, Ltd. ("Beaver Ruin") and Carter Boulevard, Ltd. ("Carter
Boulevard").
Although, as set forth above, the Partnership is a general partner in the
Funds, Wells Capital performs certain administrative services for the Funds
on behalf of the Partnership.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share of
profits and losses in their individual income tax returns.
2. INVESTMENT IN PARTNERSHIPS
The Partnership does not control the Funds, Beaver Ruin, or Carter
Boulevard; however, it does exercise significant influence. Accordingly,
investment in partnerships is recorded using the equity method of
accounting. Each of the partnerships in which the Partnership invests,
except for Beaver Ruin and Carter Boulevard, has been formed with the
purpose to acquire and operate commercial real properties, including both
properties which are to be developed or are under development and
133
<PAGE>
properties which are newly constructed or have operating histories. Beaver
Ruin and Carter Boulevard were formed to acquire and eventually sell the
Beaver Ruin and Carter Boulevard properties. The Partnership's investment in
partnerships at December 31, 1997 and 1996 includes the following:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
18.8% ownership interest in Beaver Ruin $ 81,529 $ 81,781
51.27% ownership interest in Carter Boulevard
45,535 45,873
Fund IX 0 164
Fund X 201 400
Fund XI 400 400
-------- --------
$127,665 $128,618
======== ========
</TABLE>
The assets of Beaver Ruin consist primarily of a parcel of undeveloped land.
The assets of Carter Boulevard are comprised primarily of an investment in
Beaver Ruin. Carter Boulevard's ownership interest in Beaver Ruin is 12.3%.
Wells Capital is also one of the general partners of Beaver Ruin.
Fund IX owns all of its properties through an investment in two joint
ventures which, as of December 31, 1997, owned an interest in five office
buildings.
Fund X owns an office building through an investment in a joint venture as
of December 31, 1997.
Fund XI had no operations during the year ended December 31, 1997.
The Partnership is entitled to share in the allocation of cash distributions
and net income (loss) of the Funds based on the ownership percentages
outlined in the partnership agreements.
3. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not an
association taxable as a corporation for federal income tax purposes. The
Partnership has requested an opinion of legal counsel as to its tax status
but such an opinion is not binding upon the Internal Revenue Service.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Partnership. In the normal course of
business, the Partnership may be subject to litigation or claims.
134
<PAGE>
SCHEDULE I
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
MARKET VALUE OF INVESTMENT IN PARTNERSHIPS (A)
AS OF DECEMBER 31, 1997
(UNAUDITED)
* 18.8% OWNERSHIP INTEREST IN BEAVER RUIN ARC WAY, LTD. $ 752,000
* 51.27% OWNERSHIP INTEREST IN CARTER BOULEVARD, LTD. 252,000
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND X, L.P. 201
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND XI, L.P. 400
----------
$1,004,601
==========
(a) UNAUDITED SUBSEQUENT EVENT. The undeveloped land owned
by Beaver Ruin and Carter Boulevard was sold in June
1998. The proceeds, net of closing costs, received by
Wells Partners through its investment in Beaver Ruin
and Carter Boulevard were approximately $667,000, which
is $337,000 less than the estimated market value of
Wells Partners' investment in Beaver Ruin and Carter
Boulevard as of December 31, 1997.
*The market value of the undeveloped land owned by Beaver
Ruin and Carter Boulevard is based on an appraisal by an
outside party.
The accompanying notes are an integral part of this schedule.
135
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholder of
Wells Capital, Inc.:
We have audited the accompanying consolidated balance sheets of WELLS CAPITAL,
INC. (a Georgia corporation) AND SUBSIDIARIES as of December 31, 1997 and 1996
and the related consolidated statements of (loss) income, stockholder's equity,
and cash flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. and
subsidiaries as of December 31, 1997 and 1996 and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 9, 1998
136
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS
1997 1996
---------- ----------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 313,093 $ 148,873
Due from affiliates 360,023 872,843
Other receivables 0 31,300
---------- ----------
Total current assets 673,116 1,053,016
DEFERRED OFFERING COSTS 328,333 0
INVESTMENT IN PARTNERSHIPS 16,898 16,995
---------- ----------
Total assets $1,018,347 $1,070,011
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable $ 34,621 $ 204,340
Due to affiliates 579,638 0
---------- ----------
Total liabilities 614,259 204,340
---------- ----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDER'S EQUITY:
Common stock, $1 par value; 100,000 shares authorized,
600 shares issued and outstanding 600 600
Contributed capital 306,541 306,541
Retained earnings 96,947 558,530
---------- ----------
Total stockholder's equity 404,088 865,671
---------- ----------
Total liabilities and stockholder's equity $1,018,347 $1,070,011
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
137
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
REVENUES:
Acquisition and advisory fees $1,085,157 $1,608,952
Equity in loss of limited partnerships (10) 0
---------- ----------
1,085,147 1,608,952
---------- ----------
EXPENSES:
Salaries and wages 1,086,698 811,754
Occupancy 24,277 26,484
General and administrative 435,755 281,852
---------- ----------
1,546,730 1,120,090
---------- ----------
NET (LOSS) INCOME $ (461,583) $ 488,862
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
138
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK CONTRIBUTED RETAINED STOCKHOLDER'S
--------------
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------ ------ ----------- -------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 600 $600 $306,541 $ 69,668 $ 376,809
Net income 0 0 0 488,862 488,862
------ ------ ----------- -------- -------------
BALANCE, DECEMBER 31, 1996 600 600 306,541 558,530 865,671
Net loss 0 0 0 (461,583) (461,583)
------ ------ ----------- -------- -------------
BALANCE, DECEMBER 31, 1997 600 $600 $306,541 $ 96,947 $ 404,088
====== ====== =========== ======== =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
139
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(461,583) $ 488,862
---------- ----------
Adjustments to reconcile net (loss) income to net cash provided by
operating activities:
Equity in loss of limited partnerships 10 0
Changes in assets and liabilities:
Due from affiliates 512,820 (566,614)
Deferred offering costs (328,333) 0
Other receivables 31,300 (22,767)
Accounts payable (169,719) 119,447
Due to affiliates 579,638 0
---------- ----------
Total adjustments 625,716 (469,934)
---------- ----------
Net cash provided by operating activities 164,133 18,928
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from limited partnerships 87 288
Additional investment in limited partnerships 0 (800)
---------- ----------
Net cash provided by (used in) investing activities 87 (512)
---------- ----------
NET INCREASE IN CASH 164,220 18,416
CASH AT BEGINNING OF YEAR 148,873 130,457
---------- ----------
CASH AT END OF YEAR $ 313,093 $ 148,873
========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
140
<PAGE>
WELLS CAPITAL, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Capital, Inc. (the "Company") was organized on April 18, 1984 as a
corporation under the Georgia Business Corporation Code. The Company is
primarily in the business of serving as a general partner in public limited
partnerships. As a general partner, the Company performs certain
administrative services for the Wells Real Estate Funds, such as accounting
and other administration, and incurs the related expenses. Such expenses are
allocated among the various Wells Real Estate Funds based on time spent on
each fund by individual administrative personnel. The sole stockholder of
the Company is Leo F. Wells, III.
The Company is a general partner in Wells Real Estate Fund I ("Fund I"),
Wells Real Estate Fund II ("Fund II"), Wells Real Estate Fund II-OW ("Fund
II-OW"), and Wells Real Estate Fund III, L.P. ("Fund III"), all of which are
Georgia public limited partnerships, and Wells Partners, L.P. ("Wells
Partners"), a Georgia limited partnership. The Company is also a limited
partner in Fund I and Fund II. The Company does not have control over the
operations of these partnerships; however, it does exercise significant
influence. Accordingly, investment in partnerships is recorded using the
equity method of accounting. Each of the partnerships, except for Wells
Partners, has been formed to acquire and operate commercial real properties,
including both properties which are to be developed or are under development
and properties which are newly constructed or have operating histories.
Wells Partners was formed during 1990 to act as a general partner for all
other Wells Real Estate Funds. Wells Partners serves as a general partner
for Wells Real Estate Fund IV, L.P. ("Fund IV"), Wells Real Estate Fund V,
L.P. ("Fund V"), Wells Real Estate Fund VI, L.P. ("Fund VI"), Wells Real
Estate Fund VII, L.P. ("Fund VII"), Wells Real Estate Fund VIII, L.P. ("Fund
VIII"), Wells Real Estate Fund IX, L.P. ("Fund IX"), Wells Real Estate Fund
X, L.P. ("Fund X"), and Wells Real Estate Fund XI, L.P. ("Fund XI"). Funds
IV, V, VI, VII, VIII, IX, X and XI have the same investment objectives as
Funds I, II, II-OW, and III.
During 1997, the Company became the sole shareholder in Wells Real Estate
Investment Trust, Inc. ("Wells REIT"), a Maryland corporation, that intends
to qualify as a real estate investment trust, as well as the sole
shareholder in Wells S&P REIT Index Fund ("Mutual Fund"). The Mutual Fund's
objective is to provide investment results corresponding to the performance
of the S&P Real Estate Investment Trust Composite Price Index (the "Index").
Wells REIT and Mutual Fund are in the initial stages of formation; neither
entity had operations during 1997. Since the Company owns 100% of Wells REIT
and Mutual Fund, these entities have been consolidated in the Company's
financial statements, and the accompanying balance sheet includes all assets
and liabilities of Wells REIT and Mutual Fund. All intercompany transactions
and balances have been eliminated.
141
<PAGE>
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
INCOME TAXES
The Company elected to be treated as an S corporation effective January 1,
1987. No provision for income taxes is recorded, as any income tax liability
is the responsibility of the stockholder.
RECLASSIFICATIONS
Certain prior year items have been reclassified to conform with current year
financial statement presentation.
2. RELATED-PARTY TRANSACTIONS
The Company is entitled to share in the allocation of cash distributions and
net income (loss) from the Wells Real Estate Funds based on the percentages
outlined in the partnership agreements. The Company, as general partner,
paid all the organization and offering expenses for Fund I, Fund II, Fund
II-OW, and Fund III and was reimbursed pursuant to the partnership
agreements, which provided that the partnerships could reimburse the Company
up to 5% of total limited partners' contributions in organization and
offering expenses. The Company also paid, or is currently paying, on behalf
of Wells Partners, the organization and offering expenses for Fund IV, Fund
V, Fund VI, Fund VII, Fund VIII, Fund IX, Fund X, and Fund XI. Pursuant to
the partnership agreements of Fund IV, Fund V, and Fund XI, these three
partnerships can only pay up to 3% of total limited partners' contributions
in organization and offering expenses. The remaining partnerships can
reimburse the Company up to 5% of total limited partners' contributions in
organization and offering costs pursuant to the partnership agreements.
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund VIII of $0 and $64,620,
respectively. As of December 31, 1996, the Company had a receivable for
unreimbursed acquisition and advisory fees (Note 4) related to Fund VIII
totaling $152,501, which is included in due from affiliates; the entire
receivable was collected during 1997. During 1997 and 1996, the Company
expensed $0 and $66,684, respectively, of organization and offering costs
related to Fund VIII, which exceeded the 5% reimbursement limitation.
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund IX of $24,486 and
$1,785,104, respectively, of which $5,938 and $84,800, respectively, was
paid to related parties. As of December 31, 1996, the Company had a
receivable for unreimbursed organization and offering costs and acquisition
and advisory fees (Note 4) related to Fund IX totaling $422,996, which is
included in due from affiliates; the entire receivable was collected during
1997. During 1997 and 1996, the Company expensed $24,486 and $73,296,
respectively, of organization and offering costs related to Fund IX, which
exceeded the 5% reimbursement limitation.
142
<PAGE>
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund X of $1,516,779 and $97,691,
respectively, of which $23,961 and $0, respectively, was paid to related
parties. As of December 31, 1997 and 1996, the Company had a receivable for
unreimbursed organization and offering costs and acquisition and advisory
fees (Note 4) related to Fund X totaling $105,008 and $97,691, respectively,
which is included in due from affiliates. During 1997 and 1996, the Company
expensed $258,023 and $0, respectively, of organization and offering costs
related to Fund X which exceeded the 5% reimbursement limitation.
During the years ended December 31, 1997 and 1996, the Company paid
organization and offering costs related to Fund XI of $109,442 and $84,578,
respectively, none of which was paid to related parties. As of December 31,
1997 and 1996, the Company had a receivable for unreimbursed organization
and offering costs related to Fund XI of $194,020 and $84,578, respectively,
which is included in due from affiliates. Fund X and Fund XI filed a
registration statement with the Securities and Exchange Commission ("SEC")
for the offering and sale of their limited partnership units, which became
effective on December 31, 1996. Amendments to the registration statement
covering only Fund XI were filed with the SEC during 1997 and were declared
effective by the SEC on December 31, 1997. In order for the Company to be
reimbursed for any portion of these expenses, Fund XI will need to receive
approximately $1,250,000 in limited partners' contributions. At this time,
the Company believes that all of the foregoing organization and offering
expenses will be reimbursed.
Due from affiliates at December 31, 1997 and 1996 represents primarily
organization and offering expenses and acquisition and advisory fees paid by
the Company on behalf of Fund VIII, Fund IX, Fund X, and Fund XI. In
addition, Wells Investment Securities, Inc. agreed to reimburse the Company
for a portion of Fund IX's organization and offering expenses totaling
$104,037, which is included in due from affiliates at December 31, 1996. The
remaining due from affiliates represents operating expenses paid by the
Company on behalf of the affiliates and receivable from the Company's
shareholder. The following is a detail of due from affiliates at December
31:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Fund VIII $ 0 $152,501
Fund IX 0 422,996
Fund X 105,008 97,691
Fund XI 194,020 84,578
Wells Management Company, Inc. 0 2,113
Wells Investment Securities, Inc. 0 104,037
Shareholder 60,000 0
Other affiliates 995 8,927
-------- --------
$360,023 $872,843
======== ========
</TABLE>
Due to affiliates includes advances from Wells Management Company, Inc., an
affiliate of the Company. Of these advances, $279,638 was used to fund the
general operations of the Company, and the remaining $300,000 was used to
fund the Company's investment in Wells REIT and Mutual Fund. The Company
anticipates repaying the entire obligation to Wells Management Company, Inc.
during 1998.
The Company's capital contribution to Wells REIT and Mutual Fund was
$201,000 and $100,000, respectively, which is included in cash in the
accompanying balance sheet. Certain regulations require the Company to
maintain these cash balances at Wells REIT and Mutual Fund;
143
<PAGE>
consequently, $300,000 of the Company's total cash is not available to fund
the general operations of the Company.
3. INVESTMENT IN PARTNERSHIPS
The following is a rollforward of the Company's investment in partnerships
as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Investment in partnerships, beginning of year $16,995 $16,483
Contribution to partnerships 0 800
Equity in loss of partnerships (10) 0
Distributions from partnerships (87) (288)
------- -------
Investment in partnerships, end of year $16,898 $16,995
======= =======
</TABLE>
The Company's investment in each partnership at December 31, 1997 and 1996
is as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Fund I $11,027 $11,027
Fund II 2,721 2,808
Wells Partners 3,150 3,160
------- -------
$16,898 $16,995
======= =======
</TABLE>
As of December 31, 1997 and 1996, Fund I owned interests in a medical office
building, two commercial office buildings, three retail shopping centers,
and a project consisting of seven office buildings and a shopping center.
Fund II owns all of its properties through a joint venture, which, as of
December 31, 1997 and 1996, owned interests in a retail shopping center, a
project consisting of seven office buildings and a shopping center, two
office buildings, and a parcel of land on which a restaurant and a retail
shopping center were developed.
4. ACQUISITION AND ADVISORY FEES
Acquisition and advisory fees totaling $1,085,517 were earned from Fund X in
1997, and acquisition and advisory fees of $218,897 and $1,390,055,
respectively, were earned from Fund VIII and Fund IX in 1996. Pursuant to
the partnership agreements of Fund VIII, Fund IX, and Fund X, total fees
earned may not exceed 5% of limited partners' contributions. As of December
31, 1996, $152,501 of Fund VIII fees and $271,266 of Fund IX fees remained
uncollected and are included in due from affiliate. As of December 31, 1997,
$46,670 of Fund X fees remained uncollected and are included in due from
affiliates.
144
<PAGE>
5. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed the indebtedness of an affiliate, Wells
Management Company, Inc. ("Wells Management"), for an amount not to exceed
$200,000. Management believes, however, that Wells Management has sufficient
resources to pay its indebtedness and does not anticipate that it will incur
a loss as a result of this guarantee.
Management, after consultation with counsel, is not aware of any significant
litigation or claims against the Company. In the normal course of business,
the Company may be subject to litigation or claims.
145
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XII, L.P.:
We have audited the accompanying balance sheet of WELLS REAL ESTATE FUND XII,
L.P. (a Georgia public limited partnership) as of September 30, 1998. This
balance sheet is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Wells Real Estate Fund XII, L.P. as
of September 30, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
October 12, 1998
146
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
CASH $600
====
PARTNERS' CAPITAL
PARTNERS' CAPITAL:
General partners $500
Limited partner 100
----
Total partners' capital $600
====
</TABLE>
The accompanying notes are an integral part of this balance sheet.
147
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund XII, L.P. (the "Partnership") is a public limited
partnership organized on September 15, 1998 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners,
L.P. Brian M. Conlon is the initial limited partner. The Partnership has
two classes of limited partnership units. Upon subscription for units, each
limited partner must elect whether to have their units treated as Class A
units or Class B units. Thereafter, limited partners shall have the right
to change their prior elections to have some or all of their units treated
as Class A units or Class B units one time during each quarterly accounting
period. Limited partners may vote to, among other things, (a) amend the
partnership agreement, subject to certain limitations; (b) change the
business purpose or investment objectives of the Partnership; (c) remove a
general partner; (d) elect a new general partner; (e) dissolve the
Partnership; and (f) approve a sale of assets, subject to certain
limitations. Each limited partnership unit has equal voting rights,
regardless of class. The Partnership had no operations as of September 30,
1998.
The Partnership was formed to acquire and operate commercial real estate
properties, including properties which are either to be developed,
currently under development or construction, newly constructed, or have
operating histories.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, distributions are paid first to
limited partners holding Class A units until they have received a 10% per
annum return on their net capital contributions, as defined. Then, such
distributions are paid to the general partners until they have received 10%
of the total amount distributed thus far. Any remaining cash available for
distribution is split 90% to the limited partners holding Class A units and
10% to the general partners. No such distributions will be made to the
limited partners holding Class B units.
148
<PAGE>
DISTRIBUTION OF SALE PROCEEDS
Upon the sale of properties, the net sale proceeds will be distributed in
the following order:
. To limited partners holding units which at any time have been
treated as Class B units until they receive an amount necessary
to equal the net cash available for distribution received by the
limited partners holding Class A units;
. To limited partners on a per unit basis until each limited
partner has received 100% of their net capital contributions, as
defined;
. To all limited partners on a per unit basis until they receive a
cumulative 10% per annum return on their net capital
contributions, as defined;
. To limited partners on a per unit basis until they receive an
amount equal to their preferential limited partner return
(defined as the sum of a 10% per annum cumulative return on net
capital contributions for all periods during which the units were
treated as Class A units and a 15% per annum cumulative return on
net capital contributions for all periods during which the units
were treated as Class B units);
. To the general partners until they have received 100% of their
capital contributions, as defined;
. Then, if limited partners have received any excess limited
partner distributions (defined as distributions to limited
partners over the life of their investment in the Partnership in
excess of their net capital contributions, as defined, plus their
preferential limited partner return), to the general partners
until they have received distributions equal to 20% of the sum of
any such excess limited partner distributions plus distributions
made to the general partners pursuant to this provision;
. Thereafter, 80% to the limited partners on a per unit basis and
20% to the general partners.
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership,
excluding deductions for depreciation, amortization, and cost recovery. Net
income, as defined, of the Partnership will be allocated each year in the
same proportion that net cash from operations is distributed to the
partners. To the extent the Partnership's net income in any year exceeds
net cash from operations, it will be allocated 99% to the limited partners
holding Class A units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero, (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance, and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to the qualified income offset
provisions of the partnership agreement; (b) allocations to partners having
negative capital accounts
149
<PAGE>
until all negative capital accounts have been restored to zero; and (c)
allocations to limited partners holding Class B units in amounts equal to
the deductions for depreciation, amortization, and cost recovery previously
allocated to them with respect to the specific partnership property sold,
but not in excess of the amount of gain on sale recognized by the
Partnership with respect to the sale of such property.
2. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
proceeds, will be paid by Wells Capital, Inc. and not by the Partnership.
Organization and offering expenses do not include sales or underwriting
commissions but do include such costs as legal and accounting fees,
printing costs, and other offering expenses. There were no organization and
offering expenses incurred or paid as of September 30, 1998.
3. RELATED-PARTY TRANSACTIONS
The Partnership may enter into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management and leasing of
the Partnership's properties, the Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) fees that would be
paid to a comparable outside firm or (b) 4.5% of the gross revenues
generally paid over the life of the lease plus a separate competitive fee
for the one-time initial lease-up of newly constructed properties generally
paid in conjunction with the receipt of the first month's rent. In the case
of commercial properties which are leased on a long-term net basis (ten or
more years), the maximum property management fee from such leases shall be
1% of the gross revenues generally paid over the life of the leases, except
for a one-time initial leasing fee of 3% of the gross revenues on each
lease payable over the first five full years of the original lease term.
The general partners are also general partners in other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners for other Wells
Real Estate Funds, may be in competition with the Partnership for tenants
in similar geographic markets.
4. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not as an
association taxable as a corporation for federal income tax purposes. The
Partnership received an opinion from legal counsel as to its tax status as
a partnership, but such an opinion is not binding upon the Internal Revenue
Service. Based on this opinion from legal counsel, the general partners
contend that the Partnership is not subject to federal or state income
taxes, and therefore, none have been provided for in the accompanying
balance sheet. The partners are required to include their respective share
of profits and losses in their individual income tax returns.
150
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XIII, L.P.:
We have audited the accompanying balance sheet of WELLS REAL ESTATE FUND XIII,
L.P. (a Georgia public limited partnership) as of September 30, 1998. This
balance sheet is the responsibility of the Partnership's management. Our
responsibility is to express an opinion on this balance sheet based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial 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 audit provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents fairly, in all
material respects, the financial position of Wells Real Estate Fund XIII, L.P.
as of September 30, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
October 12, 1998
151
<PAGE>
WELLS REAL ESTATE FUND XIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEET
SEPTEMBER 30, 1998
ASSETS
CASH $600
====
PARTNERS' CAPITAL
PARTNERS' CAPITAL:
General partners $500
Limited partner 100
----
Total partners' capital $600
====
The accompanying notes are an integral part of this balance sheet.
152
<PAGE>
WELLS REAL ESTATE FUND XIII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEET
SEPTEMBER 30, 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND BUSINESS
Wells Real Estate Fund XIII, L.P. (the "Partnership") is a public limited
partnership organized on September 15, 1998 under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Partners, L.P.
Brian M. Conlon is the initial limited partner. The Partnership has two
classes of limited partnership units. Upon subscription for units, each
limited partner must elect whether to have their units treated as Class A
units or Class B units. Thereafter, limited partners shall have the right to
change their prior elections to have some or all of their units treated as
Class A units or Class B units one time during each quarterly accounting
period. Limited partners may vote to, among other things, (a) amend the
partnership agreement, subject to certain limitations; (b) change the
business purpose or investment objectives of the Partnership; (c) remove a
general partner; (d) elect a new general partner; (e) dissolve the
Partnership; and (f) approve a sale of assets, subject to certain
limitations. Each limited partnership unit has equal voting rights,
regardless of class. The Partnership had no operations as of September 30,
1998.
The Partnership was formed to acquire and operate commercial real estate
properties, including properties which are either to be developed, currently
under development or construction, newly constructed, or have operating
histories.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
DISTRIBUTIONS OF NET CASH FROM OPERATIONS
Cash available for distribution, as defined by the partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, distributions are paid first to
limited partners holding Class A units until they have received a 10% per
annum return on their net capital contributions, as defined. Then, such
distributions are paid to the general partners until they have received 10%
of the total amount distributed thus far. Any remaining cash available for
distribution is split 90% to the limited partners holding Class A units and
10% to the general partners. No such distributions will be made to the
limited partners holding Class B units.
153
<PAGE>
DISTRIBUTION OF SALE PROCEEDS
Upon the sale of properties, the net sale proceeds will be distributed in the
following order:
. To limited partners holding units which at any time have been
treated as Class B units until they receive an amount necessary
to equal the net cash available for distribution received by
the limited partners holding Class A units;
. To limited partners on a per unit basis until each limited
partner has received 100% of their net capital contributions,
as defined;
. To all limited partners on a per unit basis until they receive
a cumulative 10% per annum return on their net capital
contributions, as defined;
. To limited partners on a per unit basis until they receive an
amount equal to their preferential limited partner return
(defined as the sum of a 10% per annum cumulative return on net
capital contributions for all periods during which the units
were treated as Class A units and a 15% per annum cumulative
return on net capital contributions for all periods during
which the units were treated as Class B units);
. To the general partners until they have received 100% of their
capital contributions, as defined;
. Then, if limited partners have received any excess limited
partner distributions (defined as distributions to limited
partners over the life of their investment in the Partnership
in excess of their net capital contributions, as defined, plus
their preferential limited partner return), to the general
partners until they have received distributions equal to 20% of
the sum of any such excess limited partner distributions plus
distributions made to the general partners pursuant to this
provision;
. Thereafter, 80% to the limited partners on a per unit basis and
20% to the general partners.
ALLOCATION OF NET INCOME, NET LOSS, AND GAIN ON SALE
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation, amortization, and cost recovery. Net income, as
defined, of the Partnership will be allocated each year in the same
proportion that net cash from operations is distributed to the partners. To
the extent the Partnership's net income in any year exceeds net cash from
operations, it will be allocated 99% to the limited partners holding Class A
units and 1% to the general partners.
Net loss, depreciation, amortization, and cost recovery deductions for each
fiscal year will be allocated as follows: (a) 99% to the limited partners
holding Class B units and 1% to the general partners until their capital
accounts are reduced to zero, (b) then to any partner having a positive
balance in his capital account in an amount not to exceed such positive
balance, and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to the qualified income offset
provisions of the partnership agreement; (b) allocations to partners having
negative capital accounts
154
<PAGE>
until all negative capital accounts have been restored to zero; and (c)
allocations to limited partners holding Class B units in amounts equal to the
deductions for depreciation, amortization, and cost recovery previously
allocated to them with respect to the specific partnership property sold, but
not in excess of the amount of gain on sale recognized by the Partnership
with respect to the sale of such property.
2. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
proceeds, will be paid by Wells Capital, Inc. and not by the Partnership.
Organization and offering expenses do not include sales or underwriting
commissions but do include such costs as legal and accounting fees, printing
costs, and other offering expenses. There were no organization and offering
expenses incurred or paid as of September 30, 1998.
3. RELATED-PARTY TRANSACTIONS
The Partnership may enter into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management and leasing of the
Partnership's properties, the Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) fees that would be
paid to a comparable outside firm or (b) 4.5% of the gross revenues generally
paid over the life of the lease plus a separate competitive fee for the one-
time initial lease-up of newly constructed properties generally paid in
conjunction with the receipt of the first month's rent. In the case of
commercial properties which are leased on a long-term net basis (ten or more
years), the maximum property management fee from such leases shall be 1% of
the gross revenues generally paid over the life of the leases, except for a
one-time initial leasing fee of 3% of the gross revenues on each lease
payable over the first five full years of the original lease term.
The general partners are also general partners in other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners, while serving in the capacity as general partners for other Wells
Real Estate Funds, may be in competition with the Partnership for tenants in
similar geographic markets.
4. INCOME TAXES
The Partnership will not request a ruling from the Internal Revenue Service
to the effect that it will be treated as a partnership and not as an
association taxable as a corporation for federal income tax purposes. The
Partnership received an opinion from legal counsel as to its tax status as a
partnership, but such an opinion is not binding upon the Internal Revenue
Service. Based on this opinion from legal counsel, the general partners
contend that the Partnership is not subject to federal or state income taxes,
and therefore, none have been provided for in the accompanying balance sheet.
The partners are required to include their respective share of profits and
losses in their individual income tax returns.
155
<PAGE>
INDEX TO UNAUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Unaudited Financial Statements
Balance Sheets as of September 30, 1998 and December 31, 1997.................... 157
Statements of Operations for the nine months ended September 30, 1998 and 1997... 158
Statement of Partners' Capital for the nine months ended September 30, 1998 and
the year ended December 31, 1997................................................ 159
Statements of Cash Flows for the nine months ended September 30, 1998 and 1997... 160
Condensed Notes to Financial Statements.......................................... 161
WELLS CAPITAL, INC.
Unaudited Financial Statements
Balance Sheets as of September 30, 1998 and December 31, 1997.................... 164
Statements of Operations for the nine months ended September 30, 1998 and 1997... 165
Statement of Stockholder's Equity for the nine months ended September 30, 1998
and the year ended December 31, 1997............................................ 166
Statements of Cash Flow for the nine months ended September 30, 1998 and 1997.... 167
Condensed Notes to Financial Statements.......................................... 168
</TABLE>
156
<PAGE>
WELLS PARTNERS, L.P.
(a Georgia Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, 1998 December 31, 1997
------------------ -----------------
Assets
------
<S> <C> <C>
Cash $ 70 $ 70
Investments in limited partnerships (note 2) 667,993 127,665
---------- ----------
Total Assets $ 668,063 $ 127,735
========== ==========
Partners' Capital
-----------------
General Partner $ 12,957 $ 6,761
Limited Partners 655,106 120,974
---------- ----------
Total Partners' Capital $ 668,063 $ 127,735
========== ==========
</TABLE>
See accompanying condensed notes to financial statements.
157
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Operations
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------------------
September 30, 1998 September 30, 1997
------------------ -------------------
<S> <C> <C>
Equity in income (loss) of partnership $ 541,032 $ (416)
---------- ----------
Net income (loss) $ 541,032 $ (416)
========== ==========
</TABLE>
See accompanying condensed notes to financial statements.
158
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statement of Partners' Capital
For the Year Ended December 31, 1997
and the Nine Months Ended September 30, 1998
(Unaudited)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
------- -------- -----
<S> <C> <C> <C>
Balance at December 31, 1996 $ 6,771 $121,917 $128,688
Net Loss (10) (943) (953)
------ -------- --------
Balance at December 31, 1997 $ 6,761 $120,974 $127,735
Capital Contribution 800 0 800
Net Income 5,396 534,132 539,528
------- -------- --------
Balance at September 30, 1998 $12,957 $655,106 $668,063
======= ======== ========
</TABLE>
See accompanying condensed notes to financial statements
159
<PAGE>
WELLS PARTNERS, L.P.
(a Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, September 30,
------------ ------------
1998 1997
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 541,032 $ (416)
Adjustments to reconcile net loss to net cash used
by operating activities-equity in income (loss) of
limited partnership (541,032) (416)
--------- --------
Net Cash used in operating activities 0 0
--------- --------
Net change in cash 0 0
Cash at beginning of year 70 70
--------- --------
Cash at end of period $ 70 $ 70
========= ========
</TABLE>
See accompanying condensed notes to financial statements.
160
<PAGE>
WELLS PARTNERS, L.P.
Condensed Notes to Financial Statements
(Unaudited)
(1) General
-------
The financial statements of Wells Partners, L.P. (the Partnership) do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. These interim
statements have not been examined by independent accountants, but in the
opinion of the General Partner of the Partnership, the statements for the
unaudited interim periods presented include only adjustments, which are of
normal and recurring nature, necessary to present a fair presentation of
the results for such periods. For further information, refer to the
financial statements and footnotes included in the audited Partnership
report for the year ended December 31, 1997.
Although the Partnership is a general partner in Wells Real Estate Fund IV,
L.P. (Fund IV), Wells Real Estate Fund V, L.P. (Fund V), Wells Real Estate
Fund VI, L.P. (Fund VI), Wells Real Estate Fund VII, L.P. (Fund VII), Wells
Real Estate Fund VIII, L.P. (Fund VIII), Wells Real Estate Fund IX, L.P.
(Fund IX), Wells Real Estate Fund X, L.P. (Fund X), Wells Real Estate Fund
XI, L.P. (Fund XI), Wells Real Estate Fund XII, L.P. (Fund XII) and Wells
Real Estate Fund XIII, L.P. (Fund XIII) (collectively, the "Funds"), its
general partner, Wells Capital, Inc., has acted on behalf of the
Partnership as the general partner of such partnerships. Accordingly, all
revenues and expenses relating to the offering of the limited partnership
units of the Funds were recorded by Wells Capital, Inc. The Partnership
also owns limited partnership interests in Beaver Ruin - Arc Way, Ltd.
(Beaver Ruin) and Carter Boulevard, Ltd. (Carter Boulevard).
(2) Investment in Partnerships
--------------------------
The Partnership does not control the Funds, Beaver Ruin, or Carter
Boulevard; however, it does exercise significant influence. Accordingly,
investments in partnerships are recorded using the equity method of
accounting. Each of the Funds has been formed to acquire and operate
commercial real properties, including both properties which are to be
developed or are under development and properties which are newly
constructed or have operating histories. Beaver Ruin and Carter Boulevard
were formed to acquire and eventually sell the Beaver Ruin and Carter
Boulevard properties. The Partnership's investments in partnerships at
September 30, 1998 and December 31, 1997 are as follows:
161
<PAGE>
<TABLE>
<CAPTION>
September 30, 1998 December 31, 1997
------------------ -----------------
Cost Market Cost Market
---- ------ ----- ------
<S> <C> <C> <C> <C>
18.8% ownership interest in Beaver
Ruin - Arc Way, Ltd. $ 502,230 $ 502,230 $ 81,529 $ 752,000
51.27% ownership interest in Carter
Boulevard, Ltd. 164,833 164,833 45,535 252,000
Wells Real Estate Fund VI, L.P. 0 0 0 0
Wells Real Estate Fund VII, L.P. 0 0 0 0
Wells Real Estate Fund VIII, L.P. 0 0 0 0
Wells Real Estate Fund IX, L.P. 0 0 0 0
Wells Real Estate Fund X, L.P. 0 0 201 201
Wells Real Estate Fund XI, L.P. 130 130 400 400
Wells Real Estate Fund XII, L.P. 400 400 0 0
Wells Real Estate Fund XIII, L.P. 400 400 0 0
--------- --------- --------- ----------
$ 667,993 $ 667,933 $ 127,665 $1,004,601
</TABLE>
The assets of Beaver Ruin and Carter Boulevard are comprised primarily of an
investment in a parcel of underdeveloped land. The general partner of the
Partnership is also the general partner of Beaver Ruin and Carter Boulevard. In
June 1998, the entire parcel of land was sold to an unrelated third party for a
sale price of $3,112,875 less closing costs to the seller of $501,297. Wells
Partners' share of net proceeds of $502,230 through its 18.8% interest in Beaver
Ruin and $164,833 through its 51.27% interest in Carter Boulevard was forwarded
to an escrow agent for use in a Section 1031 exchange which is anticipated to
take place before the end of 1998. The Partnership recognized a gain of
approximately $540,000 for GAAP purposes. The market value at December 31, 1997
of this land was based on an appraisal dated June, 1996.
Fund VI owns all of its properties through an investment in six joint ventures
which, as of September 30, 1998, owned interests in three commercial office
buildings, five retail centers and an office/retail center.
162
<PAGE>
Fund VII owns all of its properties through an investment in five joint ventures
which, as of September 30, 1998, owned interests in three commercial office
buildings, four retail centers and two office/retail centers.
Fund VIII owns all of its properties through an investment in three joint
ventures which, as of September 30, 1998, owned interests in three commercial
office buildings, one retail center and an office/retail center.
Fund IX owns all of its properties through an investment in two joint ventures
which, as of September 30, 1998, owned interests in eight commercial office
buildings.
Fund X owns all of its properties through an investment in two joint ventures
which, as of September 30, 1998, owned interests in six commercial office
buildings.
Fund XI owns all of its properties through an investment in a joint venture
which, as of September 30, 1998, owned interests in three commercial office
buildings.
In addition, the Partnership owns interest in Fund IV and Fund V. Fund IV owns
all of its properties through investments in two joint ventures which, as of
September 30, 1998, owned interests in a retail shopping center, two commercial
office buildings, and a medical center development comprising two office
buildings. Fund V owns all of its properties through investments in three joint
ventures which, as of September 30, 1998, owned interests in three commercial
office building, two retail buildings, and a medical center development
comprising two office buildings. The Partnership's investments in Fund IV and
Fund V were $0 at September 30, 1998 and December 31, 1997.
The Partnership is entitled to share in the allocation of cash distributions and
net income (losses) of the foregoing partnership investments based on ownership
percentages outlined in the partnership agreements.
[Remainder of page intentionally left blank.]
163
<PAGE>
WELLS CAPITAL, INC.
Balance Sheets
As of September 30, 1998 and December 31, 1997
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
Assets Sept. 30, 1998 December 31, 1997
------ ---------------- -----------------
<S> <C> <C>
Current Assets:
Cash $ 31,419 $ 313,093
Due from affiliates 0 360,023
-------------- ----------
Total Current Assets 31,419 673,116
Deferred offering costs 1,392,246 328,333
Investments in partnerships 318,698 16,898
-------------- ----------
Total Assets $ 1,742,363 $1,018,347
============== ==========
Liabilities and Shareholders' Equity
------------------------------------
Accounts payable $ 15,737 $ 34,621
Due to affiliates 1,640,048 579,638
-------------- ----------
Total liabilities 1,655,785 614,259
-------------- ----------
Shareholders' equity:
Common shares, $1par value. Authorized
100,000 shares; issued 600 shares 600 600
Contributed capital 306,541 306,541
Accumulated (deficit) earnings (220,563) 96,947
-------------- ----------
Total Stockholder's Equity 86,578 404,088
-------------- ----------
Total Liabilities and Stockholder's Equity $ 1,742,363 $1,018,347
============== ==========
</TABLE>
See accompanying condensed notes to financial statements.
164
<PAGE>
WELLS CAPITAL, INC.
Statements of Operations
(Unaudited)
For the Nine Month Period Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
Sept. 30, 1998 Sept. 30, 1997
-------------- ---------------
<S> <C> <C>
Revenues-Acquisition and Advisory Fees $ 750,560 $ 758,253
---------- ----------
Expenses:
Legal and Accounting 19,006 82,748
Salaries and Wages 1,047,392 906,398
Rent 0 17,656
General and Administrative 1,672 70,656
---------- ----------
Total Expenses 1,068,070 1,077,458
Net Loss $ (317,510) $ (319,205)
========== ==========
</TABLE>
See accompanying condensed notes to financial statements.
165
<PAGE>
WELLS CAPITAL, INC.
Statement of Stockholder's Equity
(Unaudited)
For the Nine Months Ended September 30, 1998 and the Year Ended December 31,
1997
<TABLE>
<CAPTION>
Accumulated Total
Common Contributed (Deficit) Stockholder's
Stock Capital Earnings Equity
----- ------- -------- -------------
<S> <C> <C> <C> <C>
Balance at December 31, 1996 $600 $306,541 $ 558,530 $ 865,671
Net Loss 0 0 (461,583) (461,583)
---- -------- --------- ---------
Balance at December 31, 1997 600 306,541 96,947 404,088
Net Loss 0 0 (317,510) (317,510)
---- -------- --------- ---------
Balance at September 30, 1998 $600 $306,541 $(220,563) $ 86,578
==== ======== ========= =========
</TABLE>
See accompanying condensed notes to financial statements.
166
<PAGE>
WELLS CAPITAL, INC.
Statements of Cash Flow
(Unaudited)
For the Nine Month Period Ended September 30, 1998 and 1997
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1998 September 30, 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net loss $ (317,510) $ (319,205)
----------- -----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Due from affiliates 360,023 872,843
Deferred offering costs (1,063,913) (676,019)
Accounts receivable 0 29,300
Accounts payable (18,884) (171,183)
Due to affiliates 1,060,410 135,335
----------- -----------
Total adjustments 337,636 190,276
----------- -----------
Net Cash provided by Operating Activities 20,126 128,929
----------- -----------
Cash flows from investing activities:
Additional investments (301,800) (972)
----------- -----------
Net cash used in investing activities (301,800) (972)
----------- -----------
Net decrease in cash (281,674) (129,901)
Cash at beginning of year 313,093 148,873
----------- -----------
Cash at end of period $ 31,419 $ 18,972
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
167
<PAGE>
WELLS CAPITAL, INC.
Condensed Notes to Financial Statements
(Unaudited)
-----------
(1) General
-------
The financial statements of Wells Capital, Inc. (the Company) do not
include all of the information and footnotes required by generally
accepted accounting principles for complete financial statements.
These interim statements have not been examined by independent
accountants, but in the opinion of the management, the statements for
the unaudited interim periods presented include only adjustments,
which are of normal and recurring nature, necessary to present a fair
presentation of the results for such periods. For further information,
refer to the financial statements and footnotes included in the
audited report of the Company for the year ended December 31, 1997.
The Company is 100% owned by Wells Real Estate Funds, Inc. which is a
Georgia corporation formed on February 17, 1997, having Leo F. Wells
III as the sole share owner. The Company is a general partner in Wells
Real Estate Fund I (Fund I), Wells Real Estate Fund II (Fund II),
Wells Real Estate Fund II-OW (Fund II-OW), Wells Real Estate Fund III,
L.P. (Fund III), and Wells Partners, L.P., each a Georgia limited
partnership. The Company, as general partner, paid all organizational
and offering expenses for Fund I, Fund II, Fund II-OW, and Fund III
and was reimbursed pursuant to such partnerships' respective
partnership agreements, each of which provided that the partnerships
could reimburse the Company up to 5% of total limited partners'
contributions for organizational and offering expenses. The Company is
the sole general partner of Wells Partners, L.P., which is a general
partner of Wells Real Estate Fund IV, L.P. (Fund (IV), Wells Real
Estate Fund V, L.P. (Fund V), Wells Real Estate Fund VI, L.P. (Fund
VI), Wells Real Estate Fund VII, L.P. (Fund VII), Wells Real Estate
Fund VIII, L.P. (Fund VIII) Wells Real Estate Fund IX, L.P. (Fund IX),
Wells Real Estate Fund X, L.P. (Fund X), Wells Real Estate Fund XI,
L.P. (Fund XI), Wells Real Estate Fund XII, L.P. (Fund XII) and Wells
Real Estate Fund XIII, L.P. (Fund XIII), and as such, the Company also
paid or is currently paying on behalf of Wells Partners, L.P. the
offering and organizational expenses for Fund IV, Fund V, Fund VI,
Fund VII, Fund VIII, Fund IX, Fund X and Fund XI. Pursuant to the
partnership agreements of Fund IV, Fund V, and Fund XI, these three
partnerships can only reimburse the Company for up to 3% of total
limited partners' contributions in offering and organizational
expenses. Pursuant to the partnership agreements of Fund VI, Fund VII,
Fund VIII, Fund IX, and Fund X, these partnerships can reimburse the
Company for up to 5% of total limited partners' contributions in
offering and organizational expenses. The Company is the advisor of
Wells Real Estate Investment Trust, Inc. (Wells REIT) and is currently
paying the offering and organizational expenses, on behalf of Wells
REIT for which Wells REIT, pursuant to the agreement, can only
reimburse the Company for up to 3% of total shareholders'
contributions.
168
<PAGE>
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (the "Tables") provide information
relating to real estate investment programs sponsored by the general partners or
their affiliates ("Wells Programs") which have investment objectives similar to
the partnership.
Prospective investors should read these Tables carefully together with the
summary information concerning the Wells Programs as set forth in the "Prior
Performance Summary" section of this prospectus.
Investors in the partnership will not own any interest in the other Wells
Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in the Wells Programs.
These Tables present actual results of Wells Programs that have investment
objectives similar to those of the partnership. The partnership's investment
objectives are to maximize net cash from operations; to preserve original
capital contributions; and to realize capital appreciation over a period of
time. (See "Investment Objectives and Criteria.") All of the Wells Programs,
except the Wells REIT, have used a substantial amount of capital and no
acquisition indebtedness to acquire their properties.
The general partners are responsible for the acquisition, operation,
maintenance and resale of the real estate properties. The financial results of
the Wells Programs thus provide an indication of the general partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included in this prospectus:
TABLE I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
TABLE II - Compensation to Sponsor (in Dollars)
TABLE III - Annual Operating Results of Wells Programs
TABLE IV (Results of completed programs) and TABLE V (sales or disposals of
property) have been omitted since none of the Wells Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the Wells
Programs is contained in TABLE VI, which is included in Part II of the
Registration Statement which the partnership has filed with the Securities and
Exchange Commission. As described above, no Wells Program has sold or disposed
of any property held by it. Copies of any or all information will be provided
to prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"ACQUISITION FEES" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the
169
<PAGE>
partnership or with a general partner of the partnership in connection with the
actual development of a project after acquisition of the land by the
partnership.
"ORGANIZATION EXPENSES" shall include legal fees, accounting fees, securities
filing fees, printing and reproduction expenses and fees paid to the general
partners or their affiliates in connection with the planning and formation of
the partnership.
"UNDERWRITING FEES" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
170
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the general partners and
their affiliates in Wells Programs for which offerings have been completed since
December 31, 1994. Information is provided with regard to the manner in which
the proceeds of the offerings have been applied. Also set forth is information
pertaining to the timing and length of these offerings and the time period over
which the proceeds have been invested in the properties.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VII, L.P. VIII, L.P. IX, L.P. X, L.P.
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Dollar Amount Raised $24,180,174/(3)/ $32,042,689/(4)/ $35,000,000/(5)/ $27,128,912/(6)/
================ ================ ================ ================
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100.0%/(5)/ 100.0%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 10.0%
Organizational Expenses 5.0% 5.0% 5.0% 5.0%
Reserves/(1)/ 1.0% 0.0% 0.0% 0.0%
---------------- ---------------- ---------------- ----------------
Percent Available for Investment 84.0% 85.0% 85.0% 85.0%
Acquisition and Development Costs
Prepaid Items and Fees related to Purchase of Property 0.0% 0.2% 0.0% 0.0%
Cash Down Payment 16.3% 29.2% 0.0% 0.0%
Acquisition Fees/(2)/ 3.5% 4.5% 4.5% 4.5%
Development and Construction Costs 64.2% 48.0% 50.4% 14.4%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---------------- ---------------- ---------------- ----------------
Total Acquisition and Development Cost 84.0% 81.9% 54.9% 18.9%
---------------- ---------------- ---------------- ----------------
Percent Leveraged 0.0% 0.0% 0.0% 0.00%
================ ================ ================ ================
Date Offering Began 04/05/94 01/06/95 01/05/96 12/31/96
Length of Offering 12 mo. 12 mo. 12 mo. 12 mo.
Months to Invest 90% of Amount Available for Investment
(Measured from Beginning of Offering) 12 mo. 17 mo. /(7)/ /(8)/
Number of Investors 1,917 2,242 2,115 1,806
</TABLE>
__________________
(1) Does not include General Partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to affiliates of the General Partners.
(3) Total dollar amount registered and available to be offered was $25,000,000.
Wells Real Estate Fund VII, L.P. closed its offering on January 5, 1995,
and the total dollar amount raised was $24,180,174.
(4) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund VIII, L.P. closed its offering on January 4, 1996,
and the total dollar amount raised was $32,042,689.
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund IX, L.P. closed its offering on December 30, 1996,
and the total dollar amount raised was $35,000,000.
171
<PAGE>
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund X, L.P. closed its offering on December 30, 1997,
and the total dollar amount raised was $27,128,912.
(7) As of December 31, 1997, Wells Real Estate Fund IX, L.P. had not yet
invested 90% of the amount available for investment. The amount invested
in properties (including acquisition fees paid but not yet associated with
a specific property) at December 31, 1997 was 70.3% of the total dollar
amount raised. The amount invested and/or committed to be invested in
properties (including acquisition fees paid but not yet associated with a
specific property) at December 31, 1997 was 83.5% of the total dollar
amount raised.
(8) As of December 31, 1997, Wells Real Estate Fund X, L.P. had not yet
invested 90% of the amount available for investment. The amount invested
in properties (including acquisition fees paid but not yet associated with
a specific property) at December 31, 1997 was 17.7% of the total dollar
amount raised. The amount invested and/or committed to be invested in
properties (including acquisition fees paid but not yet associated with a
specific property) at December 31, 1997 was 32.8% of the total dollar
amount raised.
172
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by the general partners
or their affiliates, including compensation paid out of offering proceeds and
compensation paid in connection with the ongoing operations of Wells Programs
having similar or identical investment objectives the offerings of which have
been completed since December 31, 1994. These partnerships have not sold or
refinanced any of their properties to date. All figures are as of December 31,
1997.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VII, L.P. VIII, L.P. IX, L.P. X, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 04/05/94 01/06/95 01/05/96 12/31/96 --
Dollar Amount Raised $24,180,174 $32,042,689 $35,000,000 $27,128,912 $150,018,232
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 178,122 $ 174,295 $ 309,556 $ 260,748 $ 571,739
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 846,306 $ 1,281,708 $ 1,400,000 $ 1,085,157 $ 8,031,385
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 3,850,827 $ 1,630,740 $ 1,305,840 $ 438,195 $ 29,081,439
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 124,934 $ 85,523 $ 19,539 $ 0 $ 857,695
Partnership Management Fee -- -- -- -- --
Reimbursements $ 159,036 $ 112,773 $ 32,349 $ 11,137 $ 1,187,273
Leasing Commissions $ 97,856 $ 91,566 $ 29,162 $ 0 $ 800,710
General Partner Distributions -- -- -- -- 15,205
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
</TABLE>
________________
(1) Includes compensation paid to General Partners from Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate
Fund V, L.P. and Wells Real Estate Fund VI, L.P. during the past three
years. In addition to the amounts shown, affiliates of the General Partners
of Wells Real Estate Fund I are entitled to certain property management and
leasing fees but have elected to defer the payment of such fees until a
later year on properties owned by Wells Real Estate Fund I. At December 31,
1997, the amount of such fees due the General Partners totaled $2,088,727.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VII, VIII, IX and X, which were not reallowed to participating
broker-dealers.
(3) Fees paid to the General Partners or their affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
173
<PAGE>
(4) Includes $409,361 in net cash provided by operating activities, $3,059,640
in distributions to limited partners and $381,826 in payments to sponsor for
Wells Real Estate Fund VII, L.P.; $464,964 in net cash provided by operating
activities, $875,914 in distributions to limited partners and $289,862 in
payments to sponsor for Wells Real Estate Fund VIII, L.P.; $2,540 in net
cash provided by operating activities, $1,221,764 in distributions to
limited partners and $81,536 in payments to sponsor for Wells Real Estate
Fund IX, L.P.; $449,332 in net cash used by operating activities, $0 in
distributions to limited partners and $11,137 in payments to sponsor for
Wells Real Estate Fund X, L.P.; and $855,331 in net cash provided by
operating activities, $19,618,669 in distributions to limited partners and
$2,748,101 in payments to sponsor for other public programs.
174
<PAGE>
TABLE III
(UNAUDITED)
The following six (6) tables set forth operating results of prior
programs sponsored by the general partners the offerings of which have been
completed since December 31, 1992. The information relates only to public
programs with investment objectives similar to those of the partnership. All
figures are as of December 31 of the year indicated.
175
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND V, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 633,247 $ 590,839 $ 764,624 $ 656,958 $ 458,213
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 72,404 78,939 68,735 88,987 96,964
Depreciation and Amortization/(3)/ 1,042 6,250 6,250 6,250 6,250
---------- ---------- ---------- ----------- -----------
Net Income (Loss) GAAP Basis/(4)/ $ 559,801 $ 505,650 $ 689,639 $ 561,721 $ 354,999
Taxable Income (Loss): Operations ========== ========== ========== =========== ===========
Cash Generated (Used By): $ 763,486 $ 666,780 $ 676,367 $ 528,025 $ 280,000
Operations ========== ========== ========== =========== ===========
Joint Ventures
(66,556) (65,728) (46,235) (10,395) 112,594
1,121,000 1,072,835 1,020,905 653,729 54,154
Less Cash Distributions to Investors: ---------- ---------- ---------- ----------- -----------
Operating Cash Flow $1,054,444 $1,007,107 $ 974,670 $ 643,334 $ 166,748
Return of Capital
Undistributed Cash Flow from Prior Year Operations 1,054,444 1,007,107 969,011 643,334 151,336
4,487 -- -- 44,257 --
Cash Generated (Deficiency) after Cash Distributions 1,987 3,672 -- 15,412 --
---------- ---------- ---------- ----------- -----------
$ (6,474) $ (3,672) $ 5,659 $ (59,669) $ 15,412
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions __ -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 5,589,786
---------- ----------- ---------- ----------- -----------
$ __ $ (3, 672) 5,659 $ (59,669) $ 5,605,198
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 764,599
Return of Original Limited Partner's Investment -- -- -- --
Property Acquisitions and Deferred Project Costs (154,131) (225) (233,501) 2,366,507 7,755,116
Cash Generated (Deficiency) after Cash Distributions and ---------- ---------- ---------- ----------- -----------
Special Items
$ (160,605) $ (3,897) $ (227,842) $(2,426,176) $(2,914,517)
========== ========== ========== =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 36 71 73 58 29
- Operations Class B Units 0 (378) (272) (180) (54)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 74 69 69 55 36
- Operations Class B Units (256) (260) (246) (181) (58)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 36 65 63 46 10
- Return of Capital Class A Units 32 -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 68 65 63 43 10
- Return of Capital Class A Units -- -- -- 3 --
- Operations Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
176
<PAGE>
___________________
(1) Includes $207,234 in equity in earnings of joint ventures and $250,979 from
investment of reserve funds in 1993; $592,902 in equity in earnings of joint
ventures and $64,056 from investment of reserve funds in 1994; $745,173 in
equity in earnings of joint ventures and $19,451 from investment of reserve
funds in 1995; $577,128 in equity in earnings of joint ventures and $13,711
from investment of reserve funds in 1996; and $623,249 in equity in earnings
of joint ventures and $9,998 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status of all developed property was 95%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenue is
depreciation and amortization of $100,796 for 1993, $324,578 for 1994,
$440,333 for 1995, $592,281 for 1996, and $735,315 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated as follows: $442,135 to Class A
Limited Partners, $(87,868) to Class B Limited Partners and $732 to General
Partners for 1993; $879,232 to Class A Limited Partners, $(316,460) to Class
B Limited Partners and $(1,051) to General Partners for 1994; $1,124,203 to
Class A Limited Partners, $(434,564) to Class B Limited Partners and $0 to
General Partners for 1995; $1,095,296 to Class A Limited Partners,
$(589,646) to Class B Limited Partners and $0 to General Partners for 1996;
and $559,801 to Class A Limited Partners, $0 to Class B Limited Partners and
$0 to General Partners in 1997.
177
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ -------------- ---------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 884,802 $ 675,782 $ 1,002,567 $ 819,535 $ 82,723
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 82,898 80,479 94,489 112,389 46,608
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 4,687
---------- ---------- ------------ ---------- -----------
Net Income GAAP Basis/(4)/ $ 795,654 $ 589,053 $ 901,828 $ 700,896 $ 31,428
Taxable Income: Operations ========== ========== ============ ========== ===========
Cash Generated (Used By): $1,091,770 $ 809,389 $ 916,531 $ 667,682 $ 31,428
Operations ========== ========== ============ ========== ===========
Joint Ventures
(57,206) (2,716) 278,728 $ 276,376 (2,478)
1,500,023 1,044,891 766,212 $ 203,543 --
Less Cash Distributions to Investors: --------- ---------- ------------ ---------- -----------
Operating Cash Flow $1,442,817 $1,042,175 $ 1,044,940 $ 479,919 $ (2,478)
Return of Capital --
1,442,817 1,042,175 1,044,940 245,800 --
Undistributed Cash Flow from Prior Year Operations 9,986 125,314 -- $ 234,119 --
-- 18,027 $ 216,092 -- --
---------- ------------ ---------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (9,986) $ (143,341) (216,092) $ 234,119 $ (2,478)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- 12,163,461 $12,836,539
---------- ---------- ------------ ---------- -----------
$ (9,986) $ (143,341) $ (216,092) $12,397,580 $12,834,061
Use of Funds:
Sales Commissions and Offering Expenses -- -- 1,776,909 1,781,724
Return of Original Limited Partner's Investment -- -- -- 100
Property Acquisitions and Deferred Project Costs 310,759 234,924 10,721,376 5,912,454 3,856,239
---------- ---------- ------------ ---------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (320,745) $ (378,265) $(10,937,468) $4,708,217 $ 7,195,998
========== ========== ============ ========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 78 59 57 43 9
- Operations Class B Units (247) (160) (60) (12) (5)
Capital Gain (Loss) -- -- -- -- 0
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 75 56 56 41 1
- Operations Class B Units (150) (99) (51) (22) --
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 67 56 57 14 --
- Return of Capital Class A Units -- -- 4 -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 67 50 61 14 --
- Return of Capital Class A Units 0 6 -- -- --
- Operations Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table
100%
</TABLE>
178
<PAGE>
_______________________
(1) Includes $3,436 in equity in loss of joint ventures and $86,159 from
investment of reserve funds in 1993, $285,711 in equity in earnings of
joint ventures and $533,824 from investment of reserve funds in 1994,
$681,033 in equity in earnings of joint ventures and $321,534 from
investment of reserve funds in 1995, $607,214 in equity in earnings of
joint ventures and $68,568 from investment of reserve funds in 1996, and
$856,710 in equity in earnings of joint ventures and $28,092 from
investment of reserve funds in 1997. At December 31, 1997, the leasing
status was 94%.
(2) Includes partnership administrative expenses.
(3) Included in equity in loss of joint ventures in gross revenues is
depreciation of $3,436 for 1993, $107,807 for 1994, $264,866 for 1995,
$648,478 for 1996, and $896,753 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $39,551 to Class A Limited
Partners, $(8,042) to Class B Limited Partners and $(81) to the General
Partner for 1993; $762,218 to Class A Limited Partners, $(62,731) to Class
B Limited Partners and $1,409 to the General Partners for 1994; $1,172,944
to Class A Limited Partners, $(269,288) to Class B Limited Partners and
$(1,828) to the General Partners for 1995; $1,234,717 to Class A Limited
Partners, $(645,664) to Class B Limited Partners and $0 to the General
Partners for 1996; and $1,677,826 to Class A Limited Partners, $(882,172)
to Class B Limited Partners and $0 to the General Partners for 1997.
179
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ----------- -------------- ------------- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 816,237 $ 543,291 $ 925,246 $ 286,371 N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 76,838 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 4,688
---------- --------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 733,149 $ 452,776 $ 804,043 $ 203,263
========== ========= ============ ===========
Taxable Income: Operations $1,008,368 $ 657,443 $ 812,402 $ 195,067
========== ========= ============ ===========
Cash Generated (Used By):
Operations (43,250) 20,883 431,728 47,595
Joint Ventures 1,420,126 760,628 424,304 14,243
---------- --------- ------------ -----------
$1,376,876 $ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 1,376,876 781,511 856,032 52,195
Return of Capital 2,709 10,805 22,064 --
Undistributed Cash Flow from Prior Year Operations -- -- 9,643 --
---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (2,709) $ (10,805) $ (31,707) $ 9,643
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions $ -- $ -- $ 805,212 $23,374,961
----------- ---------- ------------ -----------
$ (2,709) $ (10,805) $ 773,505 $23,384,604
Use of Funds:
Sales Commissions and Offering Expenses -- -- 244,207 $ 3,351,569
Return of Original Limited Partner's Investment -- -- 100 --
Property Acquisitions and Deferred Project Costs 169,172 736,960 14,971,002 4,477,765
---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (171,881) $(747,765) $(14,441,804) $15,555,270
========== ========= ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 86 62 57 29
- Operations Class B Units (168) (98) (20) (9)
Capital Gain (Loss) -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 78 55 55 28
- Operations Class B Units (111) (58) (16) 17
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 805 43 52 7
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 70 42 51 7
- Return of Capital Class A Units -- 1 1 --
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment income Class A Units 54 29 30 4
- Return of Capital Class A Units 16 14 22 3
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
180
<PAGE>
- ----------------------------------
(1) Includes $78,799 in equity in earnings of joint ventures and $207,572 from
investment of reserve funds in 1994, $403,325 in equity in earnings of
joint ventures and $521,921 from investment of reserve funds in 1995,
$457,144 in equity in earnings of joint ventures and $86,147 from
investment of reserve funds in 1996, and $785,398 in equity in earnings of
joint ventures and $30,839 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status was 92% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, $140,533 for 1995, $605,247 for 1996, and
$877,869 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $233,337 to Class A Limited
Partners, $(29,854) to Class B Limited Partners and $(220) to the General
Partner for 1994; $950,826 to Class A Limited Partners, $(146,503) to Class
B Limited Partners and $(280) to the General Partners for 1995; $1,062,605
to Class A Limited Partners, $(609,829) to Class B Limited Partners and $0
to the General Partners for 1996; and $1,615,965 to class A Limited
Partners, $(882,816) to Class B Limited Partners and $0 to the General
Partners for 1997.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1997, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$972,030.
181
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- ------------- ------------ ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,204,018 $ 1,057,694 $ 402,428 N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250
------------ ----------- -----------
Net Income GAAP Basis/(4)/ $ 1,102,567 $ 936,590 273,914
============ =========== ===========
Taxable Income: Operations $ 1,213,524 $ 1,001,974 404,348
============ =========== ===========
Cash Generated (Used By):
Operations 7,909 623,268 204,790
Joint Ventures 1,229,282 279,984 20,287
------------ ----------- -----------
$ 1,237,191 $ 903,252 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 1,237,191 903,252 --
Return of Capital 183,315 2,443 --
Undistributed Cash Flow from Prior Year Operations -- 225,077 --
------------ ----------- -----------
$ (183,315) $ (227,520) 225,077
Cash Generated (Deficiency) after Cash Distributions
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions/(5)/ -- 1,898,147 30,144,542
------------ ----------- -----------
$ (183,315) $ 1,670,627 30,369,619
Use of Funds:
Sales Commissions and Offering Expenses -- 464,760 4,310,028
Return of Limited Partner's Investment 8,600 -- --
Property Acquisitions and Deferred Project Costs 10,675,811 7,931,566 6,618,273
------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(10,867,726) $(6,725,699) 19,441,318
============ =========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 73 46 28
- Operations Class B Units (150) (47) (3)
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 65 46 17
- Operations Class B Units (95) (33) (3)
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 54 43 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 47 43 --
- Return of Capital Class A Units 7 0 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 42 33 --
- Return of Capital Class A Units 12 10 --
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
182
<PAGE>
- ----------------------------------
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995, $241,819 in equity in earnings of
joint ventures and $815,875 from investment of reserve funds in 1996, and
$1,034,907 in equity in earnings of joint ventures and $169,111 from
investment of reserve funds in 1997. At December 31, 1997, the leasing
status was 96% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995, $265,259 for 1996, and $841,666 for
1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995; $1,207,540 to Class A Limited Partners, $(270,653) to
Class B Limited Partners and $(297) to the General Partners for 1996; and
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1997, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$551,455.
183
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
-------------- ------------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,199,300 $ 406,891 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 101,284 101,885
Depreciation and Amortization/(3)/ 6,250 6,250
------------ -----------
Net Income GAAP Basis/(4)/ $ 1,091,766 $ 298,756
============ ===========
Taxable Income: Operations $ 1,083,824 $ 304,552
============ ===========
Cash Generated (Used By):
Operations $ 501,390 $ 151,150
Joint Ventures 527,390 --
------------ -----------
$ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow $ 1,028,780 149,425
Return of Capital $ 41,834 $ --
Undistributed Cash Flow From Prior Year Operations 1,725 --
------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (43,559) $ 1,725
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 35,000,000
------------ -----------
$ (43,559) $35,001,725
Use of Funds:
Sales Commissions and Offering Expenses 323,039 4,900,321
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 13,427,158 6,544,019
------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(13,793,856) $23,557,385
============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 53 28
- Operations Class B Units (77) (11)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 46 26
- Operations Class B Units (47) (48)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 36 13
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 35 13
- Return of Capital Class A Units 1 --
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 29 10
- Return of Capital Class A Units 7 3
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
184
<PAGE>
_____________________________________
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996, and $593,914 in equity in earnings of
joint ventures and $605,386 from investment of reserve funds in 1997. At
December 31, 1997, the leasing status was 93% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996, and $469,126 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996; and $1,564,778 to Class A Limited Partners, $(472,806)
to Class B Limited Partners and $(206) to the General Partners for 1997.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1997, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$236,379.
185
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 372,507 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 88,232
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 278,025
===========
Taxable Income: Operations $ 382,543
===========
Cash Generated (Used By):
Operations $ 200,668
Joint Ventures -----------
$ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow --
Return of Capital --
Undistributed Cash Flow From Prior Year Operations --
-----------
Cash Generated (Deficiency) after Cash Distributions $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions 27,128,912
-----------
$27,329,580
Use of Funds:
Sales Commissions and Offering Expenses 3,737,363
Return of Original Limited Partner's Investment 100
Property Acquisitions and Deferred Project Costs 5,188,485
-----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $18,403,632
===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 28
- Operations Class B Units (9)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 35
- Operations Class B Units 0
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units __
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units __
- Return of Capital Class A Units --
- Operations Class B Units --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units __
- Return of Capital Class A Units __
- Return of Capital Class B Units --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
186
<PAGE>
__________________________________
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542
from investment of reserve funds in 1997. At December 31, 1997, the
leasing status was 67% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1997, the aggregate amount of
such priority distributions payable to Class B Limited Partners totalled
$0.
187
<PAGE>
EXHIBIT A
FORM OF AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
WELLS REAL ESTATE FUND XII/XIII, L.P.
<PAGE>
WELLS REAL ESTATE FUND XII/XIII, L.P.
TABLE OF CONTENTS TO PARTNERSHIP AGREEMENT
<TABLE>
<CAPTION>
Article Page
- ------- ----
<S> <C>
I FORMATION.................................................... A-1
II NAME......................................................... A-1
III DEFINITIONS.................................................. A-2
IV BUSINESS..................................................... A-8
V NAMES AND ADDRESSES OF PARTNERS.............................. A-9
VI TERM......................................................... A-9
VII PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT......... A-9
VIII CAPITAL CONTRIBUTIONS........................................ A-9
IX DISTRIBUTIONS............................................... A-16
X ALLOCATIONS................................................. A-19
XI MANAGEMENT OF THE PARTNERSHIP............................... A-24
XII SERVICES TO PARTNERSHIP BY GENERAL PARTNERS................. A-35
XIII TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP... A-38
XIV INDEPENDENT ACTIVITIES OF PARTNERS.......................... A-39
XV BOOKS, REPORTS, FISCAL AND TAX MATTERS...................... A-39
XVI RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS.............. A-44
XVII WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS............................. A-45
XVIII LOANS TO PARTNERSHIP........................................ A-49
XIX POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS......... A-49
XX DISSOLUTION AND TERMINATION OF THE PARTNERSHIP.............. A-52
XXI DISTRIBUTION ON TERMINATION OF PARTNERSHIP.................. A-55
XXII GENERAL PROVISIONS.......................................... A-56
</TABLE>
<PAGE>
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
WELLS REAL ESTATE FUND XII/XIII, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into effective as of the _____ day of _______________, 1999, by and
among LEO F. WELLS, III, a Georgia resident, and WELLS PARTNERS, L.P., a Georgia
limited partnership, as the General Partners, and BRIAN M. CONLON, a Georgia
resident, as the Initial Limited Partner, and those parties who from time to
time become Limited Partners as provided in this Agreement, as the Limited
Partners.
WHEREAS, on September 15, 1998, a Certificate of Limited Partnership was
filed with the Secretary of State of the State of Georgia, pursuant to which the
General Partners and the Initial Limited Partner formed a limited partnership
(the "Partnership") under the Georgia Revised Uniform Limited Partnership Act,
O.C.G.A. (S) 14-9-100, et seq. (the "Act"); and
WHEREAS, the parties hereto desire to amend, restate and supersede in its
entirety the original partnership agreement pursuant to the terms and provisions
of this Amended and Restated Agreement of Limited Partnership.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and conditions herein contained, the parties hereto hereby agree, and the
limited partnership agreement of the Partnership shall hereafter be restated and
amended in its entirety, as follows:
ARTICLE I
FORMATION
The General Partners have executed and filed a Certificate of Limited
Partnership dated June 20, 1996, with the Secretary of State of the State of
Georgia in accordance with the provisions of Section 14-9-201 of the Act,
pursuant to which the parties hereto have previously formed the Partnership.
ARTICLE II
NAME
The business of the Partnership shall be conducted under the name of "WELLS
REAL ESTATE FUND ___, L.P." or such other name as the General Partners shall
hereafter designate in their discretion from time to time.
A-1
<PAGE>
ARTICLE III
DEFINITIONS
3.1 "ACT" shall mean the provisions of the Georgia Revised Uniform Limited
Partnership Act, O.C.G.A. (S)14-9-100, et seq.
3.2 "ACQUISITION EXPENSES" shall mean expenses, including, but not limited
to, legal fees and expenses, travel and communications expenses, costs of
appraisals, nonrefundable option payments on property not acquired, accounting
fees and expenses, title insurance and miscellaneous expenses related to
selection and acquisition of properties, whether or not acquired.
3.3 "ACQUISITION FEES" shall mean the total of all fees and commissions
paid by any party to any Person in connection with the purchase, development or
construction of property by the Partnership, including the Acquisition and
Advisory Fees payable to the General Partners or their Affiliates, real estate
brokerage commissions, investment advisory fees, finder's fees, selection fees,
Development Fees, Construction Fees, nonrecurring management fees, or any other
fees of a similar nature, however designated, but excluding any Development Fees
and Construction Fees paid to a Person not affiliated with the Sponsor in
connection with the actual development or construction of a property.
3.4 "ACQUISITION AND ADVISORY FEE" shall mean the fee payable to the
General Partners or their Affiliates pursuant to Section 12.1 hereof for
performing acquisition advisory services in connection with the review and
evaluation of potential real property acquisitions for the Partnership.
3.5 "ADDITIONAL LIMITED PARTNERS" shall refer to all persons who are
admitted as Limited Partners pursuant to the provisions hereof.
3.6 "AFFILIATE" shall mean (a) any Person directly or indirectly
controlling, controlled by or under common control with a General Partner, (b)
any Person owning or controlling 10% or more of the outstanding voting
securities of a General Partner, (c) any officer, director or partner of a
General Partner, and (d) if such other Person is an officer, director or
partner, any company for which a General Partner acts in any such capacity.
3.7 "AGREEMENT" shall mean this Agreement of Limited Partnership as
amended, modified or supplemented from time to time.
3.8 "ASSIGNEE" shall mean a Person who has acquired a Limited Partner's
beneficial interest in one or more Units and has not become a substituted
Limited Partner.
3.9 "CAPITAL ACCOUNT" shall mean the account established and maintained
for each Partner pursuant to Section 8.1 hereof.
3.10 "CAPITAL CONTRIBUTION" shall mean, in the case of the General
Partners, the aggregate amount of cash contributed by the General Partners to
the Partnership and, in the case of a Limited Partner, the gross amount of
investment in the Partnership by such Limited Partner, which shall be an amount
equal to $10.00 multiplied by the number of Units purchased by such Limited
Partner.
A-2
<PAGE>
3.11 "CASH FLOW" shall mean cash funds from operations of the Partnership,
including without limitation interest and other investment income but excluding
Capital Contributions and without deduction for depreciation or amortization,
after deducting funds used to pay or to provide for the payment of all operating
expenses of the Partnership and each Partnership Property and debt service, if
any, capital improvements and replacements.
3.12 "CASH PREFERRED UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Cash Preferred Unit for the applicable
accounting period.
3.13 "CERTIFICATE" shall mean the Certificate of Limited Partnership filed
by the General Partners with the Secretary of State of Georgia dated September
15, 1998.
3.14 "CODE" shall mean the Internal Revenue Code of 1986, as amended.
3.15 "CONSTRUCTION FEES" shall mean any fees or other remuneration for
acting as general contractor and/or construction manager to construct, supervise
and/or coordinate improvements in connection with the actual development or
construction of a Partnership Property.
3.16 "DEVELOPMENT FEES" shall mean any fees or other remuneration for the
packaging of a Partnership Property, including negotiating and approving plans,
assisting in obtaining zoning and necessary variances for a specific property,
and related matters.
3.17 "DISSENTING LIMITED PARTNER" shall mean any Limited Partner who casts
a vote against a Roll-Up; except that, for purposes of a transaction
constituting a Roll-Up which involves an exchange or a tender offer, Dissenting
Limited Partner shall mean any person who files a dissent from the terms of the
transaction with the party responsible for tabulating the votes or tenders to be
received in connection with the transaction during the period in which the offer
is outstanding.
3.18 "DISTRIBUTION REINVESTMENT PLAN" shall mean the plan established
pursuant to Section 8.15 hereof.
3.19 "EVENT OF WITHDRAWAL" shall mean, as to the General Partners (a) the
dissolution, death or permanent disability of a General Partner; (b) if such
General Partner (i) makes an assignment for the benefit of the creditors; (ii)
files a voluntary petition in bankruptcy; (iii) is adjudicated a bankrupt or
insolvent; (iv) files a petition or answer speaking for himself or itself in the
reorganization, arrangement, composition, readjustment, liquidation, dissolution
or similar relief under any statute, law or regulation; (v) files an answer or
other pleading admitting or failing to contest the material allegations of the
petition filed against him or it in any proceeding of this nature; (vi) seeks,
consents to or acquiesces in the appointment of a trustee, receiver or
liquidator of such General Partner of all or a substantial part of his or its
property; or (c) upon (i) the filing of a certificate of dissolution of a
General Partner or the revocation of a General Partner's charter and lapse of 90
days after notice to the General Partner of revocation without reinstatement of
its charter; (ii) 120 days after the commencement of any proceeding against a
General Partner seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law or regulation,
if the proceeding has not been dismissed; or (iii) the expiration of 90 days
after the appointment without such General Partner's consent or acquiescence of
a trustee, receiver or liquidator of such General Partner or of all or any
substantial part of its properties, the appointment of which is not vacated or
stayed within 90 days after the expiration
A-3
<PAGE>
of any stay or, if within 90 days after the expiration of any stay the
appointment is not vacated. If there is at least one remaining General Partner,
an Event of Withdrawal of a General Partner shall be effective as of the date of
any such event; however, if an Event of Withdrawal shall occur with respect to
the last remaining General Partner, the Event of Withdrawal shall not be
effective until 120 days after the event giving rise to the Event of Withdrawal
has occurred.
3.20 "EXPIRATION DATE" shall mean the date on which the Offering terminates
as provided in the Prospectus.
3.21 "FRONT-END FEES" shall mean fees and expenses paid by any party for
any services rendered during the Partnership's organizational or acquisition
phase including Organization and Offering Expenses, Acquisition Fees (including
Acquisition and Advisory Fees), Acquisition Expenses, interest on deferred fees
and expenses, if applicable, and any other similar fees, however designated.
3.22 "GAIN ON SALE" shall mean the taxable income or gain for federal
income tax purposes (including gain exempt from tax) in the aggregate for each
fiscal year from the sale, exchange or other disposition of all or any portion
of a Partnership asset after netting losses from such sales, exchanges or other
dispositions against the gains from such transactions.
3.23 "GENERAL PARTNERS" shall refer collectively to Leo F. Wells, III and
Wells Partners, or any other Person or Persons who succeed any or all of them in
that capacity.
3.24 "GROSS REVENUES" shall mean all amounts actually collected as rents or
other charges for the use and occupancy of Partnership Properties, but shall
exclude interest and other investment income of the Partnership and proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership.
3.25 "IRS" means Internal Revenue Service.
3.26 "INITIAL LIMITED PARTNER" shall mean Brian M. Conlon.
3.27 "INDEPENDENT EXPERT" shall mean a Person with no material current or
prior business or personal relationship with the Sponsor who is engaged to a
substantial extent in the business of rendering opinions regarding the value of
assets of the type held by the Partnership and who is qualified to perform such
work.
3.28 "INVESTMENT IN PROPERTIES" shall mean the amount of Capital
Contributions actually paid or allocated to the purchase, development,
construction or improvement of properties acquired by the Partnership (including
the purchase of properties, working capital reserves allocable thereto [except
that working capital reserves in excess of 5% shall not be included] and other
cash payments such as interest and taxes, but excluding Front-End Fees).
3.29 "LIMITED PARTNERS" shall refer to the Initial Limited Partner, the
Additional Limited Partners and to all other Persons who are admitted to the
Partnership as additional or substituted Limited Partners.
3.30 "LIQUIDATING DISTRIBUTIONS" shall mean the net cash proceeds received
by the Partnership from (a) the sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of
A-4
<PAGE>
substantially all of the assets of the Partnership or the last remaining assets
of the Partnership or (b) a liquidation of the Partnership's assets in
connection with a dissolution of the Partnership, after (i) payment of all
expenses of such sale, exchange, condemnation, eminent domain taking, casualty
or other disposition or liquidation, including real estate commissions, if
applicable, (ii) the payment of any outstanding indebtedness and other
liabilities of the Partnership, (iii) any amounts used to restore any such
assets of the Partnership, and (iv) any amounts set aside as reserves which the
General Partners in their sole discretion may deem necessary or desirable.
3.31 "MAJORITY VOTE" shall mean the affirmative vote or written consent of
Limited Partners then owning of record more than 50% of the outstanding Units of
the Partnership, without distinction as to the class of such Units; provided,
however, that any Units owned or otherwise controlled by the General Partners or
their Affiliates may not be voted and will not be included in the total number
of outstanding Units for purposes of this definition.
3.32 "MINIMUM GAIN" shall have the meaning set forth in Treasury
Regulations Section 1.704-2(d).
3.33 "MINIMUM OFFERING" shall mean the receipt and acceptance by the
General Partners of subscriptions for Units aggregating at least $1,250,000 in
offering proceeds.
3.34 "MINIMUM OFFERING EXPIRATION DATE" shall mean six (6) months after the
commencement of the Offering of the Units.
3.35 "NASAA GUIDELINES" shall mean the Statement of Policy Regarding Real
Estate Programs of the North American Securities Administrators Association,
Inc. adopted on October 9 and 12, 1988, effective January 1, 1989, as amended.
3.36 "NET CAPITAL CONTRIBUTION" shall mean, with respect to any Partner,
the Partner's Capital Contribution as reduced from time to time by distributions
to such Partner constituting a return of unused capital pursuant to Section 8.10
hereof or by distributions to such Partner of Nonliquidating Net Sale Proceeds
and Liquidating Distributions pursuant to Sections 9.2 and 9.4 hereof, but
excluding distributions made to Limited Partners pursuant to Section 9.2(a)
hereof, and without reduction for distributions of Net Cash From Operations made
pursuant to Section 9.1 hereof.
3.37 "NET CASH FROM OPERATIONS" shall mean Cash Flow, less adequate cash
reserves for other obligations of the Partnership for which there is no
provision and the Repurchase Reserve, if any.
3.38 "NET INCOME" or "NET LOSS" shall mean the net income or loss realized
or recognized by the Partnership for a fiscal year, as determined for federal
income tax purposes, including any income exempt from tax, but excluding all
deductions for depreciation, amortization and cost recovery and Gain on Sale.
3.39 "NONLIQUIDATING NET SALE PROCEEDS" shall mean the net cash proceeds
received by the Partnership from a sale, exchange, condemnation, eminent domain
taking, casualty or other disposition of assets of the Partnership, which does
not constitute substantially all of the remaining assets of the Partnership,
after (a) payment of all expenses of such sale, exchange, condemnation, eminent
domain taking, casualty or other disposition, including real estate commissions,
if applicable, (b) the payment of any outstanding indebtedness and other
Partnership liabilities relating to such assets, (c) any amounts used
A-5
<PAGE>
to restore any such assets of the Partnership, and (d) any amounts set aside as
reserves which the General Partners in their sole discretion may deem necessary
or desirable.
3.40 "OFFERING" shall mean the offering and sale of Units to the public
pursuant to the terms and conditions set forth in the Prospectus.
3.41 "ORGANIZATION AND OFFERING EXPENSES" shall mean those expenses
incurred in connection with organizing the Partnership, preparing the
Partnership for registration and subsequently offering and distributing the
Units to the public, including without limitation, legal and accounting fees,
sales commissions paid to broker-dealers in connection with the distribution of
the Units and all advertising expenses.
3.42 "PARTICIPATING PERCENTAGE" shall mean at any given time, as to each
holder of a Unit or Units, the percentage of that Person's Unit or Units to the
total Units being measured and shall be determined by dividing the total number
of Units held by such Person by the total number of outstanding Units in the
class or classes being measured and multiplying the quotient thereof by 100.
3.43 "PARTNERS" shall refer collectively to the General Partners and to the
Limited Partners, and reference to a "Partner" shall be to any one of the
Partners.
3.44 "PARTNERSHIP" shall refer to the limited partnership created under
this Agreement.
3.45 "PARTNERSHIP PROPERTY" or "PARTNERSHIP PROPERTIES" shall mean any and
all land and improvements purchased or constructed by the Partnership and all
repairs, replacements or renewals thereof, together with all personal property
acquired by the Partnership which is from time to time located thereon or
specifically used in connection therewith.
3.46 "PERSON" shall mean any natural person, partnership, corporation,
association, or other legal entity, including without limitation, qualified
pension and profit sharing trusts.
3.47 "PREFERENTIAL LIMITED PARTNER RETURN" shall mean with respect to each
Limited Partner Unit the sum of (a) a cumulative (but not compounded) 10% per
annum return on a Limited Partner's Net Capital Contribution with respect to
such Unit for all periods during which such Unit was treated as a Class A Status
Unit, and (b) a cumulative (but not compounded) 15% per annum return on such
Limited Partner's Net Capital Contribution with respect to such Unit for all
periods during which such Unit was treated as a Class B Status Unit. Each
Limited Partner's Preferential Limited Partner Return shall be calculated from
the date on which such Limited Partner's initial Capital Contribution was made
to the Partnership.
3.48 "PRIOR WELLS PUBLIC PROGRAMS" shall mean public real estate limited
partnerships or other publicly registered programs or entities previously or
currently sponsored by the General Partners or their Affiliates having
substantially identical investment objectives as the Partnership.
3.49 "PROSPECTUS" shall mean the prospectus used by the Partnership in
connection with its offer and sale of Units pursuant to a Registration Statement
filed under the Securities Act of 1933, as amended.
A-6
<PAGE>
3.50 "PURCHASE PRICE" shall mean the sum of the prices paid for all
properties by the Partnership (including all Acquisition Fees, liens and
mortgages on the properties, but excluding points and prepaid interest) plus all
costs of improvements, if any, reasonably and properly allocable to the
properties.
3.51 "REGISTRATION STATEMENT" shall mean the registration statement filed
by the Partnership with the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, in order to register the Units for sale to
the public.
3.52 "REPURCHASE RESERVE" shall mean the cash reserve established under
Section 11.3(h) hereof, which may be used to repurchase Units from the Limited
Partners in accordance with Section 8.11 hereof.
3.53 "RETIREMENT PLANS" shall mean Individual Retirement Accounts
established under Section 408 of the Code and Keogh or corporate pension or
profit sharing plans established under Section 401(a) of the Code.
3.54 "ROLL-UP" shall mean any transaction or series of transactions that
through acquisition or otherwise involves the combination, reorganization,
merger, conversion or consolidation, either directly or indirectly, of the
Partnership and either the offer, sale or issuance of securities of a Roll-Up
Entity or the acquisition of the Roll-Up Entity's securities by the Partnership;
provided, however, that such term does not include a transaction that (a)
involves securities of the Partnership that have been listed for at least 12
months on a national securities exchange or traded through the National
Association of Securities Dealers Automated Quotation National Market System; or
(b) involves the conversion to corporate, trust or association form of only the
Partnership if, as a consequence of the transaction, there will be no
significant adverse change in any of the following: (i) Limited Partners' voting
rights, (ii) the term of existence of the Partnership, (iii) compensation to the
General Partners or their Affiliates, or (iv) the Partnership's investment
objectives.
3.55 "ROLL-UP ENTITY" shall mean a partnership, real estate investment
trust, corporation, trust or other entity that would be created or would survive
after the successful completion of a proposed Roll-Up.
3.56 "ROLL-UP TRANSACTION COSTS" shall mean the costs of printing and
mailing the proxy, prospectus, or other documents; legal fees; financial
advisory fees; investment banking fees; appraisal fees; accounting fees;
independent committee expenses; travel expenses; and all other fees relating to
the preparatory work of the transaction, but not including costs that would have
otherwise been incurred by the subject limited partnerships in the ordinary
course of business.
3.57 "SALE DATE" shall mean the day on which the Partnership realizes any
gain or loss from the sale, exchange or other disposition of Partnership assets
which it is required to allocate to the Partners under Section 10.4 hereof.
3.58 "SPONSOR" shall mean any individual, partnership, corporation or other
legal entity which (i) is directly or indirectly instrumental in organizing,
wholly or in part, the Partnership, (ii) will manage or participate in the
management of the Partnership, and any Affiliate of any such Person, other than
a Person whose only relationship with the Partnership is that of an independent
property manager, whose only compensation is as such, (iii) takes the
initiative, directly or indirectly, in founding or organizing
A-7
<PAGE>
the Partnership, either alone or in conjunction with one or more other Persons,
(iv) receives a material participation in the Partnership in connection with the
founding or organizing of the business of the Partnership, in consideration of
services or property, or both services and property, (v) has a substantial
number of relationships and contacts with the Partnership, (vi) possesses
significant rights to control Partnership Properties, (vii) receives fees for
providing services to the Partnership which are paid on a basis that is not
customary in the industry, or (viii) provides goods or services to the
Partnership on a basis which was not negotiated at arm's-length with the
Partnership.
3.59 "TAX PREFERRED UNIT" shall mean a Unit with respect to which the
Limited Partner holding such Unit has made an effective election pursuant to
Section 8.16 hereof to be treated as a Class B Status Unit for the applicable
accounting period.
3.60 "TREASURY REGULATIONS" shall mean the Income Tax Regulations
promulgated under the Code by the United States Treasury Department.
3.61 "UNIT" shall mean the limited partnership interest entitling the
holder thereof to all rights and benefits under this Agreement including, but
not limited to, an interest in the income, loss, distributions and capital of
the Partnership to be allocated to holders of Units, as set forth in Articles IX
and X hereof. Limited Partners holding Units shall have the right to elect to
have their Units treated as Cash Preferred Units or Tax Preferred Units pursuant
to the provisions of Section 8.16 hereof. All Units, whether they be treated as
Cash Preferred Units or Tax Preferred Units, shall represent a Capital
Contribution of $10.00 each (irrespective of the fact that because of discounts
in sales commissions and other fees under certain circumstances, certain Units
may be sold and issued for a gross consideration of less than $10.00 per Unit),
shall be issued as fully paid and nonassessable and shall have the same rights,
privileges and preferences except as expressly provided herein.
3.62 "WELLS CAPITAL" shall mean Wells Capital, Inc., a Georgia corporation.
3.63 "WELLS PARTNERS" shall mean Wells Partners, L.P., a Georgia limited
partnership.
ARTICLE IV
BUSINESS
4.1 PURPOSE. The principal purpose of the Partnership is to acquire,
-------
develop, construct, own, operate, improve, lease and otherwise manage for
investment purposes, either alone or in association with others, a diversified
portfolio of income-producing commercial or industrial properties as shall from
time to time be acquired by the Partnership and to engage in any or all general
business activities related to or incidental to such principal purpose.
A-8
<PAGE>
4.2 OBJECTIVES. The business of the Partnership shall be conducted with
----------
the following objectives:
(a) To maximize Net Cash From Operations;
(b) To preserve, protect and return the Partners' investment in the
Partnership; and
(c) To realize appreciation in value of Partnership Properties.
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
The names of the General Partners are Wells Partners, L.P., a Georgia
limited partnership, and Leo F. Wells, III. The name of the Initial Limited
Partner is Brian M. Conlon. The business address of the General Partners and
the Initial Limited Partner is 3885 Holcomb Bridge Road, Norcross, Georgia
30092. The names and addresses of all the Additional Limited Partners shall be
set forth in the books and records of the Partnership.
ARTICLE VI
TERM
The Partnership term commenced upon the filing of the Certificate and shall
continue until December 31, 2030, unless sooner terminated as hereinafter
provided.
ARTICLE VII
PRINCIPAL AND REGISTERED OFFICE AND REGISTERED AGENT
The principal and registered office of the Partnership shall be 3885
Holcomb Bridge Road, Norcross, Georgia 30092. The General Partners may from
time to time change the principal place of business and, in such event, shall
notify the Limited Partners in writing of the change and the effective date of
such change. The registered agent for the Partnership at such address shall be
Wells Capital, Inc.
ARTICLE VIII
CAPITAL CONTRIBUTIONS
8.1 CAPITAL ACCOUNTS. A separate Capital Account shall be maintained for
----------------
each Partner. The Capital Accounts of the Partners shall be determined and
maintained throughout the term of the Partnership in accordance with the capital
accounting rules of Treasury Regulations Section 1.704-1(b), as it may be
amended or revised from time to time.
A-9
<PAGE>
8.2 GENERAL PARTNERS. The General Partners shall make Capital
----------------
Contributions to the Partnership as follows:
Name Dollar Amount
---- -------------
Wells Partners, L.P. $400
Leo F. Wells, III 100
----
Total $500
8.3 GENERAL PARTNER PURCHASE OF UNITS. The Capital Contributions of the
---------------------------------
General Partners, together with the Capital Contribution of the Initial Limited
Partner, shall constitute the initial capital of the Partnership and shall not
entitle the General Partners to any Units. The General Partners may, in their
discretion, make additional Capital Contributions to the capital of the
Partnership in exchange for the purchase of Units. Any General Partner who
purchases Units shall continue, in all respects, to be treated as a General
Partner but shall receive the income, losses and cash distributions with respect
to any Units purchased by such General Partner on the same basis as other
Partners may receive with respect to their Units. Units purchased by the
General Partners or their Affiliates shall not be entitled to vote on any
transaction requiring Limited Partner approval.
8.4 INITIAL LIMITED PARTNER. The Initial Limited Partner shall contribute
-----------------------
$100 in cash to the Partnership and agrees that his interest shall automatically
be redeemed for $100 upon the admission of any Additional Limited Partners to
the Partnership.
8.5 LIMITED PARTNER CONTRIBUTIONS. The General Partners are authorized
-----------------------------
and directed to raise capital for the Partnership as provided in the Prospectus
by offering and selling not more than an aggregate of 3,500,000 Units as
follows:
(a) Each Unit shall be issued for a purchase price of $10.00 less any
discounts authorized in the Prospectus.
(b) Except as set forth below, the minimum purchase of either class
or combination of Units shall be 100 Units (or such greater minimum number of
Units as may be required under applicable state or federal laws). Except in
certain states, subscribers who have satisfied the minimum purchase requirements
and have purchased units in Prior Wells Public Programs or units or shares of
other public real estate programs may purchase less than the minimum number of
Units described above, but in no event less than 2.5 Units. In addition, after
subscribers have satisfied the minimum purchase requirements, the minimum
additional investment in the Partnership shall not be less than 2.5 Units.
Fractional Units may be sold at the discretion of the General Partners.
Notwithstanding the foregoing, the provisions set forth above relating to the
minimum number of Units which may be purchased shall not apply to purchases of
Units pursuant to the Distribution Reinvestment Plan described in Section 8.15
hereof or a qualified Distribution Reinvestment Plan authorized by the
partnership agreement of one of the Prior Wells Public Programs or reinvestment
plans of other public real estate programs. The suitability standards set forth
in the Prospectus will not be decreased with respect to any investment in Units
of the Partnership.
(c) The General Partners may refuse to accept subscriptions for Units
and contributions tendered therewith for any reason whatsoever. Subscriptions
shall be so accepted or
A-10
<PAGE>
rejected by the General Partners within 30 days of their receipt. If rejected,
all funds will be returned to the subscriber within ten business days. Once
accepted, such subscription amounts shall be deposited in escrow within 48 hours
or deposited to the Partnership's account, as may then be appropriate under this
Agreement.
(d) Each Unit sold to a subscriber shall be fully paid and
nonassessable.
8.6 ADMISSION OF LIMITED PARTNERS. No action or consent by any Limited
-----------------------------
Partners shall be required for the admission of Additional Limited Partners to
the Partnership, provided that the Partnership may not issue more than 3,500,000
Units. Funds of subscribers for Units shall be held in the escrow account
described in Section 8.8 below. Such funds shall not be released from escrow,
and no subscribers for Units shall be admitted to the Partnership unless and
until the receipt and acceptance by the Partnership of the Minimum Offering. At
any time thereafter, the Capital Contributions of such subscribers may be
released directly to the Partnership, provided that such subscribers shall be
admitted to the Partnership within 15 days after such release. Subscriptions
from subsequent subscribers shall be accepted or rejected within 30 days of
receipt by the Partnership, and if rejected, all funds shall be returned to
subscribers within 10 business days. Subsequent subscribers shall be deemed
admitted as Limited Partners of the Partnership on the day on which the
subscriptions from such Persons are accepted by the Partnership.
No Person shall be admitted as a Limited Partner who has not executed and
delivered to the Partnership the Subscription Agreement specified in the
Prospectus, together with such other documents and instruments as the General
Partners may deem necessary or desirable to effect such admission, including,
but not limited to, the written acceptance and agreement by such Person to be
bound by the terms and conditions of this Agreement.
8.7 MINIMUM CAPITALIZATION. The Offering will terminate if the
----------------------
Partnership has not received and accepted subscriptions for the Minimum Offering
on or before the Minimum Offering Expiration Date.
8.8 ESCROW. Until subscriptions for the Minimum Offering are received and
------
accepted by the General Partners, or until the Minimum Offering Expiration Date,
whichever first occurs, all subscription proceeds shall be held in an escrow
account separate and apart from all other funds and invested in obligations of,
or obligations guaranteed by, the United States government, or bank money-market
accounts or certificates of deposit of national or state banks that have
deposits insured by the Federal Deposit Insurance Corporation (including
certificates of deposit of any bank acting as a depository or custodian for any
such funds), which mature on or before the Minimum Offering Expiration Date,
unless such instrument cannot be readily sold or otherwise disposed of for cash
by the Minimum Offering Expiration Date without any dissipation of the
subscription proceeds invested, all in the discretion of such escrow agent or
agents appointed by the General Partners. All moneys tendered by Persons whose
subscriptions are rejected shall be returned, without interest, to such Persons
promptly after such rejection. If subscriptions for the Minimum Offering are
not received and accepted before the Minimum Offering Expiration Date, those
subscriptions and funds in escrow on such date shall be returned to the
subscribers, together with any interest earned thereon after deducting escrow
expenses (except for Maine, Missouri, Ohio and Pennsylvania residents).
Notwithstanding the above, subscriptions from residents of New York and
Pennsylvania may not be released from escrow to the Partnership until the
receipt and acceptance by the General Partners of subscriptions from all sources
for not less than 250,000 Units.
A-11
<PAGE>
8.9 PUBLIC OFFERING. Except as otherwise provided in this Agreement, the
---------------
General Partners shall have sole and complete discretion in determining the
terms and conditions of the offer and sale of Units and are hereby authorized
and directed to do all things which they deem to be necessary, convenient,
appropriate and advisable in connection therewith, including, but not limited
to, the preparation and filing of the Registration Statement with the Securities
and Exchange Commission and the securities commissioners (or similar agencies or
officers) of such jurisdictions as the General Partners shall determine, and the
execution or performance of agreements with selling agents and others concerning
the marketing of the Units, all on such basis and upon such terms as the General
Partners shall determine.
8.10 RETURN AND WITHDRAWAL OF CAPITAL.
--------------------------------
(a) Any proceeds of the Offering of the Units not invested or
committed to the acquisition or development of specific real properties within
the later of two years from the effective date of the Registration Statement or
one year after the termination of the Offering (except for necessary operating
expenses and any reserves under Section 11.3(h) of this Agreement) shall be
distributed pro rata to the Limited Partners as a return of capital. In such
event, the amount paid to the Limited Partners shall include Front-End Fees but
only to the extent such fees exceed the adjusted allowable Front-End Fees based
on the obligation of the General Partners pursuant to Section 12.2(b) hereof to
commit at least 84% of the remaining Capital Contributions to Investment in
Properties. For purposes of the foregoing, funds will be deemed to have been
committed and will not be distributed to the extent such funds would be required
to acquire property with respect to which contracts, agreements in principle or
letters of understanding have been executed, regardless of whether such property
is actually acquired, and to the extent such funds have been reserved to make
contingent payments in connection with the acquisition, development or
improvement of any property, whether or not any such payments are made. No such
return shall be made until this Agreement has been amended to reflect such
reduction of capital. Any distribution pursuant to this Section 8.10(a) shall
be deemed to have been consented to by the Limited Partners.
(b) No Partner, including a withdrawing Partner, shall have any right
to withdraw or make a demand for withdrawal of any such Partner's Capital
Contribution (or the capital interest reflected in such Partner's Capital
Account) until the full and complete winding up and liquidation of the business
of the Partnership unless such withdrawal is provided for herein.
8.11 REPURCHASE OF UNITS. After one year following the termination of the
-------------------
Offering of Units, the Partnership shall have the right, in the sole discretion
of the General Partners, to use funds held in the Repurchase Reserve to purchase
Units upon written request of a Limited Partner. The establishment of a
Repurchase Reserve is in the sole discretion of the General Partners, and if
established, the Repurchase Reserve may be terminated and/or reestablished at
any time in the sole discretion of the General Partners.
(a) In no event shall the Repurchase Reserve exceed 5% of the Cash
Flow in any given year.
(b) A Limited Partner wishing to have his Units repurchased must mail
or deliver a written request to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans) indicating his desire to have
such Units repurchased. Such requests will be considered by the General
Partners in the order in which they are received.
A-12
<PAGE>
(c) In the event that the General Partners decide to honor a request,
they will notify the requesting Limited Partner in writing of such fact, of the
purchase price for the repurchased Units and of the effective date of the
repurchase transaction (which shall be not less than 60 nor more than 75
calendar days following the receipt of the written request by the Partnership)
and will forward to such Limited Partner the documents necessary to effect such
repurchase transaction.
(d) Fully executed documents to effect the repurchase transaction
must be returned to the Partnership at least 30 days prior to the effective date
of the repurchase transaction.
(e) The purchase price for the repurchased Units shall be established
by the Partnership no more often than on a quarterly basis.
(f) The purchase price for repurchased Units will be equal to 85% of
the fair market value of the Units until three years from the effective date of
the Registration Statement, and 90% of the fair market value of the Units
thereafter. The fair market value utilized for the purpose of establishing the
purchase price will be the estimated unit value obtained annually pursuant to
Section 15.2(f) hereof.
(g) Only amounts then held in the Repurchase Reserve may be used to
repurchase Units.
(h) Upon receipt of the required documentation, the Partnership will,
on the effective date of the repurchase transaction, repurchase the Units of the
Limited Partner, provided that if sufficient amounts are not then available in
the Repurchase Reserve to repurchase all of such Units, only a portion of such
Units will be repurchased; and provided further, that the Partnership may not
repurchase any Units of such Limited Partner if, as a result thereof, the
Limited Partner would own less than the minimum investment. Units repurchased
by the Partnership pursuant to this Section 8.11 shall be promptly canceled.
(i) In the event that insufficient funds are available in the
Repurchase Reserve to repurchase all of such Units, the Limited Partner will be
deemed to have priority for subsequent Partnership repurchases over Limited
Partners who subsequently request repurchases.
(j) Repurchases of Units out of the Repurchase Reserve shall be
subject to the restrictions set forth in Section 17.3(g) hereof.
(k) In addition to the restrictions set forth in Section 17.3(g)
hereof, (i) repurchases out of the Repurchase Reserve may not exceed in the
aggregate more than 2% of total Capital Contributions throughout the life of the
Partnership excluding repurchases of Units relating to the death or legal
incapacity of the owner or a substantial reduction in the owner's net worth or
income (defined to mean an involuntary loss of not less than 50% of income or
net worth during the year in which such repurchase occurs); and (ii) not more
than 2% of the outstanding Units may be purchased in any year, provided in each
case that the Partnership has sufficient cash to make the purchase and that the
purchase will not be in violation of any other applicable legal requirements.
(l) In no event shall Units owned by the General Partners or their
Affiliates be repurchased by the Partnership.
A-13
<PAGE>
8.12 INTEREST ON CAPITAL CONTRIBUTIONS. No interest shall be paid on any
---------------------------------
Capital Contributions.
8.13 OWNERSHIP BY LIMITED PARTNER OF INTEREST IN AFFILIATES OF GENERAL
-----------------------------------------------------------------
PARTNERS. No Limited Partner (other than a General Partner, in the event that
- --------
he or it is also a Limited Partner) shall at any time, either directly or
indirectly, own any stock or other interest in any Affiliate of any General
Partner if such ownership, by itself or in conjunction with the stock or other
interest owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partners shall be
entitled to make such reasonable inquiry of the Limited Partners and prospective
Limited Partners as is required to establish compliance by the Limited Partners
with the provisions of this Section 8.13.
8.14 DEFICIT CAPITAL ACCOUNTS. The Limited Partners shall not be required
------------------------
to reimburse the Partnership or any other Partner for deficiencies in their
Capital Accounts. In addition, except as may be required under state law, the
General Partners shall not be required to reimburse the Partnership or the
Limited Partners for deficiencies in their Capital Accounts.
8.15 DISTRIBUTION REINVESTMENT PLAN.
------------------------------
(a) A Limited Partner who acquired his Units in the Offering may
elect to participate in a program for the reinvestment of his distributions (the
"Distribution Reinvestment Plan") and have his distributions of Net Cash From
Operations reinvested in Units of the Partnership during the offering period or
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. A Limited Partner who acquired his Units by
transfer from a former Limited Partner is not eligible to have his distributions
of Net Cash From Operations reinvested in Units of the Partnership, but may
participate in the Distribution Reinvestment Plan with respect to reinvestment
in units issued by a subsequent limited partnership sponsored by the General
Partners or their Affiliates which has substantially identical investment
objectives as the Partnership. Limited Partners participating in the
Distribution Reinvestment Plan may purchase fractional Units and shall not be
subject to minimum investment requirements, although the General Partners may,
at their option, impose certain minimum investment requirements or restrictions
with respect to purchases of Units pursuant to the Distribution Reinvestment
Plan. Each Limited Partner electing to have such distributions of Net Cash From
Operations reinvested will receive, with each confirmation of distributions, a
notice advising such Limited Partner that he is entitled to change his election
with respect to subsequent distributions by return of a notice to the
Partnership by a date to be specified by the General Partners.
(b) If a Limited Partner withdraws from participation in the
Distribution Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt by the General
Partners of written notice of such withdrawal. In the event a Limited Partner
transfers his Units, such transfer shall terminate the Limited Partner's
participation in the plan as of the first day of the quarter in which such
transfer is effective.
(c) Distributions may be reinvested in a subsequent limited
partnership only if (i) prior to the time of such reinvestment, the Limited
Partner has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii)
A-14
<PAGE>
the offer or sale of such interests is qualified for sale under the applicable
state securities laws; (iv) the participant executes the subscription agreement
included with the prospectus for the subsequent limited partnership; (v) the
participant qualifies under the applicable investor suitability standards as
contained in the prospectus for the subsequent limited partnership; and (vi) the
subsequent limited partnership has substantially identical investment objectives
as the Partnership. If (A) any of the foregoing conditions are not satisfied at
the time of a distribution or (B) no interests are available to be purchased,
such distributions will be paid in cash.
(d) Each Limited Partner electing to participate in the Distribution
Reinvestment Plan hereby agrees that his investment in this Partnership or any
subsequent limited partnership sponsored by the General Partners or their
Affiliates shall be deemed to constitute his agreement to be a limited partner
of the partnership in which such investment is made and to be bound by the terms
and conditions of the agreement of limited partnership of such partnership, and
if, at any time, he fails to meet the applicable limited partnership investor
suitability standards or cannot make the other investor representations or
warranties set forth in the then current limited partnership prospectus,
partnership agreement or subscription agreement relating thereto, he will
promptly notify the General Partners in writing.
(e) The General Partners may, at their option, elect not to provide
the Distribution Reinvestment Plan or terminate any such plan at any time
without notice to the Limited Partners.
8.16 CASH PREFERRED UNITS AND TAX PREFERRED UNITS. Upon subscription for
--------------------------------------------
Units, each Limited Partner shall elect to have his Units treated either as Cash
Preferred Units or Tax Preferred Units, or a combination thereof.
Notwithstanding the foregoing, each Limited Partner purchasing Units pursuant to
the Deferred Commission Option, as defined in the Prospectus, must elect upon
subscription to have a sufficient number of Units treated as Cash Preferred
Units, in the discretion of the General Partners, to generate at least the
amount of Net Cash From Operations distributable with respect to such Units
needed to satisfy the deferred commission obligations each year with respect to
the total number of Units purchased by such Limited Partner pursuant to the
Deferred Commission Option. Elections to be treated as Cash Preferred Units or
Tax Preferred Units will be in effect for each fiscal year of the Partnership,
or such shorter applicable accounting period as the General Partners, in their
sole discretion, may determine and use for accounting purposes. Units with
respect to which the Limited Partner owning such Units has elected to be treated
as Cash Preferred Units with respect to an accounting period shall be referred
to as herein as "Cash Preferred Units" for such accounting period, and Units
with respect to which the Limited Partner owning such Units has elected to have
treated as Tax Preferred Units with respect to an accounting period shall be
referred to herein as "Tax Preferred Units" for such accounting period. Limited
Partners holding Cash Preferred Units and Limited Partners holding Tax Preferred
Units shall have such interests in the income, distributions, allocations and
capital of the Partnership as are described in Articles IX and X below. Except
as specifically described in Articles IX and X below, all Limited Partners shall
have the same rights under this Agreement as all other Limited Partners
regardless of whether their Units are treated as Cash Preferred Units or Tax
Preferred Units. Limited Partners shall initially elect to have their Units
treated as Cash Preferred Units or Tax Preferred Units in their Subscription
Agreement for Units. Thereafter, except as set forth below or as may be
otherwise limited or prohibited by applicable state law, Limited Partners may
change their election by mailing or delivering written notice to the Partnership
(executed by the trustee or authorized agent in the case of Retirement Plans).
Elections made in Subscription Agreements shall be effective immediately upon
acceptance. Thereafter, Limited Partners shall have the right to change their
prior election with respect to the treatment of their Units as Cash Preferred
Units or Tax Preferred Units (except where prohibited by applicable state law)
one time during each accounting period, and any such election shall be effective
A-15
<PAGE>
commencing as of the first day of the next succeeding accounting period
following the receipt by the Partnership of written notice of such election. Any
such election to be treated as Cash Preferred Units or Tax Preferred Units shall
remain in effect until the first day of the next succeeding accounting period
following receipt by the Partnership of written notice to change such election,
and all such elections shall be binding upon the Limited Partner's successors
and assigns. Notwithstanding the foregoing, during the initial six years
following termination of the Offering, Limited Partners purchasing Units
pursuant to the Deferred Commission Option, as defined in the Prospectus, will
be permitted to elect to have their Cash Preferred Units treated as Tax
Preferred Units only to the extent that such Limited Partners at all times
maintain a sufficient number of Cash Preferred Units during such initial six
year period, in the discretion of the General Partners, to generate enough Net
Cash From Operations to allow the Partnership to satisfy the deferred commission
obligations relating to the total number of Units purchased by such Limited
Partners pursuant to the Deferred Commission Option. Notwithstanding anything to
the contrary contained herein, Units acquired and held by the General Partners
or their Affiliates shall at all times be treated as Cash Preferred Units, and
neither the General Partners nor their Affiliates shall have the right to make
an election to have Units beneficially owned by them treated as Tax Preferred
Units.
ARTICLE IX
DISTRIBUTIONS
9.1 NET CASH FROM OPERATIONS. Except as otherwise provided for in a
------------------------
liquidation in Sections 9.3 and 9.4 hereof, Net Cash From Operations for each
applicable accounting period shall be distributed to the Partners as follows:
(a) First, to the Limited Partners holding Cash Preferred Units on a
per Unit basis until each of such Limited Partners has received distributions of
Net Cash From Operations with respect to such fiscal year, or applicable portion
thereof, equal to 10% per annum of his Net Capital Contribution;
(b) Then, to the General Partners until they have received
distributions of Net Cash From Operations with respect to such fiscal year equal
to 10% of the total distributions under Section 9.1(a) above and this Section
9.1(b) with respect to such fiscal year; and
(c) Thereafter, 90% to the Limited Partners holding Cash Preferred
Units on a per Unit basis, and 10% to the General Partners.
Notwithstanding the foregoing, Limited Partners holding Cash Preferred
Units who purchased Units pursuant to the Deferred Commission Option, as defined
in the Prospectus, shall for a period of six years following termination of the
Offering have deducted and withheld from distributions of Net Cash From
Operations otherwise payable to such Limited Partners an annual amount equal to
$0.10 per Unit purchased pursuant to said Deferred Commission Option, which
amounts shall be used by the Partnership to pay commissions due with respect to
such Units. All such amounts withheld from Net Cash From Operations shall be
deemed to have been distributed to, and be deemed to have been received by, such
Limited Partners as Net Cash From Operations.
The General Partners shall be prohibited from making any distributions of
Net Cash From Operations out of Capital Contributions, and distributions of Net
Cash From Operations shall not reduce
A-16
<PAGE>
Partners' Net Capital Contributions. No distributions of Net Cash From
Operations will be made with respect to Tax Preferred Units.
The General Partners shall not incur any liability as a result of their
determination to distribute Net Cash From Operations, even though such
distribution may result in the Partnership's retaining insufficient funds for
the operation of its business, provided their determination was made in good
faith and not as a result of their negligence or misconduct.
9.2 NONLIQUIDATING NET SALE PROCEEDS. Except as otherwise provided for in
--------------------------------
Sections 9.3 and 9.4 hereof and except for the potential reinvestment of
Nonliquidating Net Sale Proceeds as provided in Section 11.3(f) hereof,
Nonliquidating Net Sale Proceeds, after the payment of all Partnership debts and
liabilities and the establishment of any reserves which the General Partners in
their sole discretion may deem reasonably necessary or desirable, shall be
distributed to the Partners as follows:
(a) To Limited Partners holding Units which at any time have been
treated as Tax Preferred Units on a per Unit basis, such amounts as may be
necessary to give each such Limited Partner an amount of Nonliquidating Net Sale
Proceeds which, when added to distributions received or deemed received by such
Limited Partner with respect to any period during which his Units were treated
as Cash Preferred Units, would be equal on a per Unit basis to the Net Cash From
Operations allocated and distributed pursuant to Section 9.1 hereof received or
deemed received by Limited Partners holding Units which at all times have been
treated as Cash Preferred Units, assuming such Limited Partners purchased an
equivalent number of Units on the same date (it being the intent of the Partners
that the distribution preference provided by Section 9.1 hereof be only a timing
preference on distributions and that this provision have the effect of
equalizing distributions to Limited Partners on a per Unit basis so that, after
receipt of distributions under this Section 9.2(a), all Limited Partners, to the
extent possible, be in the receipt of the same aggregate amount of distributions
under this Article IX on a per Unit basis);
(b) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received distributions
under Section 8.10 hereof, this Section 9.2(b) and Section 9.4 hereof totalling
100% of his Net Capital Contribution;
(c) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions under Sections 9.1, 9.2(a) and this 9.2(c) equal to a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution;
(d) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has received or has been deemed to have received aggregate
distributions under Sections 9.1, 9.2(a), 9.2(c) and this 9.2(d) equal to his
Preferential Limited Partner Return, as defined in Section 3.48 hereof;
(e) Then, to the General Partners until the General Partners have
received distributions totalling 100% of their Capital Contributions;
(f) Then, if and only in the event that Limited Partners have
received Excess Limited Partner Distributions, as hereinafter defined, to the
General Partners until they have received distributions of Nonliquidating Net
Sale Proceeds equal to 20% of the sum of any such Excess Limited Partner
Distributions and distributions to the General Partners pursuant to this Section
9.2(f) (the term "Excess Limited Partner Distributions" means any distributions
to Limited Partners over the life of their
A-17
<PAGE>
investment in the Partnership in excess of the sum of their Net Capital
Contributions plus their Preferential Limited Partner Return); and
(g) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated or receive distributions in excess of the NASAA
Guidelines Resale Proceeds Maximum Amount, as defined herein. It is the intent
of the foregoing proviso that the General Partners receive no more of the net
proceeds from the sale or financing of Partnership Properties than is allowed
pursuant to Article IV, Section E.2.b. of the NASAA Guidelines, and in the event
the allocations pursuant to this Article IX would otherwise result in the
General Partners receiving any such excess distributions, such excess
distributions otherwise distributable to the General Partners will instead be
reallocated in favor of and distributed to the Limited Partners on a per Unit
basis. As used herein, the term "NASAA Guidelines Resale Proceeds Maximum
Amount" means an amount equal to 15% of aggregate Nonliquidating Net Sale
Proceeds and Liquidating Distributions remaining after payments to all Limited
Partners from such proceeds of amounts equal to 100% of their Net Capital
Contributions plus amounts equal to a 6% per annum return on their Net Capital
Contributions, calculated on a cumulative (noncompounded) basis.
Notwithstanding the foregoing, in the event that the Partnership sells any
Partnership Property at a sale price which is less than the Purchase Price
originally paid for such Partnership Property, then prior to the distribution of
Nonliquidating Net Sale Proceeds under Section 9.2(a) above, the Limited
Partners holding Cash Preferred Units shall first receive distributions of
Nonliquidating Net Sale Proceeds in an amount equal to the excess of the
original Purchase Price of such Partnership Property sold over the sale price of
such Partnership Property, but not in excess of the amount of the special
allocations of deductions for depreciation, amortization and cost recovery with
respect to such Partnership Property previously made to the Limited Partners
holding Tax Preferred Units made pursuant to Sections 10.2(a) and 10.2(b)
hereof.
9.3 DISSOLUTION. Upon dissolution, the Partnership shall proceed to
-----------
liquidate its assets as follows:
(a) Subject to any applicable limitations of law, upon dissolution of
the Partnership, the assets of the Partnership shall be converted to cash. The
Partnership shall be given adequate time to collect any notes received with
respect to the sale of such assets and collect any other debts outstanding. All
cash on hand, including all cash received after the happening of an event of
dissolution set forth in Section 20.1 hereof, shall be applied and distributed
as follows:
(i) All of the debts and liabilities of the Partnership,
except indebtedness to Partners, shall first be paid and satisfied or adequate
provision, including the setting up of any reserves which the General Partners
in their sole discretion deem reasonably necessary or desirable, shall be made
for the payment or satisfaction thereof;
(ii) All debts of the Partnership to Partners shall next be
paid on a pro rata basis without respect to the date on which such debts were
incurred;
(iii) Any fees due to the General Partners shall next be paid;
and
A-18
<PAGE>
(iv) The balance of the assets of the Partnership shall be
distributed to each Partner in accordance with the positive balance in his
Capital Account as of the date of distribution, as provided in Section 9.4
below.
(b) Upon dissolution, each Limited Partner shall look solely to the
assets of the Partnership for the return of his investment, and if the
Partnership Property remaining after payment or discharge of the debts and
liabilities of the Partnership, including debts and liabilities owed to one or
more of the Partners, is insufficient to return the aggregate Capital
Contributions of each Limited Partner, such Limited Partners shall have no
recourse against the General Partners or any other Limited Partner.
9.4 LIQUIDATING DISTRIBUTIONS. After the payment of all Partnership debts
-------------------------
and liabilities and the establishment of any reserves which the General Partners
in their sole discretion may deem reasonably necessary or desirable, Liquidating
Distributions shall be distributed to each Partner in accordance with the
positive balance in his Capital Account as of the date of distribution (after
allocation of the Gain on Sale as provided in Section 10.4 hereof).
9.5 DISTRIBUTION DATES. Partnership distributions under this Article IX
------------------
will be made at least quarterly, but no more often than monthly, in the
discretion of the General Partners (the "Distribution Period").
9.6 ALLOCATION AMONG GENERAL PARTNERS. All amounts distributed to the
---------------------------------
General Partners under this Article IX shall be apportioned among the General
Partners in such percentages as they may from time to time agree upon among
themselves.
9.7 ALLOCATION AMONG LIMITED PARTNERS. All allocations and distributions
---------------------------------
made to the Limited Partners pursuant to this Article IX shall be paid to those
Persons who were Limited Partners or Assignees as of the last day of the
Distribution Period preceding the time of the distribution (the "Allocation
Date") on a pro rata basis according to the number of Units held on the
Allocation Date; provided, however, with respect to any Unit issued by the
Partnership during such Distribution Period, allocations and distributions made
with respect to such Unit for such Distribution Period shall be equal to the pro
rata share for such Unit determined in accordance with the first clause of this
Section 9.7 multiplied by a fraction, the numerator of which is the number of
days contained in the Distribution Period during which the Unit in question was
issued, and the denominator of which is the total number of days contained in
such Distribution Period.
ARTICLE X
ALLOCATIONS
10.1 NET LOSS. Net Loss for each applicable accounting period shall be
--------
allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Tax Preferred Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
A-19
<PAGE>
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
Notwithstanding the foregoing, in any fiscal year with respect to which the
Partnership incurs an aggregate Net Loss, interest income of the Partnership
shall be specially allocated to the Limited Partners holding Cash Preferred
Units with respect to such accounting period on a per Unit basis, and Net Loss
of the Partnership for such accounting period shall be determined without regard
to such interest income.
10.2 DEPRECIATION, AMORTIZATION AND COST RECOVERY DEDUCTIONS. All
-------------------------------------------------------
deductions for depreciation, amortization and cost recovery for each applicable
accounting period shall be allocated to the Partners as follows:
(a) 99% to the Limited Partners holding Tax Preferred Units with
respect to such accounting period on a per Unit basis, and 1% to the General
Partners until the Capital Accounts of all such Partners have been reduced to
zero;
(b) Then, to any Partner having a positive balance in his Capital
Account (in proportion to the aggregate positive balances in all Capital
Accounts) in an amount not to exceed such positive balance as of the last day of
the fiscal year; and
(c) Then, 100% to the General Partners.
This Section 10.2 notwithstanding, all Net Loss and Net Income for each
fiscal year shall be allocated to the Partners in the manner provided in
Sections 10.1 and 10.3 hereof and shall be reflected in each Partner's Capital
Account as of the last day of such fiscal year before any allocation of
depreciation, amortization or cost recovery deductions is made to the Partners
under this Section 10.2.
10.3 NET INCOME. Subject to the Qualified Income Offset provisions of
----------
Section 10.5 hereof, Net Income for each applicable accounting period shall be
allocated to the Partners as follows:
(a) To the General Partners and the Limited Partners holding Cash
Preferred Units with respect to such accounting period on a per Unit basis, in
the same proportion as, and to the extent that, Net Cash From Operations is
distributed or deemed distributed to them under Section 9.1 hereof with respect
to such accounting period; and
(b) Then, to the extent Net Income exceeds the actual distribution of
Net Cash From Operations with respect to such accounting period, such excess Net
Income shall be allocated 99% to the Limited Partners holding Cash Preferred
Units with respect to such accounting period on a per Unit basis, and 1% to the
General Partners.
10.4 GAIN ON SALE. Gain on Sale for each applicable accounting period
------------
shall be allocated to the Partners as follows:
(a) First, to the extent applicable, pursuant to the Qualified Income
Offset provisions of Section 10.5 hereof;
A-20
<PAGE>
(b) Then, to those Partners having negative Capital Accounts, if any,
in the ratio that the negative Capital Account of each Partner having a negative
Capital Account bears to the aggregate amount of negative Capital Accounts of
all such Partners until all negative Capital Accounts have been restored to
zero;
(c) Then, to Limited Partners holding Units which at any time have
been treated as Tax Preferred Units, in amounts equal to the deductions for
depreciation, amortization and cost recovery specially allocated to such Limited
Partners pursuant to Section 10.2(a) hereof, with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder, but not in excess of the amount of
Gain on Sale recognized by the Partnership pursuant to the sale, exchange or
other disposition of said specific Partnership Property;
(d) Then, to the Limited Partners in amounts equal to the deductions
for depreciation, amortization and cost recovery allocated to such Limited
Partners pursuant to Section 10.2(b) hereof with respect to the specific
Partnership Property, the sale, exchange or other disposition of which resulted
in the allocation of Gain on Sale hereunder;
(e) Then, to Limited Partners holding Units which at any time have
been treated as Tax Preferred Units on a per Unit basis, such amounts as may be
necessary to give each such Limited Partner, after the allocation of Gain on
Sale under this Section 10.4(e), distributions which, when added to
distributions received or deemed received by such Limited Partner with respect
to any period during which his Units were treated as Cash Preferred Units, would
be equal on a per Unit basis to the Net Cash From Operations allocated and
distributed pursuant to Section 9.1 hereof received or deemed received by
Limited Partners holding Units which at all times have been treated as Cash
Preferred Units, assuming said Limited Partners purchased an equivalent number
of Units on the same day (it being the intent of the Partners that the
distribution preference provided in Section 9.1 hereof be only a timing
preference on distributions and that Section 9.2(a) hereof and this provision
have the effect of equalizing distributions to Limited Partners on a per Unit
basis so that, after receipt of distributions under Section 9.2(a) hereof and
distributions resulting from the allocation of Gain on Sale pursuant to this
Section 10.4(e), all Limited Partners, to the extent possible, be in receipt of
the same aggregate amount of distributions under Article IX on a per Unit
basis);
(f) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of each Limited
Partner's Net Capital Contribution over prior distributions received or deemed
received by such Limited Partner under Sections 8.10, 9.2(b) and 9.4 hereof;
(g) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an amount equal to the excess of a cumulative
(but not compounded) 10% per annum return on his Net Capital Contribution over
prior distributions received or deemed received by such Limited Partner under
Sections 9.1, 9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
(h) Then, to the Limited Partners on a per Unit basis until each
Limited Partner has been allocated an aggregate amount equal to the excess of
his Preferential Limited Partner Return, as defined in Section 3.48 hereof, over
prior distributions received or deemed received by each such Limited Partner
under Sections 9.1, 9.2(a), 9.2(c), 9.2(d) and 9.4 hereof;
A-21
<PAGE>
(i) Then, to the General Partners, until the General Partners have
been allocated amounts equal to the excess of 100% of their Capital
Contributions;
(j) Then, if and only in the event that Limited Partners have
received any Excess Limited Partner Distributions, as defined in Section 9.2(f)
hereof, to the General Partners, until the General Partners have been allocated
Gain on Sale under this Section 10.4(j) equal to 20% of the sum of any such
Excess Limited Partner Distributions plus any Gain on Sale allocated to the
General Partners pursuant to this Section 10.4(j); and
(k) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated Gain on Sale pursuant to this Section 10.4 which
would result in the General Partners receiving distributions in excess of the
NASAA Guidelines Resale Proceeds Maximum Amount, as defined in Section 9.2(g)
hereof. It is the intent of the foregoing proviso that the General Partners
receive no more of the net proceeds from the sale or financing of Partnership
Properties than is allowed pursuant to Article IV, Section E.2.b. of the NASAA
Guidelines, and in the event the allocations pursuant to this Article X would
otherwise result in the General Partners receiving any such excess
distributions, such excess allocations of Gain on Sale otherwise allocable to
the General Partners will instead be reallocated in favor of and to the Limited
Partners on a per Unit basis.
Notwithstanding the foregoing, in the event that the Partnership sells the
last remaining Partnership Property at a sale price which is less than the
Purchase Price originally paid for such Partnership Property, then, after the
allocation of Gain on Sale derived from any such sale pursuant to Sections
10.4(a) and 10.4(b) above, and prior to the allocation of Gain on Sale pursuant
to Section 10.4(c) above, Limited Partners holding Cash Preferred Units shall
first be allocated Gain on Sale derived from any such sale in an amount equal to
the excess of the original Purchase Price of such Partnership Property sold over
the sale price of such Partnership Property, but not in excess of the amount of
the special allocations of deductions for depreciation, amortization and cost
recovery with respect to such Partnership Property previously made to Limited
Partners holding Tax Preferred Units pursuant to Sections 10.2(a) and 10.2(b)
hereof.
10.5 QUALIFIED INCOME OFFSET. Notwithstanding any provision to the
-----------------------
contrary contained herein, in the event that any Partner receives an adjustment,
allocation or distribution described in Treasury Regulations Section 1.704-
1(b)(2)(ii)(d)(4), (5) or (6) which causes a deficit balance in such Partner's
Capital Account, such Partner will be allocated items of income or gain
(consisting of a pro rata portion of each item of Partnership income, including
gross income, and gain for such year) in an amount and manner sufficient to
eliminate such deficit balance as quickly as possible, all in accordance with
Treasury Regulations Section 1.704-1(b)(2)(ii)(d). (It is the intent of the
Partners that the foregoing provision constitute a "Qualified Income Offset," as
defined in Treasury Regulations Section 1.704-1(b)(2)(ii)(d), and the foregoing
provision shall in all events be interpreted so as to constitute a valid
"Qualified Income Offset.")
10.6 ALLOCATION AMONG LIMITED PARTNERS. Except as otherwise provided in
---------------------------------
this Article X, all allocations made to the Limited Partners as a group under
this Article X shall be apportioned among the Limited Partners according to each
Limited Partner's Participating Percentage. Except as otherwise provided in this
Article X, all allocations made among Limited Partners holding Cash Preferred
Units shall be apportioned according to a percentage, the numerator of which
shall be the number of Cash Preferred Units held by each such Limited Partner,
and the denominator of which shall be the total
A-22
<PAGE>
number of Cash Preferred Units held by all Limited Partners, and all allocations
made among Limited Partners holding Tax Preferred Units shall be apportioned
among such Limited Partners according to a percentage, the numerator of which
shall be the number of Tax Preferred Units held by each such Limited Partner,
and the denominator of which shall be the total number of Tax Preferred Units
held by all Limited Partners. If, however, Limited Partners are admitted to the
Partnership pursuant to Article VIII on different dates during any fiscal year,
such allocations under this Article X for such fiscal year (and, if necessary,
subsequent years) shall be divided among the Persons who own Units from time to
time during such year in accordance with Section 706 of the Code, using any
conventions permitted by law and selected by the General Partners, in their sole
discretion. In addition, if elections to be treated as Cash Preferred Units or
Tax Preferred Units are deemed to be effective during any fiscal year,
allocations under this Article X for such fiscal year (and, if necessary,
subsequent years) shall be divided among the Limited Partners in accordance with
Section 706 of the Code, using any conventions permitted by law and selected by
the General Partners, in th eir sole discretion.
10.7 ALLOCATION AMONG GENERAL PARTNERS. All allocations made under this
---------------------------------
Article X to the General Partners shall be apportioned among the General
Partners in such percentages as they may from time to time agree among
themselves.
10.8 ITEM PRORATIONS. Any fiscal year of the Partnership in which the
---------------
Partnership realizes any Gain on Sale shall be divided into multiple accounting
periods, the first of which shall begin on the first day of such fiscal year and
shall end on the Sale Date, and the second of which shall begin on the day
following such Sale Date and shall end on the following Sale Date, if any, and
if no further Sale Date occurs, then on the last day of such fiscal year. Any
Net Income realized by the Partnership in any of such accounting periods shall
be allocated to the Partners in the manner provided in Section 10.3 hereof as if
such accounting period were a complete fiscal year of the Partnership. Any Net
Loss, depreciation, amortization or cost recovery deductions incurred by the
Partnership in any of such accounting periods shall be allocated to the Partners
in the manner provided in Sections 10.1 and 10.2 hereof as if such accounting
period were a complete fiscal year of the Partnership. The Net Income, Net Loss,
depreciation, amortization and cost recovery deductions so allocated to the
Partners shall be reflected in their respective Capital Accounts before any Gain
on Sale realized by the Partnership during such accounting period is allocated
to the Partners under Section 10.4 hereof.
10.9 ALLOCATIONS IN RESPECT TO TRANSFERRED UNITS. If any Units are
-------------------------------------------
transferred during any fiscal year, all items attributable to such Units for
such year shall be allocated between the transferor and the transferee by taking
into account their varying interests during the year in accordance with Section
706(d) of the Code, utilizing any conventions permitted by law and selected by
the General Partners, in their sole and absolute discretion. Solely for purposes
of making such allocations, the Partnership shall recognize the transfer of such
Units as of the end of the calendar quarter during which it receives written
notice of such transfer, provided that if the Partnership does not receive a
written notice stating the date such Units were transferred and such other
information as may be required by this Agreement or as the General Partners may
reasonably require within 30 days after the end of the year during which the
transfer occurs, then all such items shall be allocated to the Person who,
according to the books and records of the Partnership, on the last day of the
year during which the transfer occurs, was the owner of the Units. The General
Partners and the Partnership shall incur no liability for making allocations in
accordance with the provisions of this Section 10.9, whether or not the General
Partners or the Partnership have knowledge of any transfer of ownership of any
Units.
A-23
<PAGE>
10.10 ALLOCATIONS IN RESPECT TO REPURCHASED UNITS. If any Units are
-------------------------------------------
repurchased pursuant to Section 8.11 hereof during any fiscal year, all items
attributable to such Units for such year shall be determined by the General
Partners (a) pro rata with respect to the number of months such Units were
outstanding during such year, (b) on the basis of an interim closing of the
Partnership books, or (c) in accordance with any other method established by the
General Partners in accordance with applicable provisions of the Code and
Treasury Regulations.
10.11 DISPUTES. Except with respect to matters as to which the General
--------
Partners are granted discretion hereunder, the opinion of the independent public
accountants retained by the Partnership from time to time shall be final and
binding with respect to all disputes and uncertainties as to all computations
and determinations required to be made under Articles IX and X hereof (including
but not limited to any computations and determinations in connection with any
distribution or allocation pursuant to a dissolution and liquidation).
ARTICLE XI
MANAGEMENT OF THE PARTNERSHIP
11.1 MANAGEMENT. The General Partners shall conduct the business of the
----------
Partnership, devoting such time thereto as they, in their sole discretion, shall
determine to be necessary to manage Partnership business and affairs in an
efficient manner. Any action required to be taken by the General Partners
pursuant to this Agreement shall be duly taken only if it is approved, in
writing or otherwise, by all the General Partners, unless the General Partners
agree among themselves to a different arrangement for said approval.
11.2 POWERS OF THE GENERAL PARTNERS. The General Partners shall have full
------------------------------
charge of overall management, conduct and operation of the Partnership, and
shall have the authority to act on behalf of the Partnership in all matters
respecting the Partnership, its business and its property, and, without limiting
in any manner the foregoing, authority:
(a) To do on behalf of the Partnership all things which, in their
sole judgment, are necessary, proper or desirable to carry out the Partnership's
business, including, but not limited to, the right, power and authority: (i) to
execute all agreements and other documents necessary to implement the purposes
of the Partnership, to take such action as may be necessary to consummate the
transactions contemplated hereby and by the Prospectus, and to make all
reasonably necessary arrangements to carry out the Partnership's obligations in
connection therewith; (ii) to employ, oversee and dismiss from employment any
and all employees, agents, independent contractors, real estate managers,
contractors, engineers, architects, developers, designers, brokers, attorneys
and accountants; (iii) to sell, exchange or grant an option for the sale of all
or substantially all (subject to the requirement to obtain a Majority Vote of
the Limited Partners pursuant to Section 16.1 hereof with respect to a sale of
all or substantially all of the real properties acquired by the Partnership) or
any portion of the real and personal property of the Partnership, at such price
or amount, for cash, securities or other property and upon such other terms as
the General Partners, in their sole discretion, deem proper; (iv) to let or
lease all or any portion of the Partnership Properties for any purpose and
without limit as to the term thereof, whether or not such term (including
renewal terms) shall extend beyond the date of the termination of the
Partnership and whether or not the portion so leased is to be occupied by the
lessee or, in turn, subleased in whole or in part to others; (v) to create, by
grant or otherwise, easements and servitudes; (vi) to borrow money and incur
A-24
<PAGE>
indebtedness; provided, however, the Partnership shall not be permitted to incur
any indebtedness except as authorized in Section 11.3(e) hereof; (vii) to draw,
make, accept, endorse, sign and deliver any notes, drafts or other negotiable
instruments or commercial paper; (viii) to execute such agreements and
instruments as may be necessary, in their discretion, to operate, manage and
promote the Partnership assets and business; (ix) to construct, alter, improve,
repair, raze, replace or rebuild all or any portion of the Partnership
Properties; (x) to submit to arbitration any claim, liability or dispute
involving the Partnership (provided that such claims will be limited to actions
against the Partnership not involving securities claims by the Limited Partners
and provided further that no claim, liability or dispute of a Limited Partner
will be subject to mandatory arbitration); (xi) to compromise any claim or
liability due to the Partnership; (xii) to execute, acknowledge or verify and
file any notification, application, statement and other filing which the General
Partners consider either required or desirable to be filed with any state or
federal securities administrator or commission; (xiii) to make any tax elections
to be made by the Partnership; (xiv) to place record title to any of its assets
in the name of a nominee, agent or a trustee; (xv) to do any or all of the
foregoing, discretionary or otherwise, through agents selected by the General
Partners, whether compensated or uncompensated by the Partnership; (xvi) to
execute and file of record all instruments and documents which are deemed by the
General Partners to be necessary to enable the Partnership properly and legally
to do business in the State of Georgia or any other jurisdiction deemed
advisable; (xvii) to monitor the transfer of Partnership interests to determine
if such interests are being traded on "an established securities market or a
secondary market (or the substantial equivalent thereof)" within the meaning of
Section 7704 of the Code, and take (and cause Affiliates to take) all steps
reasonably necessary or appropriate to prevent any such trading of interests,
including without limitation, voiding transfers if the General Partners
reasonably believe such transfers will cause the Partnership to be treated as a
"publicly traded partnership" under the Code or Treasury Regulations thereunder;
(xviii) at the appropriate time, to register the Units with the Securities and
Exchange Commission pursuant to the Securities Exchange Act of 1934; and (xix)
to do any or all of the foregoing for such consideration and upon such other
terms or conditions as the General Partners, in their discretion, determine to
be appropriate; provided, however, in no event shall the General Partners or
their Affiliates receive compensation from the Partnership unless specifically
authorized by Article XII hereof, by Articles IX and X hereof or by the
"Compensation of the General Partners and Affiliates" section of the Prospectus.
(b) Notwithstanding anything contained herein to the contrary,
subject to the provisions contained in Section 16.2 hereof, to amend this
Agreement without the consent or vote of any of the Limited Partners: (i) to
reflect the addition or substitution of Limited Partners or the reduction of
Capital Accounts upon the return of capital to Partners; (ii) to add to the
representations, duties or obligations of the General Partners or their
Affiliates or surrender any right or power granted herein to the General
Partners or their Affiliates for the benefit of the Limited Partners; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement; (iv) to delete or add any
provision from or to this Agreement requested to be so deleted or added by the
staff of the Securities and Exchange Commission or by the staff of any state
regulatory agency, the deletion or addition of which provision is deemed by the
staff of any such regulatory agency to be for the general benefit or protection
of the Limited Partners; and (v) to attempt to have the provisions of this
Agreement comply with federal income tax law and regulations thereunder.
(c) To possess and exercise, as may be required, all of the rights
and powers of general partners as more particularly provided by the Act, except
to the extent that any of such rights may be limited or restricted by the
express provisions of this Agreement.
A-25
<PAGE>
(d) To execute, acknowledge and deliver any and all instruments and
take such other steps as are necessary to effectuate the foregoing. Any such
instruments may be executed on behalf of the Partnership by either of the
General Partners, except that any instrument pursuant to which the Partnership
acquires or disposes of any interest in real property shall require the
signature, personally or by attorney-in-fact, of each of the General Partners.
11.3 LIMITATIONS ON POWERS OF THE GENERAL PARTNERS. The General Partners
---------------------------------------------
shall observe the following policies in connection with Partnership operations:
(a) Pending initial investment of its funds, or to provide a source
from which to meet contingencies, including, without limitation, the working
capital reserve and Repurchase Reserve, the Partnership may temporarily invest
its funds in short-term, highly liquid investments where there is appropriate
safety of principal, such as government obligations, bank or savings and loan
association certificates of deposit, short-term debt obligations and interest-
bearing accounts; provided that, following one year after the commencement of
the operations of the Partnership, no more than 45% of the value (as defined in
Section 2(a)(41) of the Investment Company Act of 1940, as amended) of the
Partnership's total assets (exclusive of government securities and cash items)
will consist of, and no more than 45% of the Partnership's net income after
taxes (for any four consecutive fiscal quarters combined) will be derived from,
securities other than (i) government securities; (ii) securities issued by
majority owned subsidiaries of the Partnership which are not investment
companies; and (iii) securities issued by companies, which are controlled
primarily by the Partnership, through which the Partnership engages in a
business other than that of investing, reinvesting, owning, holding or trading
in securities, and which are not investment companies.
(b) The Partnership shall not acquire unimproved or non-income
producing property, except in amounts and upon terms which can be financed by
the Offering proceeds or from Cash Flow and provided investment in such
properties shall not exceed 15% of net Offering proceeds available for
Investment in Properties. Properties shall not be considered non-income
producing if they are expected to produce income within two years after their
acquisition.
(c) All real property acquisitions must be supported by an appraisal
which shall be prepared by a competent, independent appraiser. The appraisal
shall be maintained in the Partnership's records for at least five years and
shall be available for inspection and duplication by any Limited Partner. The
Purchase Price paid by the Partnership for each property shall not exceed the
appraised value of such property.
(d) The General Partners shall not have the authority to incur
indebtedness which is secured by the Partnership Properties or assets, except as
specifically authorized pursuant to Section 11.3(e) below.
(e) The General Partners shall have the authority to borrow funds (i)
for Partnership operating purposes in the event of unforeseen or unexpected
circumstances in which the Partnership's working capital reserves and other cash
resources available to the Partnership are deemed insufficient for the
maintenance and repair of Partnership Properties or for the protection or
replacement of the Partnership's assets, and (ii) in order to finance
improvement of and improvements to Partnership Properties at such time as the
General Partners may deem such improvements to be necessary or appropriate to
protect capital previously invested in such Partnership Properties, to protect
the value of the Partnership's investment in a particular Partnership Property,
or to make a particular Partnership
A-26
<PAGE>
Property more attractive for sale or lease; provided, however, that the
aggregate amount of Partnership borrowings shall at no time exceed 25% of the
total purchase price of Partnership Properties. The Partnership may borrow such
funds from the General Partners, their Affiliates or others, provided that if
any such borrowing is from the General Partners or their Affiliates, (i) such
borrowing may not constitute a "financing" as that term is defined under the
NASAA Guidelines (i.e., all indebtedness encumbering Partnership Properties or
incurred by the Partnership, "the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than 50 percent of
the principal amount of which is scheduled to be paid during the first 24
months"); (ii) interest and other financing charges or fees charged on any such
borrowing may not exceed amounts which would be charged by unrelated lending
institutions on comparable financing for the same purpose in the same locality
as the Partnership's principal place of business; and (iii) no prepayment charge
or penalty shall be required with respect to any such borrowing.
(f) The Partnership shall not reinvest Cash Flow or any proceeds from
the sale of a Partnership Property in new properties except that if the
Partnership requires funds to exercise an option to acquire property under lease
or to purchase from any co-venturer an interest in a property that the
Partnership owns jointly with such Person, the Partnership may either distribute
the net proceeds of any sale of Partnership Property to the Partners or may
reinvest such proceeds for the aforementioned purposes; provided, however, that
in any event, a portion of such proceeds sufficient to cover any increase in
Limited Partners' federal and state income taxes attributable to the sale
(assuming a 30% combined federal and state tax bracket) shall be distributed in
time to pay such increase.
(g) The General Partners shall exercise their fiduciary duty for the
safekeeping and use of all funds and assets of the Partnership, whether or not
in their immediate possession or control, and shall not employ, or permit
another to employ, such funds or assets in any manner except for the exclusive
benefit of the Partnership. In addition, the Partnership shall not permit the
Partners to contract away the fiduciary duty owed to the Partners by the General
Partners under common law.
(h) The Partnership may maintain reasonable reserves for normal
repairs, replacements and contingencies or for specified or unspecified tenant
improvements or leasing commissions relating to Partnership Properties, in such
amounts as the General Partners in their sole and absolute discretion determine
from time to time to be adequate, appropriate or advisable in connection with
the operations of the Partnership. In the event expenditures are made from any
such reserves, future operating revenues may be allocated to such reserve to the
extent deemed necessary by the General Partners for the maintenance of
reasonable reserves. In addition, one year after the termination of the
Offering, the Partnership may at the sole discretion of the General Partners
maintain a Repurchase Reserve of up to 5% of Cash Flow in any year. Such funds
may be used to repurchase Units as described in Section 8.11 hereof.
(i) The Partnership shall not own or lease property jointly or in
partnership with unrelated entities except in general partnerships or joint
ventures which own and operate one or more particular properties, unless (i)
such unrelated entity has substantially identical investment objectives as those
of the Partnership; (ii) the management of such partnership or joint ownership
is under the control of the Partnership in that the Partnership or an Affiliate
of the Partnership possesses the power to direct or to cause the direction of
the management and policies of any such partnership or joint venture; (iii) the
Partnership, as a result of such joint ownership or partnership ownership of a
property, is not charged, directly or indirectly, more than once for the same
services; (iv) the joint ownership or partnership does not authorize or require
the Partnership to do anything as a partner or joint venturer with
A-27
<PAGE>
respect to the property which the Partnership or the General Partners could not
do directly because of this Agreement; and (v) the General Partners and their
Affiliates are prohibited from receiving any compensation, fees or expenses
which are not permitted to be paid under this Agreement.
The Partnership may not own or lease property jointly or in a
partnership or joint venture with an Affiliate of the General Partners unless
such property is owned or leased by a joint venture or general partnership with
a publicly registered Affiliate, and unless (i) such Affiliate has substantially
identical investment objectives as those of the Partnership; (ii) the
Partnership, as a result of such joint ownership or partnership ownership of a
property, is not charged, directly or indirectly, more than once for the same
services; (iii) the compensation payable to the General Partners and their
Affiliates is substantially identical in each program; (iv) the Partnership will
have a right of first refusal to buy the property held by such joint venture in
the event that such Affiliate elects to sell its interest in the joint venture;
and (v) the investment by the Partnership and such Affiliate are on
substantially the same terms and conditions.
The ownership of the common areas located on property through a
condominium association or other similar form of real property ownership shall
not be considered a joint ownership of property for purposes of this paragraph.
(j) Investments by the Partnership in limited partnership interests
of other partnerships shall be prohibited.
(k) The completion of improvements which are to be constructed or are
under construction on Partnership Property shall be guaranteed at the price
contracted either by an adequate completion bond or by other satisfactory
assurances; provided, however, that such other satisfactory assurances shall
include at least one of the following: (i) a written personal guarantee of one
or more of the general contractor's principals accompanied by the financial
statements of such guarantor indicating a substantial net worth; (ii) a written
fixed price contract with a general contractor that has a substantial net worth;
(iii) a retention of a reasonable portion of the Purchase Price as a potential
offset to such Purchase Price in the event the seller does not perform in
accordance with the purchase and sale agreement; or (iv) a program of
disbursements control which provides for direct payments to subcontractors and
suppliers.
(l) The Partnership shall make no construction loans to builders of
Partnership Properties and shall make no periodic progress or other advance
payments to such builders unless the Partnership has first received an
architect's certification as to the percentage of the project which has been
completed and as to the dollar amount of the construction then completed.
(m) The Partnership shall not acquire property in exchange for Units.
(n) The Partnership shall not obtain nonrecourse financing from a
Limited Partner or any party affiliated with a Limited Partner.
(o) The Partnership shall not purchase a Partnership Property if (i)
the acquisition price of such Partnership Property is not a fixed amount
determined as of the date of acquisition; or (ii) any amount payable in
connection with such acquisition or the time for making payments thereunder is
dependent, in whole or in part, upon revenues, income or profits derived from
the Partnership Property.
A-28
<PAGE>
(p) The Partnership shall not take back an "all-inclusive" or
"wraparound" note in connection with the sale or other disposition of a
Partnership Property.
(q) The Partnership's business purposes and objectives, as set forth
in Article IV, shall not be changed unless approved by a Majority Vote of the
Limited Partners.
(r) The Partnership shall not invest in junior trust deeds and other
similar obligations.
(s) The General Partners shall not have the authority on behalf of
the Partnership to:
(i) list, recognize or facilitate the trading of Units (or any
interest therein) on any "established securities market (or the equivalent
thereof)" within the meaning of Section 7704 of the Code, or permit any of their
Affiliates to take such actions, if as a result thereof, the Partnership would
be treated for federal income tax purposes as an association taxable as a
corporation or taxed as a "publicly traded partnership;" or
(ii) create for the Units (or any interest therein) a "secondary
market (or the equivalent thereof)" within the meaning of Section 7704 of the
Code or otherwise permit, recognize or facilitate the trading of any such Units
(or any interest therein) on any such market or permit any of their Affiliates
to take such actions, if as a result thereof, the Partnership would be treated
for federal income tax purposes as an association taxable as a corporation or
taxed as a "publicly traded partnership."
(t) The funds of the Partnership shall not be commingled with the
funds of any other Person, except in the case of making capital contributions to
a joint venture or partnership permitted pursuant to the provisions of Section
11.3(i) above.
(u) The General Partners hereby agree that they shall not initiate a
transaction wherein the Partnership is merged or consolidated with another
partnership or corporation, and the General Partners shall not be authorized to
merge or consolidate the Partnership with any other partnership or corporation
or to convert the Partnership to a real estate investment trust unless first
obtaining a Majority Vote of the Limited Partners to any such transaction. In
addition, the General Partners shall not be authorized to enter into or effect
any Roll-Up unless such Roll-Up complies with the following terms and
conditions:
(i) An appraisal of all assets of the Partnership shall be
obtained from a competent Independent Expert. If the appraisal will be included
in a prospectus used to offer the securities of a Roll-Up Entity, the appraisal
shall be filed with the Securities and Exchange Commission and the states as an
exhibit to the registration statement for the offering. The assets of the
Partnership shall be appraised on a consistent basis. The appraisal shall be
based on an evaluation of all relevant information and shall indicate the
current value of the Partnership's assets as of a date immediately prior to the
announcement of the proposed Roll-Up. The appraisal shall assume an orderly
liquidation of the Partnership's assets over a 12 month period, shall consider
other balance sheet items, and shall be net of the assumed cost of sale. The
terms of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and its Limited Partners. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Limited Partners
in connection with the proposed Roll-Up.
A-29
<PAGE>
(ii) In connection with the proposed Roll-Up, the person
sponsoring the Roll-Up shall provide each Limited Partner with a document which
instructs the Limited Partner on the proper procedure for voting against or
dissenting from the Roll-Up and shall offer to Dissenting Limited Partners the
choice of: (A) accepting the securities of the Roll-Up Entity offered in the
proposed Roll-Up which have substantially the same terms and conditions as the
security originally held, provided that the receipt or retention of that
security is not a step in a series of subsequent transactions that directly or
indirectly through acquisition or otherwise involves future contributions or
reorganizations involving the Roll-Up Entity; or (B) one of the following: (I)
remaining as Limited Partners in the Partnership and preserving their interests
therein on the same terms and conditions as existed previously, or (II)
receiving cash in an amount equal to the Limited Partners' pro rata share of the
appraised value of the net assets of the Partnership.
(iii) Securities of the Roll-Up Entity received in the Roll-Up
will be considered to have the same terms and conditions as the security
originally held if: (A) there is no material adverse change to Dissenting
Limited Partners' rights, including but not limited to, rights with respect to
voting, the business plan, or the investment, distribution, management
compensation and liquidation policies of the Roll-Up Entity; and (B) the
Dissenting Limited Partners receive the same preferences, privileges and
priorities as they had pursuant to the security originally held.
(iv) The Partnership may not participate in any proposed Roll-
Up in which any General Partner converts an equity interest in the Partnership
for which consideration was not paid and which was not otherwise provided for in
this Agreement and disclosed to the Limited Partners, into a voting interest in
the Roll-Up Entity, provided, however, an interest originally obtained in order
to comply with the provisions of IRS Revenue Procedure 89-12 may be converted
into a voting interest in the Roll-Up Entity not to exceed a one percent (1%)
interest in the assets and income of such entity.
(v) The Partnership may not participate in any proposed Roll-
Up in which a General Partner does not utilize an independent third party to
receive and tabulate all votes and dissents, and require that the third party
make the tabulation available to the General Partners and any Limited Partner
upon request at any time during and after voting occurs.
(vi) The Partnership may not participate in any proposed Roll-
Up which would result in the Limited Partners having (A) voting rights which do
not generally follow the voting rights of the Limited Partners pursuant to this
Agreement or (B) democracy rights in the Roll-Up Entity which are less than
those provided for under Sections VII.A. and VII.B. of the NASAA Guidelines. If
the Roll-Up Entity is a corporation, the voting rights shall correspond to the
voting rights provided for in the NASAA Guidelines to the greatest extent
possible.
(vii) The Partnership may not participate in any proposed Roll-
Up which includes provisions which would otherwise materially impede or
frustrate the accumulation of shares by any purchaser of the securities of the
Roll-Up Entity (except to the minimum extent necessary to preserve the tax
status of the Roll-Up Entity). The Partnership may not participate in any
proposed Roll-Up which would limit the ability of a Limited Partner to exercise
the voting rights of his securities in the Roll-Up Entity on the basis of the
limited partnership interests or other indicia of ownership held by that Limited
Partner.
A-30
<PAGE>
(viii) The Partnership may not participate in any proposed Roll-
Up in which the Limited Partners' rights of access to the records of the Roll-Up
Entity will be less than those provided for under Section VII.D. of the NASAA
Guidelines.
(ix) The Partnership may not participate in any proposed Roll-
Up in which any of the costs of the transaction would be borne by the
Partnership if the proposed Roll-Up is not approved by a Majority Vote of the
Limited Partners.
(x) The Partnership may not participate in any proposed Roll-
Up in which the rights of Limited Partners are not protected as to fees of
General Partners. The rights of Limited Partners shall be presumed not to be
protected as to fees of General Partners if: (A) General Partners are not
prevented from receiving both unearned management fees discounted to a present
value, if those fees were not previously provided for in this Agreement and
disclosed to Limited Partners, and new asset-based fees; (B) property management
fees and other management fees are not appropriate, not reasonable and greater
than what would be paid to third parties for performing similar services; or (C)
changes in fees which are substantial and adverse to Limited Partners are not
approved by an independent committee according to the facts and circumstances of
each transaction. For purposes of this provision, "management fee" means a fee
paid to the General Partners, their Affiliates, or other persons for management
and administration of the limited partnership Roll-Up Entity.
(xi) The Person proposing a Roll-Up shall pay all solicitation
expenses related to the transaction, including all preparatory work related
thereto, in the event the Roll-Up is not approved. For purposes of this
provision, "solicitation expenses" include direct marketing expenses such as
telephone calls, broker-dealer fact sheets, legal and other fees related to the
solicitation, as well as direct solicitation compensation to brokers and
dealers.
(xii) The Partnership may not participate in any proposed Roll-
Up in which a broker or dealer receives compensation for soliciting votes or
tenders from Limited Partners in connection with the Roll-Up unless that
compensation: (A) is payable and equal in amount regardless of whether the
Limited Partner votes affirmatively or negatively in the proposed Roll-Up; (B)
in the aggregate, does not exceed 2% of the exchange value of the newly created
securities; and (C) is paid regardless of whether the Limited Partners reject
the proposed Roll-Up.
11.4 EXPENSES OF THE PARTNERSHIP.
---------------------------
(a) Subject to Sections 11.4(b) and 11.4(c) below, the Partnership
shall reimburse the General Partners for (i) all Organization and Offering
Expenses incurred by them, and (ii) the actual cost to them of goods and
materials used for or by the Partnership and obtained from entities unaffiliated
with the General Partners.
(b) Except as provided below and in Sections 11.4(a) and 11.4(c), all
of the Partnership's expenses shall be billed directly to and paid by the
Partnership. The General Partners may be reimbursed for the administrative
services necessary to the prudent operation of the Partnership provided that the
reimbursement shall be at the lower of the General Partners' actual cost or the
amount the Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic location. No payment
or reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursements shall be: (i) rent or depreciation, utilities, capital equipment,
other administrative items;
A-31
<PAGE>
and (ii) salaries, fringe benefits, travel expenses and other administrative
items incurred by or allocated to any controlling Persons of the General
Partners or their Affiliates. A controlling Person, for purposes of this Section
11.4(b), shall be deemed to include, but not be limited to, any Person, whatever
his title, who performs functions for the General Partners similar to those of:
(A) chairman or member of the Board of Directors; (B) executive management,
including the President, Vice President or Senior Vice President, Corporate
Secretary and Treasurer; (C) senior management, such as the Vice President of an
operating division who reports directly to executive management; or (D) those
holding a 5% or more equity interest in Wells Partners, L.P. or Wells Capital,
Inc. or a Person having the power to direct or cause the direction of the
General Partners, whether through the ownership of voting securities, by
contract or otherwise. It is not intended that every person who carries a title
such as vice president, secretary or treasurer be considered a controlling
Person. The General Partners believe that their employees and those of their
Affiliates who will perform services for the Partnership for which reimbursement
is allowed pursuant to this Section 11.4(b) have the experience and educational
background, in their respective fields of expertise, appropriate for the
performance of such services.
The annual report to investors shall include a breakdown of the costs
reimbursed to the General Partners pursuant to this subsection. Within the scope
of the annual audit of the General Partners' financial statements, the
independent certified public accountant must verify the allocation of such costs
to the Partnership. The method of verification shall at a minimum provide:
(I) A review of the time records of individual
employees, the cost of whose services were reimbursed; and
(II) A review of the specific nature of the work
performed by each such employee. The methods of verification shall be in
accordance with generally accepted auditing standards and shall, accordingly,
include such tests of the accounting records and such other auditing procedures
which the General Partners' independent certified public accountant considers
appropriate under the circumstances. The additional cost of such verification
will be itemized by said accountants on a program-by-program basis and may be
reimbursed to the General Partners by the Partnership in accordance with this
subsection only to the extent that such reimbursement when added to the cost for
services rendered does not exceed the allowable rate for such services as
determined above.
(c) The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership (i) overhead expenses of the General Partners
and their Affiliates; (ii) expenses and salaries related to the performance of
those services for which the General Partners and their Affiliates are entitled
to compensation by way of Acquisition and Advisory Fees, Partnership and
property management fees or real estate brokerage commissions related to the
resale of Partnership Properties (provided, however, that the foregoing shall in
no way limit the payment or reimbursement of legal, travel, employee-related
expenses and other out-of-pocket expenses which are directly related to a
particular Partnership Property and not prohibited by Section 11.4(b) above);
and (iii) all other administrative expenses which are unrelated to the business
of the Partnership. The General Partners or their Affiliates shall pay, at no
additional cost to the Partnership, Partnership Organization and Offering
Expenses (other than commissions paid to broker-dealers and other underwriting
compensation) to the extent they exceed 3% of the gross proceeds of the Offering
of Units.
(d) Subject to the provisions of paragraphs (b) and (c) of this
Section 11.4, the Partnership shall pay the following expenses of the
Partnership:
A-32
<PAGE>
(i) Partnership Organization and Offering Expenses (other than
commissions paid to broker-dealers and other underwriting compensation) which do
not exceed 3% of the gross proceeds of the Offering of Units;
(ii) underwriting compensation, including broker-dealer selling
commissions and the dealer manager fee, payable in an amount not to exceed 10%
of the gross proceeds of the Offering of Units, plus a maximum of .5% of the
gross proceeds of the Offering of Units for reimbursement of bona fide due
diligence expenses to be paid out of Organization and Offering Expenses subject
to the limitation of Section 11.4(d)(i) above.
(iii) All operational expenses of the Partnership, which may
include, but are not limited to: (A) all costs of personnel employed by the
Partnership or directly involved in the business of the Partnership, including
Persons who may also be employees of the General Partners or their Affiliates,
including but not limited to, salaries and other employee-related expenses,
travel and other out-of-pocket expenses of such personnel which are directly
related to a particular Partnership Property; (B) all costs of borrowed money,
taxes and assessments on Partnership Properties and other taxes applicable to
the Partnership; (C) legal, accounting, audit, brokerage and other fees; (D)
fees and expenses paid to independent contractors, brokers and servicers,
leasing agents, consultants, on-site managers, real estate brokers, mortgage
brokers, insurance brokers and other agents; and (E) expenses in connection with
the disposition, replacement, alteration, repair, remodeling, refurbishment,
leasing and operation of Partnership Properties (including the costs and
expenses of foreclosures, legal and accounting fees, insurance premiums, real
estate brokerage and leasing commissions and maintenance connected with such
Property); and
(iv) All accounting, documentation, professional and reporting
expenses of the Partnership, which may include, but are not limited to: (A)
preparation and documentation of Partnership bookkeeping, accounting and audits;
(B) preparation and documentation of budgets, economic surveys, Cash Flow
projections and Repurchase Reserve and working capital requirements; (C)
preparation and documentation of Partnership federal and state tax returns; (D)
printing, engraving and other expenses and documents evidencing ownership of an
interest in the Partnership or in connection with the business of the
Partnership; (E) expenses of insurance as required in connection with the
business of the Partnership, including, without limitation, life and disability
insurance with respect to any individual General Partner; (F) expenses in
connection with distributions made by the Partnership to, and communications,
bookkeeping and clerical work necessary in maintaining relations with, Limited
Partners, including the costs of printing and mailing to such Persons
certificates for the Units and reports of the Partnership, and of preparing
proxy statements and soliciting proxies in connection therewith; (G) expenses in
connection with preparing and mailing reports required to be furnished to
Limited Partners for investing, tax reporting or other purposes, including
reports required to be filed with the Securities and Exchange Commission and
other federal or state regulatory agencies, or expenses associated with
furnishing reports to Limited Partners which the General Partners deem to be in
the best interests of the Partnership; (H) expenses of revising, amending,
converting, modifying or terminating the Partnership; (I) costs incurred in
connection with any litigation in which the Partnership is involved as well as
any examination, investigation or other proceedings conducted of the Partnership
by any regulatory agency, including legal and accounting fees incurred in
connection therewith; (J) costs of any computer equipment or services used for
or by the Partnership; (K) costs of any accounting, statistical or bookkeeping
equipment necessary for the maintenance of the books and records of the
Partnership; (L) costs of preparation and dissemination of information and
documentation relating to potential sale, financing or other disposition of
Partnership Properties; and (M) supervision and expenses of professionals
employed
A-33
<PAGE>
by the Partnership in connection with any of the foregoing, including attorneys,
accountants and appraisers.
11.5 LIMITATION ON LIABILITY OF THE GENERAL PARTNERS; INDEMNIFICATION OF
-------------------------------------------------------------------
THE GENERAL PARTNERS.
- --------------------
(a) Neither the General Partners nor any of their Affiliates
(hereinafter, an "Indemnified Party") shall be liable, responsible or
accountable in damages or otherwise to any other Partner, the Partnership, its
receiver or trustee (the Partnership, its receiver or trustee are hereinafter
referred to as "Indemnitors") for, and the Indemnitors agree to indemnify, pay,
protect and hold harmless each Indemnified Party (on the demand of such
Indemnified Party) from and against any and all liabilities, obligations,
losses, damages, actions, judgments, suits, proceedings, reasonable costs,
reasonable expenses and disbursements (including, without limitation, all
reasonable costs and expenses of defense, appeal and settlement of any and all
suits, actions or proceedings instituted against such Indemnified Party or the
Partnership and all reasonable costs of investigation in connection therewith)
(collectively referred to as "Liabilities" for the remainder of this Section)
which may be imposed on, incurred by, or asserted against such Indemnified Party
or the Partnership in any way relating to or arising out of any action or
inaction on the part of the Partnership or on the part of such Indemnified Party
in connection with services to or on behalf of the Partnership (and with respect
to an Indemnified Party which is an Affiliate of the General Partners for an act
which the General Partners would be entitled to indemnification if such act were
performed by them) which such Indemnified Party in good faith determined was in
the best interest of the Partnership. Notwithstanding the foregoing, each
Indemnified Party shall be liable, responsible and accountable, and neither the
Partnership nor any Indemnitor shall be liable to an Indemnified Party, for any
portion of such Liabilities which resulted from such Indemnified Party's (i) own
fraud, negligence, misconduct or knowing violation of law, (ii) breach of
fiduciary duty to the Partnership or any Partner, or (iii) breach of this
Agreement, regardless of whether or not any such act was first determined by the
Indemnified Party, in good faith, to be in the best interest of the Partnership.
If any action, suit or proceeding shall be pending against the Partnership or
any Indemnified Party relating to or arising out of any such action or inaction,
such Indemnified Party shall have the right to employ, at the reasonable expense
of the Partnership (subject to the provisions of Section 11.5(b) below),
separate counsel of such Indemnified Party's choice in such action, suit or
proceeding. The satisfaction of the obligations of the Partnership under this
Section shall be from and limited to the assets of the Partnership and no
Limited Partner shall have any personal liability on account thereof.
(b) Cash advances from Partnership funds to an Indemnified Party for
legal expenses and other costs incurred as a result of any legal action
initiated against an Indemnified Party by a Limited Partner are prohibited. Cash
advances from Partnership funds to an Indemnified Party for reasonable legal
expenses and other costs incurred as a result of any legal action or proceeding
are permissible if (i) such suit, action or proceeding relates to or arises out
of any action or inaction on the part of the Indemnified Party in the
performance of its duties or provision of its services on behalf of the
Partnership; (ii) such suit, action or proceeding is initiated by a third party
who is not a Limited Partner; and (iii) the Indemnified Party undertakes to
repay any funds advanced pursuant to this Section in the cases in which such
Indemnified Party would not be entitled to indemnification under Section 11.5(a)
above. If advances are permissible under this Section, the Indemnified Party
shall have the right to bill the Partnership for, or otherwise request the
Partnership to pay, at any time and from time to time after such Indemnified
Party shall become obligated to make payment therefor, any and all amounts for
which such Indemnified Party believes in good faith that such Indemnified Party
is entitled to indemnification under Section 11.5(a) above. The Partnership
shall pay any and all such bills and honor any and all such
A-34
<PAGE>
requests for payment within 60 days after such bill or request is received. In
the event that a final determination is made that the Partnership is not so
obligated for any amount paid by it to a particular Indemnified Party, such
Indemnified Party will refund such amount within 60 days of such final
determination, and in the event that a final determination is made that the
Partnership is so obligated for any amount not paid by the Partnership to a
particular Indemnified Party, the Partnership will pay such amount to such
Indemnified Party within 60 days of such final determination.
(c) Notwithstanding anything to the contrary contained in Section
11.5(a) above, neither the General Partners nor any of their Affiliates nor any
Person acting as a broker-dealer with respect to the Units shall be indemnified
from any liability, loss or damage incurred by them arising due to an alleged
violation of federal or state securities laws unless (i) there has been a
successful adjudication on the merits of each count involving alleged securities
law violations as to the particular Indemnified Party, or (ii) such claims have
been dismissed with prejudice on the merits by a court of competent jurisdiction
as to the particular Indemnified Party, or (iii) a court of competent
jurisdiction approves a settlement of the claims against the particular
Indemnified Party and finds that indemnification of the settlement and related
costs should be made. Prior to seeking a court approval for indemnification, the
General Partners shall undertake to cause the party seeking indemnification to
apprise the court of the position of the Securities and Exchange Commission, the
California Commissioner of the Department of Corporations, the Massachusetts
Securities Division, the Missouri Securities Division, the Nebraska Bureau of
Securities, the Oklahoma Department of Securities, the Pennsylvania Securities
Commission, the Tennessee Securities Division and the Texas State Securities
Board with respect to indemnification for securities violations.
(d) The Partnership shall not incur the cost of the portion of any
insurance which insures any party against any liability as to which such party
is prohibited from being indemnified as set forth above.
(e) For purposes of this Section 11.5, an Affiliate of the General
Partner shall be indemnified by the Partnership only in circumstances where the
Affiliate has performed an act on behalf of the Partnership or the General
Partners within the scope of the authority of the General Partners and for which
the General Partners would have been entitled to indemnification had such act
been performed by them.
ARTICLE XII
SERVICES TO PARTNERSHIP BY GENERAL PARTNERS
12.1 ACQUISITION AND ADVISORY SERVICES. The General Partners and their
---------------------------------
Affiliates shall perform acquisition and advisory services in connection with
the review and evaluation of potential real property acquisitions for the
Partnership, which services shall include, but shall not be limited to, an
analysis of: (a) the geographic market in which any such property is located,
including market demand analyses; (b) the physical condition of any existing
structures, appurtenances and service systems; (c) the availability of
contractors and engineers; (d) zoning and other governmental restrictions
applicable to the use or development of the property; and (e) income and expense
forecasts. In consideration for such services, including services rendered with
respect to properties which are considered for acquisition by the Partnership
but are not acquired, the General Partners and their Affiliates shall be paid
Acquisition and Advisory Fees in an amount of up to 3% of Capital Contributions,
provided that such amount does
A-35
<PAGE>
not exceed the limitations set forth in Section 12.2 hereof. The Acquisition and
Advisory Fee shall be accrued as Units are sold by the Partnership and shall be
payable upon receipt by the Partnership of such Capital Contributions, whether
such fees relate to properties which are acquired which are income-producing
properties or raw land to be developed or to properties which are not acquired.
The General Partners shall refund to the Partnership any such fees which are
received in advance of the services to be rendered and for which services are
not subsequently rendered. In addition to such fees, the Partnership shall bear
any expenses of independent appraisers, market analysts or other such Persons
not affiliated with the General Partners who may be engaged to evaluate
potential real estate acquisitions and developments by or on behalf of the
Partnership.
12.2 LIMITATIONS ON ACQUISITION FEES.
-------------------------------
(a) Acquisition and Advisory Fees paid in connection with the
organization of the Partnership and the purchase and development of Partnership
Properties and with respect to each particular Partnership Property shall be
paid only for services actually rendered, and in no event will the total of all
Acquisition Fees, including the Acquisition and Advisory Fees paid to the
General Partners or their Affiliates, exceed the compensation customarily
charged in arm's-length transactions by others rendering similar services as an
ongoing public activity in the same geographic location and for comparable
property. The limitation imposed hereby will be complied with at any given time
on an ongoing basis. Within 30 days after completion of the last acquisition,
the General Partners shall forward to the California Commissioner of the
Department of Corporations a schedule, verified under penalties of perjury,
reflecting:
(i) each acquisition made;
(ii) the purchase price paid;
(iii) the aggregate of all Acquisition Fees paid on each
transaction; and
(iv) a computation showing compliance with Rule 260.140.113.3
adopted pursuant to the California Corporate Securities Law of 1968.
(b) The General Partners intend to acquire Partnership Properties on
an all cash basis and shall commit a percentage of Capital Contributions to
Investment in Properties acquired by the Partnership in an amount which is equal
to at least 80% of Capital Contributions. For such purposes, working capital
reserves in an aggregate amount not in excess of 5% of Capital Contributions
shall be deemed to be committed to the purchase, development, construction or
improvement of properties acquired by the Partnership. Anything contained in
this Agreement to the contrary notwithstanding, at a minimum the General
Partners shall commit a percentage of the Capital Contributions to Investment in
Properties which is equal to at least 80% of the Capital Contributions.
12.3 PROPERTY MANAGEMENT SERVICES. The General Partners shall cause the
----------------------------
Partnership to employ a property management company (which may be an Affiliate
of the General Partners) to perform professional property management services
for the Partnership. In the event the property management company is an
Affiliate of the General Partners, the compensation payable to such Affiliate
shall be equal to the lesser of (a) fees which would be charged by Persons who
are not affiliated with the General Partners rendering comparable services in
the same geographic area, or (b) 4.5% of Gross Revenues of the properties
managed. The foregoing limitation will include all leasing, re-leasing and
leasing related
A-36
<PAGE>
services. In the case of industrial and commercial properties which are leased
on a long-term (ten or more years) net lease basis, the maximum property
management fee from such leases shall be 1% of Gross Revenues, except for a one
time initial leasing fee of 3% of Gross Revenues on each lease payable over the
first five full years of the original term of the lease. Included within such
fees should be bookkeeping services and fees paid to non-related Persons for
property management services. In addition, in connection with the initial lease-
up of newly constructed properties, the Partnership may also pay a separate
competitive fee for the one time initial rent-up or leasing-up of a newly
constructed property, provided such services are not included in the Purchase
Price of the property.
12.4 INSURANCE SERVICES PROHIBITED. Neither the General Partners nor any
-----------------------------
of their Affiliates may receive an insurance brokerage fee or write any
insurance policy covering the Partnership or any Partnership Properties.
12.5 DEVELOPMENT AND CONSTRUCTION SERVICES PROHIBITED. Neither the General
------------------------------------------------
Partners nor any of their Affiliates (except any Persons affiliated with the
General Partners only through their employment by the Partnership) may receive
any development or construction fees or any other fees or other compensation
from the Partnership in connection with the development or construction of
Partnership Properties, except with respect to expense reimbursements
specifically authorized under Section 11.4 hereof.
12.6 REAL ESTATE COMMISSIONS ON RESALE OF PROPERTIES. The General Partners
-----------------------------------------------
and their Affiliates may perform real estate brokerage services for the
Partnership in connection with the resale of property by the Partnership;
provided that the compensation therefor to the General Partners or their
Affiliates in connection with the sale of a particular property shall not exceed
the lesser of (a) 50% of the reasonable, customary and competitive real estate
brokerage commission normally and customarily paid for the sale of a comparable
property in light of the size, type and location of the property, or (b) 3% of
the gross sales price of the property; and provided, further, that payments of
said compensation shall be made only after the Partnership has distributed to
each Limited Partner or his Assignee from Nonliquidating Distributions or
Liquidating Distributions, as the case may be, an aggregate amount in cash which
is equal to 100% of his Capital Contribution (less all amounts, if any,
theretofore distributed as a return of unused capital pursuant to Section 8.10),
and has distributed to each Limited Partner or Assignee from all sources an
additional amount equal to a 6% per annum cumulative (but not compounded) return
on his Net Capital Contribution, calculated from the date of his admission into
the Partnership; and provided, further, that the General Partners and their
Affiliates may receive such real estate commission only if they provide
substantial services in connection with the sales effort. The aggregate real
estate commission paid to all parties involved in the sale of a Partnership
Property shall not exceed the lesser of: (a) the reasonable, customary and
competitive real estate brokerage commission normally and customarily paid for
the sale of a comparable property in light of the size, type and location of the
property, or (b) 6% of the gross sales price of such property.
Notwithstanding the foregoing, neither the General Partners nor any of
their Affiliates shall be granted an exclusive right to sell or exclusive
employment to sell any property on behalf of the Partnership.
A-37
<PAGE>
12.7 REBATES, GIVE-UPS AND RECIPROCAL ARRANGEMENTS.
---------------------------------------------
(a) No rebates or give-ups may be received by any of the General
Partners or their Affiliates nor may the General Partners or their Affiliates
participate in any reciprocal business arrangements which would circumvent the
provisions of this Agreement.
(b) None of the General Partners nor any of their Affiliates shall,
or shall knowingly permit any underwriter, dealer or salesman to, directly or
indirectly, pay or award any finder's fees, commissions or other compensation to
any Person engaged by a potential investor for investment advice as an
inducement to such advisor to recommend the purchase of interests in the
Partnership; provided, however, that this clause shall not prohibit the normal
sales commissions payable to a registered broker-dealer or other properly
licensed Person (including the General Partners and their Affiliates) for
selling Partnership Units.
12.8 OTHER SERVICES. Other than as specifically provided in this Agreement
--------------
or in the Prospectus, neither the General Partners nor their Affiliates shall be
compensated for services rendered to the Partnership. The General Partners and
their Affiliates cannot receive any fees or other compensation from the
Partnership except as specifically provided for in this Article XII, in Articles
IX, X or XI hereof or in the "Compensation of the General Partners and
Affiliates" section of the Prospectus.
ARTICLE XIII
TRANSACTIONS BETWEEN GENERAL PARTNERS AND THE PARTNERSHIP
13.1 SALES AND LEASES TO THE PARTNERSHIP. The Partnership shall not
-----------------------------------
purchase or lease investment properties, other than as provided in Section
11.3(i) hereof, in which any of the General Partners or their Affiliates have an
interest or from any entity in which the General Partners or their Affiliates
have an interest. The provisions of this Section 13.1 notwithstanding, the
General Partners or their Affiliates may temporarily enter into contracts
relating to investment properties to be assigned to the Partnership prior to
closing or may purchase property in their own names and temporarily hold title
thereto for the purpose of facilitating the acquisition of such property for the
Partnership, provided that such property is purchased by the Partnership for a
price no greater than the cost of such property to the General Partners or their
Affiliates (including closing and carrying costs), that in no event shall the
Partnership purchase property from the General Partners or their Affiliates if
such entity has held title to such property for more than 12 months prior to the
commencement of the Offering, that the General Partners or their Affiliates
shall not sell property to the Partnership if the cost of the property exceeds
the funds reasonably anticipated to be available to the Partnership to purchase
such property, and that all profits and losses during the period any such
property is held by the General Partners or their Affiliates will accrue to the
Partnership and such profits shall be deemed to be included as Partnership Cash
Flow for the purpose of computing distributions of Net Cash From Operations
under Article IX hereof; and provided further, that there is no other benefit to
the General Partners or any Affiliate of the General Partners apart from
compensation otherwise permitted by this Agreement.
13.2 SALES AND LEASES TO THE GENERAL PARTNERS. The Partnership shall not
----------------------------------------
sell or lease any Partnership Property to the General Partners or their
Affiliates.
A-38
<PAGE>
13.3 LOANS. No loans may be made by the Partnership to any of the General
-----
Partners or their Affiliates.
13.4 DEALINGS WITH RELATED PROGRAMS. Except as permitted by Sections
------------------------------
11.3(i) and 13.1 hereof, the Partnership shall not acquire property from or sell
property to any Person in whom any of the General Partners or any of their
Affiliates have an interest.
13.5 COMMISSIONS ON REINVESTMENT OR DISTRIBUTION. The Partnership shall
-------------------------------------------
not pay, directly or indirectly, a commission or fee (except as permitted under
Article XII hereof) to a General Partner in connection with the reinvestment or
distribution of the proceeds of the sale, exchange or financing of Partnership
Properties.
ARTICLE XIV
INDEPENDENT ACTIVITIES OF PARTNERS
Any of the Partners may engage in or possess an interest in other business
ventures of every nature and description, independently or with others,
including, but not limited to, the ownership, financing, leasing, management,
syndication, brokerage and development of real property of any kind whatsoever
(including properties which may be similar to those owned by the Partnership),
and neither the Partnership nor any of the Partners shall have any right by
virtue of this Agreement in and to such independent ventures or to the income or
profits derived therefrom, provided that the General Partners shall in no way be
relieved of their fiduciary duty owed to the Partnership. In the event that the
Partnership, the General Partners or any Affiliate or any entity formed or
managed by the General Partners or their Affiliates is in the market for similar
properties, the General Partners will review the investment portfolio of each
partnership and each such affiliated entity and will decide which entity will
acquire a particular property on the basis of such factors as, among others,
anticipated cash flow, the effect of the purchase price on diversification of
the portfolio of each such entity, the estimated income tax effects of the
purchase on each such entity, the amount of funds which each such entity has
available for investment, and the length of time funds of each such entity have
been available for investment.
ARTICLE XV
BOOKS, REPORTS, FISCAL AND TAX MATTERS
15.1 BOOKS. The General Partners shall maintain full and complete books
-----
and records for the Partnership at its principal office, and all Limited
Partners and their designated representatives shall have the right to inspect,
examine and copy at their reasonable cost such books at reasonable times. The
books of account for financial accounting purposes shall be kept in accordance
with generally accepted accounting principles. The books of account for income
tax purposes shall be kept on a cash or an accrual basis, as determined in the
discretion of the General Partners. Limited Partner suitability records shall be
maintained for at least six years. In addition, the General Partners shall
maintain an alphabetical list of the names, addresses and business telephone
numbers of the Limited Partners of the Partnership along with the number of
Units held by each of them (the "Participant List") as a part of the books and
records of the Partnership which shall be available for inspection by any
Limited Partner or his designated representative at the home office of the
Partnership upon the request of the Limited Partner. The
A-39
<PAGE>
Participant List shall be updated at least quarterly to reflect changes in the
information contained therein. A copy of the Participant List shall be mailed to
any Limited Partner requesting the Participant List within ten (10) days of the
request. The copy of the Participant List to be mailed to a Limited Partner
shall be printed in alphabetical order, on white paper, and in readily readable
type size (in no event smaller than 10-point type). A reasonable charge for copy
work may be charged by the Partnership. The purposes for which a Limited Partner
may request a copy of the Participant List include, without limitation, matters
relating to the Limited Partners' voting rights under this Agreement and the
exercise of the Limited Partners' rights under federal proxy laws. If the
General Partners of the Partnership neglect or refuse to exhibit, produce or
mail a copy of the Participant List as requested, they shall be liable to the
Limited Partner requesting the list for the costs, including attorneys' fees,
incurred by that Limited Partner for compelling the production of the
Participant List and for actual damages suffered by the Limited Partner by
reason of such refusal or neglect. It shall be a defense that the actual purpose
and reason for a request for inspection of or a request for a copy of the
Participant List is to secure such list of Limited Partners or other information
for the purpose of selling such list or copies thereof or for the purpose of
using the same for a commercial purpose other than in the interest of the
applicant as a Limited Partner relative to the affairs of the Partnership. The
General Partners may require any Limited Partner requesting the Participant List
to represent that the list is not requested for a commercial purpose unrelated
to such Limited Partner's interest in the Partnership. The remedies provided
hereunder to Limited Partners requesting copies of the Participant List are in
addition to, and shall not in any way limit, other remedies available to Limited
Partners under federal law or under the laws of any state.
15.2 REPORTS. The General Partners shall prepare or cause to be prepared
-------
the following reports:
(a) ACQUISITION REPORTS. At least quarterly within 60 days after the
-------------------
end of each quarter during which the Partnership has acquired real property, an
"Acquisition Report" of any real property acquisitions within the prior quarter
shall be sent to all Limited Partners. Such report shall describe the real
properties and all improvements contemplated to be developed thereon and include
a description of the geographic locale and of the market upon which the General
Partners are relying in projecting successful development and operation of the
properties. All facts which reasonably appear to the General Partners to
influence materially the value of the property shall be disclosed, including the
present or proposed use of the property and its suitability or adequacy for such
use and the terms of any material lease affecting the property. The Acquisition
Report shall also include, by way of illustration and not of limitation, a
statement of the date and amount of the appraised value, a statement of the
actual Purchase Price including terms of the purchase and an estimate of all
proposed subsequent expenditures for development or other improvement of the
property, a statement that title insurance and any required performance bonds or
other assurances in accordance with Section 11.3(k) hereof with respect to
builders have been or will be obtained on the property, a statement of the total
amount of cash expended by the Partnership to acquire each Partnership Property,
and a statement regarding the amount of proceeds of the Offering of Units (in
both dollar amount and as a percentage of the net proceeds of the Offering of
Units available for investment) which remain unexpended or uncommitted. In
addition, the Acquisition Report shall identify any real properties, by location
and a description of their general character, which the General Partners
presently intend to be acquired by or leased to the Partnership.
(b) ANNUAL REPORT. Within 120 days after the end of each fiscal year,
-------------
an annual report shall be sent to all the Limited Partners and Assignees which
shall include (i) a balance sheet as of the end of such fiscal year, together
with a profit and loss statement, a statement of cash flows and a statement of
Partners' capital for such year, which financial statements shall be prepared in
accordance
A-40
<PAGE>
with generally accepted accounting principles and shall be accompanied by an
auditor's report containing an opinion of the independent certified public
accountant for the Partnership; (ii) a Cash Flow statement (which need not be
audited); (iii) a report of the activities of the Partnership for such year;
(iv) a report on the distributions from (A) Cash Flow during such period, (B)
Cash Flow from prior periods, (C) proceeds from the disposition of Partnership
Property and investments, (D) reserves from the proceeds of the Offering of
Units, and (E) lease payments on net leases with builders and sellers; and (v) a
report setting forth the compensation paid to the General Partners and their
Affiliates during such year and a statement of the services performed in
consideration therefor. In addition, commencing eight years after termination of
the Offering, such annual report shall include a notification to the Limited
Partners of their right pursuant to Section 20.2 hereof to request that the
General Partners formally proxy the Limited Partners to determine whether the
assets of the Partnership should be liquidated. Such annual report shall also
include such other information as is deemed reasonably necessary by the General
Partners to advise the Limited Partners of the affairs of the Partnership.
(c) QUARTERLY REPORTS. If and for as long as the Partnership is
-----------------
required to file quarterly reports on Form 10-Q with the Securities and Exchange
Commission, financial information substantially similar to the financial
information contained in each such report for a quarter shall be sent to the
Limited Partners within 60 days after the end of such quarter. Whether or not
such reports are required to be filed, each Limited Partner will be furnished
within 60 days after the end of each of the first three quarters of each
Partnership fiscal year an unaudited financial report for that quarter including
a profit and loss statement, a balance sheet and a cash flow statement. Such
reports shall also include such other information as is deemed reasonably
necessary by the General Partners to advise the Limited Partners of the affairs
of the Partnership.
(d) REPORT OF FEES. The Partnership's annual and quarterly reports on
--------------
Form 10-K and 10-Q for any period during which the General Partners or any of
their Affiliates receive fees for services from the Partnership shall set forth
(i) a statement of the services rendered, and (ii) the amount of fees received.
(e) TAX INFORMATION. Within 75 days after the end of each fiscal year
---------------
(in the event that the fiscal year of the Partnership remains on a calendar year
basis, and within 120 days after the end of each fiscal year in the event that
the Partnership's fiscal year is changed to some annual period other than a
calendar year pursuant to Section 15.3 hereof), there shall be sent to all the
Limited Partners and Assignees all information necessary for the preparation of
each Limited Partner's federal income tax return and state income and other tax
returns in regard to jurisdictions where Partnership Properties are located.
(f) ERISA REPORT. The General Partners shall furnish each Limited
------------
Partner an annual statement of estimated Unit value. Such annual statement shall
report the value of each Unit based upon the General Partners' estimate of the
amount a holder thereof would receive if Partnership Properties were sold as of
the close of the Partnership's fiscal year and if the proceeds therefrom
(without reduction for selling expenses), together with any other funds of the
Partnership, were distributed in a liquidation of the Partnership (provided
that, with respect to the first three full fiscal years following termination of
the Offering the value of a Unit shall be deemed to be $10.00). In addition, the
General Partners shall obtain the opinion of an independent third party that
their estimate of Unit value is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. The estimated Unit value shall be
reported to the Limited Partners in the next annual or quarterly report on Form
10-K or 10-Q sent to the Limited Partners following the completion of the
valuation process.
A-41
<PAGE>
(g) PERFORMANCE REPORTING. The Partnership's annual and quarterly
---------------------
reports on Form 10-K and 10-Q shall set forth the year-to-date amount of cash
flow available for distribution, as such term is generally defined in existing
Guidelines for Partnership Agreement Provisions issued by the International
Association for Financial Planning, and shall contain a detailed reconciliation
of the Partnership's net income for financial reporting purposes to the
Partnership's cash flow available for distribution for the periods covered by
the report. In addition, the notes to the Partnership's financial statements
included in its annual reports on Form 10-K shall contain a detailed
reconciliation of the Partnership's net income for financial reporting purposes
to net income for tax purposes for the periods covered by the report.
(h) EXPENSE REPORTING. The notes to the Partnership's financial
-----------------
statements included in its annual reports on Form 10-K shall contain a category-
by-category breakdown of the general and administrative expenses incurred by the
Partnership for the periods covered by the report. This breakdown shall reflect
each type of general and administrative expense incurred by the Partnership
(e.g. investor relations, independent accountants, salaries, rent, utilities,
insurance, filing fees, legal fees, etc.) and the amount charged to the
Partnership for each category of expense incurred.
(i) OTHER REPORTS. The General Partners shall cause to be prepared
-------------
and timely filed with appropriate federal and state regulatory and
administrative bodies all reports to be filed with such entities under then
currently applicable laws, rules and regulations. Such reports shall be prepared
on the accounting or reporting basis required by such regulatory bodies. Any
Limited Partner shall be provided with a copy of any such report upon request
without expense to him.
(j) CESSATION OF REPORTS. In the event the Securities and Exchange
--------------------
Commission promulgates rules that allow a reduction in reporting requirements,
the Partnership may cease preparing and filing certain of the above reports if
the General Partners determine such action to be in the best interests of the
Partnership; provided, however, that the Partnership will continue to file any
reports mandated under state law.
15.3 FISCAL YEAR. The Partnership shall adopt a fiscal year beginning on
-----------
the first day of January and ending on the last day of December of each year;
provided, however, that the General Partners in their sole discretion may,
subject to approval by the IRS, at any time without the approval of the Limited
Partners, change the Partnership's fiscal year to a period to be determined by
the General Partners.
15.4 TAX ELECTIONS.
-------------
(a) No election shall be made by the Partnership or any Partner to be
excluded from the application of the provisions of Subchapter K of the Code or
from any similar provisions of state or local income tax laws.
(b) Upon the transfer of all or part of a Partner's or Assignee's
interest in the Partnership or upon the death of an individual Limited Partner
or Assignee, or upon the distribution of any property to any Partner or
Assignee, the Partnership, at the General Partners' option and in their sole
discretion, may file an election, in accordance with applicable Treasury
Regulations, to cause the basis of Partnership Property to be adjusted for
federal income tax purposes, as provided by Sections 734, 743 and 754 of the
Code; and similar elections under provisions of state and local income tax laws
may, at the General Partners' option, also be made.
A-42
<PAGE>
15.5 BANK ACCOUNTS. The cash funds of the Partnership shall be deposited
-------------
in commercial bank account(s) at such banks or other institutions insured by the
Federal Deposit Insurance Corporation as the General Partners shall determine.
Disbursements therefrom shall be made by the General Partners in conformity with
this Agreement. The funds of the Partnership shall not be commingled with the
funds of any other Person, except in the case of funds held by a joint venture
or partnership permitted pursuant to the provisions of Section 11.3(i) above.
15.6 INSURANCE. The Partnership shall at all times maintain comprehensive
---------
insurance, including fire, liability and extended coverage insurance in amounts
determined by the General Partners to be adequate for the protection of the
Partnership. In addition, the Partnership shall carry appropriate worker's
compensation insurance and such other insurance with respect to the real
property owned by it as shall be customary for similar property, similarly
located, from time to time.
15.7 TAXATION AS PARTNERSHIP. The General Partners, while serving as such,
-----------------------
agree to use their best efforts to cause compliance at all times with the
conditions to the continued effectiveness of any opinion of counsel obtained by
the Partnership to the effect that the Partnership will be classified as a
partnership for federal income tax purposes.
15.8 TAX MATTERS.
-----------
(a) The General Partners may or may not, in their sole and absolute
discretion, make any or all elections which they are entitled to make on behalf
of the Partnership and the Partners for federal, state and local tax purposes,
including, without limitation, any election, if permitted by applicable law: (i)
to extend the statute of limitations for assessment of tax deficiencies against
Partners with respect to adjustments to the Partnership's federal, state or
local tax returns; and (ii) to represent the Partnership and the Partners before
taxing authorities or courts of competent jurisdiction in tax matters affecting
the Partnership and the Partners in their capacity as Partners and to execute
any agreements or other documents relating to or settling such tax matters,
including agreements or other documents that bind the Partners with respect to
such tax matters or otherwise affect the rights of the Partnership or the
Partners.
(b) Wells Partners is designated as the "Tax Matters Partner" in
accordance with Section 6231(a)(7) of the Code and, in connection therewith and
in addition to all other powers given thereunder, shall have all other powers
needed to perform fully hereunder including, without limitation, the power to
retain all attorneys and accountants of its choice and the right to manage
administrative tax proceedings conducted at the partnership level by the IRS
with respect to Partnership matters. Any Partner has the right to participate in
such administrative proceedings relating to the determination of partnership
items at the Partnership level. Expenses of such administrative proceedings
undertaken by the Tax Matters Partner will be paid for out of the assets of the
Partnership. Each Limited Partner who elects to participate in such proceedings
will be responsible for any expense incurred by such Limited Partner in
connection with such participation. Further, the cost to a Limited Partner of
any adjustment and the cost of any resulting audit or adjustment of a Limited
Partner's return will be borne solely by the affected Limited Partner. The
designation made in this Section 15.8(b) is expressly consented to by each
Partner as an express condition to becoming a Partner. The Partnership hereby
indemnifies Wells Partners from and against any damage or loss (including
attorneys' fees) arising out of or incurred in connection with any action taken
or omitted to be taken by it in carrying out its responsibilities as Tax Matters
Partner, provided such action taken or omitted to be taken does not constitute
fraud, negligence, breach of fiduciary duty or misconduct. In the event the
Partnership should become required to register with the IRS as a tax shelter,
Wells Partners shall be the "designated organizer" of the Partnership and
A-43
<PAGE>
the "designated person" for maintaining lists of investors in the Partnership,
and shall take such actions as shall be required to register the Partnership and
to maintain lists of investors in the Partnership as may be required pursuant to
Sections 6111 and 6112 of the Code.
ARTICLE XVI
RIGHTS AND LIABILITIES OF THE LIMITED PARTNERS
16.1 POWERS OF THE LIMITED PARTNERS. The Limited Partners shall take no
------------------------------
part in the management of the business or transact any business for the
Partnership and shall have no power to sign for or bind the Partnership;
provided, however, that the Limited Partners, by a Majority Vote, without the
concurrence of the General Partners, shall have the right to:
(a) Amend this Agreement, but not as to the matters specified in
Section 11.2(b) hereof, which matters the General Partners alone may amend
without vote of the Limited Partners;
(b) Dissolve the Partnership;
(c) Remove a General Partner or any successor General Partner;
(d) Elect a new General Partner or General Partners upon the removal
of a General Partner or any successor General Partner, or upon the occurrence of
an Event of Withdrawal or death of a General Partner or any successor General
Partner;
(e) Approve or disapprove a transaction entailing the sale of all or
substantially all of the real properties acquired by the Partnership, except in
connection with the orderly liquidation and winding up of the business of the
Partnership upon its termination and dissolution; and
(f) Change the business purpose or investment objectives of the
Partnership.
16.2 RESTRICTIONS ON POWER TO AMEND. Notwithstanding Section 16.1 hereof,
------------------------------
this Agreement shall in no event be amended to change the limited liability of
the Limited Partners without the vote or consent of all of the Limited Partners,
nor shall this Agreement be amended to diminish the rights or benefits to which
any of the General Partners or Limited Partners are entitled under the
provisions of this Agreement, without the consent of a majority of the Units
held by the Partners who would be adversely affected thereby, and in the case of
the General Partners being singularly affected, then by a majority vote of the
General Partners.
16.3 LIMITED LIABILITY. No Limited Partner shall be liable for any debts
-----------------
or obligations of the Partnership in excess of his or its Capital Contribution.
16.4 MEETINGS OF, OR ACTIONS BY, THE LIMITED PARTNERS.
------------------------------------------------
(a) Meetings of the Limited Partners to vote upon any matters as to
which the Limited Partners are authorized to take action under this Agreement
may be called at any time by any of the General Partners and shall be called by
the General Partners upon the written request of Limited Partners holding 10% or
more of the outstanding Units by delivering written notice within ten days after
receipt of such written request, either in person or by certified mail, to the
Limited Partners entitled to
A-44
<PAGE>
vote at such meeting to the effect that a meeting will be held at a reasonable
time and place convenient to the Limited Partners and which is not less than 15
days nor more than 60 days after the receipt of such request; provided, however,
that such maximum periods for the giving of notice and the holding of meetings
may be extended for an additional 60 days if such extension is necessary to
obtain qualification or clearance under any applicable securities laws of the
matters to be acted upon at such meeting or clearance by the appropriate
governing agency of the solicitation materials to be forwarded to the Limited
Partners in connection with such meeting. The General Partners agree to use
their best efforts to obtain such qualifications and clearances. Included with
the notice of a meeting shall be a detailed statement of the action proposed,
including a verbatim statement of the wording on any resolution proposed for
adoption by the Limited Partners and of any proposed amendment to this
Agreement. All expenses of the meeting and notification shall be borne by the
Partnership.
(b) A Limited Partner shall be entitled to cast one vote for each
Unit that he owns. Attendance by a Limited Partner at any meeting and voting in
person shall revoke any written proxy submitted with respect to action proposed
to be taken at such meeting. Any matter as to which the Limited Partners are
authorized to take action under this Agreement or under law may be acted upon by
the Limited Partners without a meeting and any such action shall be as valid and
effective as action taken by the Limited Partners at a meeting assembled, if
written consents to such action by the Limited Partners are signed by the
Limited Partners entitled to vote upon such action at a meeting who hold the
number of Units required to authorize such action and are delivered to a General
Partner.
(c) The General Partners shall be responsible for enacting all needed
rules of order for conducting all meetings and shall keep, or cause to be kept,
at the expense of the Partnership, an accurate record of all matters discussed
and action taken at all meetings or by written consent. The records of all said
meetings and written consents shall be maintained at the principal place of
business of the Partnership and shall be available for inspection by any Partner
at reasonable times.
ARTICLE XVII
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS
17.1 WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS; ADMISSION OF SUCCESSOR OR
--------------------------------------------------------------------
ADDITIONAL GENERAL PARTNERS.
- ---------------------------
(a) Except as provided in this Article XVII, until the dissolution of
the Partnership, neither General Partner shall take any voluntary step to
dissolve itself or to withdraw from the Partnership. In addition, Leo F. Wells,
III hereby agrees with the Partnership and its Partners that he will not sell or
otherwise voluntarily transfer or convey a majority or controlling interest in
the outstanding stock of Wells Real Estate Funds, Inc. to any non-affiliated
person or entity without first obtaining a Majority Vote of the Limited Partners
consenting to any such sale, transfer or conveyance.
(b) With the consent of all the other General Partners and a Majority
Vote of the Limited Partners after being given 90 days written notice, any
General Partner may at any time designate one or more Persons to be additional
General Partners, with such participation in such General Partner's
A-45
<PAGE>
interest as such General Partner and such successor or additional General
Partners may agree upon, provided that the interests of the Limited Partners
shall not be affected thereby.
(c) Except in connection with the admission of an additional General
Partner pursuant to paragraph (b) of this Section 17.1, no General Partner shall
have any right to retire or withdraw voluntarily from the Partnership, to
dissolve itself or to sell, transfer or assign the General Partner's interest
without the concurrence of the Limited Partners by a Majority Vote; provided,
however, that any General Partner may, without the consent of any other General
Partner or the Limited Partners to the extent permitted by law and consistent
with Section 17.1(a) hereof (i) substitute in its stead as General Partner any
entity which has, by merger, consolidation or otherwise, acquired substantially
all of such General Partner's assets, stock or other evidence of equity interest
and continued its business, and (ii) cause to be admitted to the Partnership an
additional General Partner or Partners if it deems such admission to be
necessary or desirable to enable the General Partner to use its best efforts to
maintain its net worth at a level sufficient to assure that the Partnership will
be classified as a partnership for federal income tax purposes; provided,
however, that such additional General Partner or Partners shall have no
authority to manage or control the Partnership under this Agreement, there is no
change in the identity of the persons who have authority to manage or control
the Partnership, and the admission of such additional General Partner or
Partners does not materially adversely affect the Limited Partners.
(d) A General Partner may be removed from the Partnership upon the
Majority Vote of the Limited Partners; provided, however, that if such General
Partner is the last remaining General Partner, such removal shall not be
effective until 90 days after the notice of removal has been sent to such
General Partner. In the event of the removal of the last remaining General
Partner, the Limited Partners may by Majority Vote elect a new General Partner
at any time prior to the effective date of the removal of said last remaining
General Partner.
(e) Any voluntary withdrawal by any General Partner from the
Partnership or any sale, transfer or assignment by such General Partner of his
interest in the Partnership shall be effective only upon the admission in
accordance with paragraph (b) of this Section 17.1 of an additional General
Partner.
(f) A General Partner shall cease to be such upon the occurrence of an
Event of Withdrawal of such General Partner; provided, however, the last
remaining General Partner shall not cease to be a General Partner until 120 days
after the occurrence of an Event of Withdrawal.
17.2 LIMITED PARTNERS' INTEREST. Except as specifically provided in this
----------------------------
Article XVII, none of the Limited Partners shall sell, transfer, encumber or
otherwise dispose of, by operation of law or otherwise, all or any part of his
or its interest in the Partnership. No assignment shall be valid or effective
unless in compliance with the conditions contained in this Agreement, and any
unauthorized transfer or assignment shall be void ab initio.
17.3 RESTRICTIONS ON TRANSFERS.
-------------------------
(a) No Unit may be transferred, sold, assigned or exchanged if the
transfer or sale of such Unit, when added to the total of all other transfers or
sales of Units within the period of 12 consecutive months prior to the proposed
date of sale or exchange, would, in the opinion of counsel for the Partnership,
result in the termination of the Partnership under Section 708 of the Code
unless the
A-46
<PAGE>
Partnership and the transferring holder shall have received a ruling from the
IRS that the proposed sale or exchange will not cause such termination.
(b) No transfer or assignment may be made if, as a result of such
transfer, a Limited Partner (other than one transferring all of his Units) will
own fewer than the minimum number of Units required to be purchased under
Section 8.5(b) hereof, unless such transfer is made on behalf of a Retirement
Plan, or such transfer is made by gift, inheritance, intra-family transfer,
family dissolution or to an Affiliate.
(c) No transfer or assignment of any Unit may be made if counsel for
the Partnership is of the opinion that such transfer or assignment would be in
violation of any state securities or "Blue Sky" laws (including investment
suitability standards) applicable to the Partnership.
(d) All Units originally issued pursuant to qualification under the
California Corporate Securities Law of 1968 shall be subject to, and all
documents of assignment and transfer evidencing such Units shall bear, the
following legend condition:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
(e) No transfer or assignment of any interest in the Partnership shall
be made (i) in the case of Units subject to Section 17.3(d) hereof, unless the
transferor shall have obtained, if necessary, the consent of the California
Commissioner of the Department of Corporations to such transfer, (ii) unless the
transferee shall have paid or, at the election of the General Partners,
obligated himself to pay, all reasonable expenses connected with such transfer,
substitution and admission, including, but not limited to, the cost of preparing
an appropriate amendment to this Agreement to effectuate the transferee's
admission as a substituted Limited Partner pursuant to Section 17.4 hereof, or
(iii) where the assignor and Assignee agree in connection therewith that the
assignor shall exercise any residual powers remaining in him as a Limited
Partner in favor of or in the interest or at the direction of the Assignee.
(f) With the exception of intra-family transfers or transfers made by
gift, inheritance or family dissolution, no transfer or assignment of any
interest in the Partnership shall be made unless the transferee has either (i) a
net worth of at least $45,000 and an annual gross income of at least $45,000 or
(ii) a net worth of at least $150,000 or (iii) satisfied any higher suitability
standards that may apply in the transferee's state of primary residence. For
purposes of the foregoing standards, net worth is computed exclusive of home,
furnishings and automobiles. Each transferee will be required to represent that
he complies with the applicable standards, that he is purchasing in a fiduciary
capacity for a Person meeting such standards, or that he is purchasing with
funds directly or indirectly supplied by a donor who meets such standards. No
transfer may be made to any Person who does not make such representation.
(g) No Limited Partner may transfer or assign any Units or beneficial
ownership interests therein (whether by sale, exchange, repurchase, redemption,
pledge, hypothecation or liquidation), and any such purported transfer shall be
void ab initio and shall not be recognized by the Partnership or be effective
for any purpose unless (i) the General Partners determine, in their sole
discretion, that the Partnership would be able to satisfy any of the secondary
market safe harbors
A-47
<PAGE>
contained in Treasury Regulations Section 1.7704-1 (or any other applicable safe
harbor from publicly traded partnership status which may be adopted by the IRS)
for the Partnership's taxable year in which such transfer otherwise would be
effective, or (ii) the Partnership has received an opinion of counsel
satisfactory to the General Partners or a favorable IRS ruling that any such
transfer will not result in the Partnership's being classified as a publicly
traded partnership for federal income tax purposes. The Limited Partners agree
to provide all information with respect to a proposed transfer that the General
Partners deem necessary or desirable in order to make such determination,
including but not limited to, information as to whether the transfer occurred on
a secondary market (or the substantial equivalent thereof).
(h) During the initial six years following the termination of the
Offering, Limited Partners purchasing Units pursuant to the Deferred Commission
Option, as defined in the Prospectus, will only be permitted to transfer or
assign Cash Preferred Units in the event that they retain and maintain at all
times at least such minimum number of Cash Preferred Units during such initial
six year period, in the discretion of the General Partners, to generate
sufficient Net Cash From Operations to allow the Partnership to satisfy the
deferred commission obligations relating to the total number of Units purchased
by such Limited Partners pursuant to the Deferred Commission Option.
(i) Any purported transfer or assignment not satisfying all of the
foregoing conditions shall be void ab initio, and no purported transfer or
assignment shall be of any effect unless all of the foregoing conditions have
been satisfied.
17.4 SUBSTITUTED LIMITED PARTNERS. Except as otherwise provided in this
----------------------------
Agreement, an Assignee of the whole or any portion of a Limited Partner's
interest in the Partnership shall not have the right to become a substituted
Limited Partner in place of his assignor unless (a) the assignment instrument
shall have been in form and substance satisfactory to the General Partners; (b)
the assignor and Assignee named therein shall have executed and acknowledged
such other instrument or instruments as the General Partners may deem necessary
or desirable to effectuate such admission, including but not limited to, the
Assignee's agreement in writing that he will not, directly or indirectly, create
for the Partnership, or facilitate the trading of such interest on, a secondary
market (or the substantial equivalent thereof) within the meaning of Section
7704 of the Code; and (c) the Assignee shall have accepted, adopted and approved
in writing all of the terms and provisions of this Agreement, as the same may
have been amended. Assignees of Units will be recognized by the Partnership as
substituted Limited Partners as of the commencement of the first fiscal quarter
of the Partnership following the fiscal quarter which includes the effective
date of the assignment and in which the foregoing conditions are satisfied,
notwithstanding the time consumed in preparing the documents necessary to
effectuate the substitution.
17.5 ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST WITHOUT SUBSTITUTION.
---------------------------------------------------------------
Subject to the transfer restrictions of Section 17.3, a Limited Partner shall
have the right to assign all or part of such Limited Partner's interest in Units
by a written instrument of assignment. The assigning Limited Partner shall
deliver to the General Partners a written instrument of assignment in form and
substance satisfactory to the General Partners, duly executed by the assigning
Limited Partner or his personal representative or authorized agent, including an
executed acceptance by the Assignee of all the terms and provisions of this
Agreement and the representations of the assignor and Assignee that the
assignment was made in accordance with all applicable laws and regulations
(including investment suitability requirements). Said assignment shall be
accompanied by such assurance of genuineness and effectiveness and by such
consents or authorizations of any governmental or other authorities as may be
reasonably required by the General Partners. The Partnership shall recognize
any such assignment not later than the last day of the calendar
A-48
<PAGE>
month following receipt of notice of the assignment and all required
documentation, and an Assignee shall be entitled to receive distributions and
allocations from the Partnership attributable to the Partnership interest
acquired by reason of any such assignment from and after the first day of the
fiscal quarter following the fiscal quarter in which the assignment of such
interest takes place. The Partnership and the General Partners shall be entitled
to treat the assignor of such Partnership interest as the absolute owner thereof
in all respects, and shall incur no liability for distributions made in good
faith to such assignor, until such time as the written instrument of assignment
has been received by the Partnership and recorded on its books.
17.6 WITHDRAWAL OF LIMITED PARTNER. Except as otherwise specifically
-----------------------------
permitted by this Agreement, no Limited Partner shall be entitled to withdraw or
retire from the Partnership.
17.7 DEATH, LEGAL INCOMPETENCY OR DISSOLUTION OF LIMITED PARTNER. Upon the
-----------------------------------------------------------
death, legal incompetency or dissolution of a Limited Partner, the estate,
personal representative, guardian or other successor in interest of such Limited
Partner shall have all of the rights and be liable for all the obligations of
the Limited Partner in the Partnership to the extent of such Limited Partner's
interest therein, subject to the terms and conditions of this Agreement, and,
with the prior written consent of the General Partners, which may be withheld at
their sole discretion, may be substituted for such Limited Partner.
17.8 ELIMINATION OR MODIFICATION OF RESTRICTIONS. Notwithstanding any of
-------------------------------------------
the foregoing provisions of this Article XVII, the General Partners may amend
this Agreement to eliminate or modify any restriction on substitution or
assignment at such time as the restriction is no longer necessary.
ARTICLE XVIII
LOANS TO PARTNERSHIP
18.1 AUTHORITY TO BORROW. The General Partners shall cause the Partnership
-------------------
to purchase and own all Partnership Properties on an unleveraged basis, and the
Partnership shall not incur any indebtedness except for loans which are
authorized pursuant to Section 11.3(e) hereof.
18.2 LOANS FROM PARTNERS. If any Partner shall make any loan or loans to
-------------------
the Partnership or advance money on its behalf pursuant to Section 11.3(e)
hereof, the amount of any such loan or advance shall not be deemed to be an
additional Capital Contribution by the lending Partner or entitle such lending
Partner to an increase in his share of the distributions of the Partnership, or
subject such Partner to any greater proportion of the losses which the
Partnership may sustain. The amount of any such loan or advance shall be a debt
due from the Partnership to such lending Partner repayable upon such terms and
conditions and bearing interest at such rates as shall be mutually agreed upon
by the lending Partner and the General Partners; provided, however, that a
General Partner as a lending Partner may not receive interest and other
financing charges or fees in excess of the amount which would be charged by
unrelated banks on comparable loans for the same purpose in the same area. No
prepayment charge or penalty shall be required by a General Partner on a loan to
the Partnership. Notwithstanding the foregoing, (a) no Partner shall be under
any obligation whatsoever to make any such loan or advance to the Partnership,
and (b) neither the General Partners nor any of their Affiliates shall provide
permanent financing to the Partnership.
A-49
<PAGE>
ARTICLE XIX
POWER OF ATTORNEY, CERTIFICATES AND OTHER DOCUMENTS
19.1 POWER OF ATTORNEY. Each Limited Partner, by becoming a Limited
-----------------
Partner and adopting this Agreement, constitutes and appoints the General
Partners and each of them and any successor to the General Partners as his true
and lawful attorney-in-fact, in his name, place and stead, from time to time:
(a) To execute, acknowledge, swear to, file and/or record all
agreements amending this Agreement that may be appropriate:
(i) To reflect a change of the name or the location of the
principal place of business of the Partnership;
(ii) To reflect the disposal by any Limited Partner of his
interest in the Partnership, or any Units constituting a part thereof, in any
manner permitted by this Agreement, and any return of the Capital Contribution
of a Limited Partner (or any part thereof) provided for by this Agreement;
(iii) To reflect a Person's becoming a Limited Partner of the
Partnership as permitted by this Agreement;
(iv) To reflect a change in any provision of this Agreement or
the exercise by any Person of any right or rights hereunder not requiring the
consent of said Limited Partner;
(v) To reflect the addition or substitution of Limited Partners
or the reduction of Capital Accounts upon the return of capital to Partners;
(vi) To add to the representations, duties or obligations of the
General Partners or their Affiliates or surrender any right or power granted to
the General Partners or their Affiliates herein for the benefit of the Limited
Partners;
(vii) To cure any ambiguity, to correct or supplement any
provision herein which may be inconsistent with law or with any other provision
herein, or to make any other provision with respect to matters or questions
arising under this Agreement which will not be inconsistent with law or with the
provisions of this Agreement;
(viii) To delete, add or modify any provision to this Agreement
required to be so deleted, added or modified by the staff of the Securities and
Exchange Commission, the National Association of Securities Dealers, Inc. or by
a State Securities Commissioner or similar such official, which addition,
deletion or modification is deemed by such Commission or official to be for the
benefit or protection of the Limited Partners;
(ix) To make all filings as may be necessary or proper to
provide that this Agreement shall constitute, for all purposes, an agreement of
limited partnership under the laws of the State of Georgia as they may be
amended from time to time;
A-50
<PAGE>
(x) Upon notice to all Limited Partners, to amend the provisions
of Article X of this Agreement, or any other related provision of this Agreement
(provided, however, the General Partners shall first have received an opinion of
counsel to the Partnership that such amendment will not materially adversely
diminish the interests of the Limited Partners) to ensure that (A) the
allocations and distributions contained in Article X comply with Treasury
Regulations relating to Section 704 of the Code or any other statute, regulation
or judicial interpretation relating to such allocations, or (B) the periodic
allocations set forth in Article X will be respected under Section 706 of the
Code or any other statute, regulation or judicial interpretation relating to
such periodic allocations, or (C) the provisions of this Agreement will comply
with any applicable federal or state legislation enacted after the date of this
Agreement; to take such steps as the General Partners determine are advisable or
necessary in order to preserve the tax status of the Partnership as an entity
which is not taxable as a corporation for federal income tax purposes including,
without limitation, to compel a dissolution and termination of the Partnership;
to terminate the Offering of Units; to compel a dissolution and termination of
the Partnership or to restructure the Partnership's activities to the extent the
General Partners deem necessary (after consulting with counsel) to comply with
any exemption in the "plan asset" regulations adopted by the Department of Labor
in the event that either (I) the assets of the Partnership would constitute
"plan assets" for purposes of the Employee Retirement Income Security Act of
1974, as amended ("ERISA"), or (II) the transactions contemplated hereunder
would constitute "prohibited transactions" under ERISA or the Code and an
exemption for such transactions is not obtainable or not sought by the General
Partners from the United States Department of Labor; provided, the General
Partners are empowered to amend such provisions only to the minimum extent
necessary (in accordance with the advice of accountants and counsel) to comply
with any applicable federal or state legislation, rules, regulations or
administrative interpretations thereof after the date of this Agreement, and
that any such amendment(s) made by the General Partners shall be deemed to be
made pursuant to the fiduciary obligations of the General Partners to the
Partnership; and
(xi) To eliminate or modify any restriction on substitution or
assignment contained in Article XVII at such time as the restriction is no
longer necessary.
(b) To execute, acknowledge, swear to, file or record such
certificates, instruments and documents as may be required by, or may be
appropriate under, the laws of any state or other jurisdiction, or as may be
appropriate for the Limited Partners to execute, acknowledge, swear to, file or
record to reflect:
(i) Any changes or amendments of this Agreement, or pertaining to
the Partnership, of any kind referred to in paragraph (a) of this Section 19.1;
or
(ii) Any other changes in, or amendments of, this Agreement, but
only if and when the consent of a Majority Vote or other required percentage of
the Limited Partners has been obtained.
Each of such agreements, certificates, instruments and documents shall be
in such form as the General Partners and legal counsel for the Partnership shall
deem appropriate. Each Limited Partner hereby authorizes the General Partners
to take any further action which the General Partners shall consider necessary
or convenient in connection with any of the foregoing, hereby giving said
attorney-in-fact full power and authority to do and perform each and every act
and thing whatsoever requisite, necessary or convenient to be done in and about
the foregoing as fully as said Limited Partner might or could do if personally
present and hereby ratifies and confirms all that said attorney-in-fact shall
lawfully
A-51
<PAGE>
do or cause to be done by virtue hereof. The power hereby conferred shall be
deemed to be a power coupled with an interest, in recognition of the fact that
each of the Partners under this Agreement will be relying upon the power of the
General Partners to act as contemplated by this Agreement in any filing and
other action by them on behalf of the Partnership, and shall survive the
bankruptcy, death, adjudication of incompetence or insanity, or dissolution of
any Person hereby giving such power and the transfer or assignment of all or any
part of the Units of such Person; provided, however, that in the event of the
transfer by a Limited Partner of all of his Units, the foregoing power of
attorney of a transferor Limited Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
substituted Limited Partner and all required documents and instruments shall
have been duly executed, sworn to, filed and recorded to effect such
substitution.
19.2 REQUIRED SIGNATURES. Any writing to amend this Agreement to reflect
-------------------
the addition of a Limited Partner need be signed only by a General Partner, by
the Limited Partner who is disposing of his interest in the Partnership, if any,
and by the Person to be substituted or added as a Limited Partner. The General
Partners, or either of them, may sign for either or both of said Limited
Partners as their attorney-in-fact pursuant to paragraph (a) of Section 19.1
hereof. Any writing to amend this Agreement to reflect the removal or
withdrawal of a General Partner in the event the business of the Partnership is
continued pursuant to the terms of this Agreement need be signed only by a
remaining or a new General Partner.
19.3 ADDITIONAL DOCUMENTS. Each Partner, upon the request of the others,
--------------------
agrees to perform any further acts and execute and deliver any further documents
which may be reasonably necessary to carry out the provisions of this Agreement.
ARTICLE XX
DISSOLUTION AND TERMINATION OF THE PARTNERSHIP
20.1 DISSOLUTION. Except as otherwise provided in this Section 20.1, no
-----------
Partner shall have the right to cause dissolution of the Partnership before the
expiration of the term for which it is formed. The Partnership shall be
dissolved and terminated upon the happening of any of the following events:
(a) The expiration of the term of the Partnership as specified in
Article VI hereof;
(b) The decision by Majority Vote of the Limited Partners to dissolve
and terminate the Partnership;
(c) The entry of a decree of judicial dissolution by a court of
competent jurisdiction, provided that the foregoing shall not apply if the
Partnership files a voluntary petition seeking reorganization under the
bankruptcy laws;
(d) The retirement or withdrawal of a General Partner unless (i) the
remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, the Limited Partners, within 120 days from the date
of such event, elect by Majority Vote to continue the business of the
Partnership and elect a new General Partner pursuant to Section 20.3 below;
A-52
<PAGE>
(e) The effective date of the removal of a General Partner unless (i)
the remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, Limited Partners, prior to the effective date of such
removal, elect by Majority Vote to continue the business of the Partnership and
elect a new General Partner pursuant to Section 20.3 below;
(f) The effective date of an Event of Withdrawal of a General Partner
unless (i) the remaining General Partner, if any, elects to continue the
business of the Partnership within 90 days from the date of such Event of
Withdrawal, or (ii) if there is no remaining General Partner, the Limited
Partners, within 120 days from the date of such Event of Withdrawal, elect by
Majority Vote to continue the business of the Partnership and elect a new
General Partner pursuant to Section 20.3 below;
(g) The sale or other disposition of all of the interests in real
estate (including, without limitation, purchase money security interests and
interests in joint ventures or other entities owning interests in real estate)
of the Partnership; or
(h) The election by the General Partners to terminate the Partnership,
without the consent of any Limited Partner, in the event that either (i) the
Partnership's assets constitute "plan assets," as such term is defined for
purposes of ERISA, or (ii) any of the transactions contemplated by this
Agreement constitute a "prohibited transaction" under ERISA or the Code and no
exemption for such transaction is obtainable from the United States Department
of Labor or the General Partners determine in their discretion not to seek such
an exemption.
In the Event of Withdrawal of a General Partner resulting in only one
General Partner remaining, such remaining General Partner shall be obligated to
elect to continue the business of the Partnership within 90 days from the date
of such Event of Withdrawal.
The Partnership shall not be dissolved or terminated by the admission of
any new Limited Partner or by the withdrawal, expulsion, death, insolvency,
bankruptcy or disability of a Limited Partner.
20.2 PROXY TO LIQUIDATE. At any time commencing eight years after the
------------------
termination of the Offering, upon receipt by the General Partners of written
requests from Limited Partners holding 10% or more of the outstanding Units (the
"Proxy Request") directing that the General Partners formally proxy the Limited
Partners to determine whether the assets of the Partnership should be liquidated
(the "Proxy to Liquidate"), the General Partners shall send a Proxy to Liquidate
to each Limited Partner within 60 days of receipt of the Proxy Request, or as
soon as reasonably practicable thereafter following the receipt of independent
appraisals of Partnership Properties which the Partnership shall obtain as part
of this proxy process, and the filing and review of such Proxy to Liquidate by
the Securities and Exchange Commission. The General Partners shall not be
required to send Proxies to Liquidate to Limited Partners more frequently than
once during every two (2) year period. To insure that Limited Partners are
adequately informed when casting their votes, the Proxy to Liquidate furnished
to each Limited Partner shall include financial information setting forth per
Unit pro forma tax and financial projections which assume that all Partnership
Properties will be sold immediately at prices consistent with their appraised
values, or such other information as the General Partners deem appropriate and
informative, provided in all such cases that the furnishing of such information
to Limited Partners shall not contravene applicable law or applicable rules and
regulations of the Securities and Exchange Commission regarding the solicitation
of proxies. The Proxy to Liquidate shall contain a 45 day voting deadline, and
the actual voting results shall be tabulated by the Partnership's independent
accountants who will receive the votes
A-53
<PAGE>
directly from the Limited Partners. The General Partners shall disclose the
complete voting results for the Proxy to Liquidate in the Partnership's next
annual or quarterly report on Form 10-K or 10-Q sent to the Limited Partners for
the period following the date on which voting was completed. If a Majority Vote
of the Limited Partners is cast in favor of a liquidation of the Partnership,
the assets of the Partnership shall be fully liquidated within 30 months from
the close of the voting deadline applicable to the Proxy to Liquidate. Under no
circumstances, however, shall the General Partners direct the Partnership to
make distributions "in kind" of any Partnership Properties to the Limited
Partners.
20.3 LIMITED PARTNERS' RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP.
-------------------------------------------------------------------
Upon the occurrence of an event specified in paragraphs (d), (e) or (f) of
Section 20.1 above with respect to the last remaining General Partner, the
Limited Partners shall have a right prior to the effective date of the
occurrence of any such event to elect to continue the business of the
Partnership pursuant to the provisions of this Section 20.3. The effective date
of the events specified in paragraphs (d), (e) and (f) of Section 20.1 above
with respect to the last remaining General Partner shall be 120 days after the
date of any such event. In the case of the occurrence of an event specified in
paragraphs (d), (e) or (f) of Section 20.1 above, the Limited Partners may
elect, by Majority Vote within 120 days from the date of such event, to continue
the business of the Partnership and elect one or more new General Partners. The
new General Partner or General Partners so elected shall execute, deliver,
acknowledge and record an amendment to the Certificate and such other documents
and instruments as may be necessary or appropriate to effect such change.
20.4 PAYMENT TO WITHDRAWN OR REMOVED GENERAL PARTNER. Upon the retirement,
-----------------------------------------------
removal or Event of Withdrawal of a General Partner, the Partnership shall be
required to pay such General Partner any amounts then accrued and owing to such
General Partner under this Agreement. The method of payment to any such General
Partner must be fair and must protect the solvency and liquidity of the
Partnership. In addition, the Partnership shall have the right, but not the
obligation, to terminate any such General Partner's interest in Partnership
income, losses, distributions and capital upon payment to him of an amount equal
to the value of his interest in Partnership income, losses, distributions and
capital on the date of such retirement, removal or Event of Withdrawal. Such
interest shall be computed taking into account the General Partner's economic
interest in the Partnership under Articles IX and X hereof, and shall be based
upon the market value of the assets of the Partnership determined as if such
assets were sold on the date of such retirement, removal or Event of Withdrawal.
In the event such General Partner (or his representative) and the Partnership
cannot mutually agree upon such value within 90 days following such removal or
withdrawal, such value shall be determined by arbitration before a panel of
three appraisers, one of whom shall be selected by such General Partner (or his
representative) and one by the Partnership, and the third of whom shall be
selected by the two appraisers so selected by the parties. Such arbitration
shall take place in Atlanta, Georgia and shall be in accordance with the rules
and regulations of the American Arbitration Association then in force and
effect. The expense of arbitration shall be borne equally by such General
Partner and the Partnership. Payment to such General Partner of the value of
his interest in Partnership income, losses, distributions and capital shall be
made by the delivery of a promissory note (i) if the termination was voluntary,
being unsecured, bearing no interest and having principal payable, if at all,
from distributions which the General Partner would have otherwise received under
this Agreement had the General Partner not terminated; or (ii) if the
termination was involuntary, coming due in not less than five years and bearing
interest at the rate of 9% per annum, with principal and interest payable
annually in equal installments. In addition, within 120 days after the
determination of the fair market value of the former General Partner's interest,
upon the vote of a majority of the Limited Partners, the Partnership may sell
such interest to one or more Persons who may be Affiliates of the remaining
General Partner or General Partners and admit such Person or Persons to
A-54
<PAGE>
the Partnership as substitute General Partner or Partners; provided, however,
that the purchase price to be paid to the Partnership for the Partnership
interest of the former General Partner shall not be less than its fair market
value as determined by the appraisal described above. Such substitute General
Partner or Partners may pay said purchase price in installments in the manner
set forth above. In the event that such General Partner's interest is not
terminated by the Partnership pursuant to the provisions set forth above, such
interest shall convert automatically to a special limited partnership interest
having the same interest in the Partnership's income, losses, distributions and
capital as was attributable to such interest as a General Partner. In either
event, any such General Partner who has retired, has been removed or with
respect to which an Event of Withdrawal has occurred shall have no further right
to participate in the management of the Partnership.
20.5 TERMINATION OF EXECUTORY CONTRACTS. Upon the removal or occurrence of
----------------------------------
an Event of Withdrawal of a General Partner, all executory contracts between the
Partnership and such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may be terminated and canceled by the Partnership without prior notice
or penalty. Such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may also terminate and cancel any such executory contract effective
upon 60 days prior written notice of such termination and cancellation to the
remaining or new General Partner or General Partners, if any, or to the
Partnership.
ARTICLE XXI
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
21.1 LIQUIDATION DISTRIBUTION. Upon a dissolution and final termination of
------------------------
the Partnership, the General Partners (or in the event of a General Partner's
removal or termination and, if there is no remaining General Partner, any other
Person selected by the Limited Partners) shall take account of the Partnership
assets and liabilities, and the assets shall be liquidated as promptly as is
consistent with obtaining the fair market value thereof, and the proceeds
therefrom, to the extent sufficient therefor, shall be applied and distributed
in accordance with Section 9.4 hereof.
21.2 TIME OF LIQUIDATION. A reasonable time shall be allowed for the
-------------------
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the General Partners to minimize the
losses upon a liquidation.
21.3 LIQUIDATION STATEMENT. Each of the Partners shall be furnished with a
---------------------
statement prepared or caused to be prepared by the General Partners, which shall
set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon compliance with the foregoing distribution plan, the
Limited Partners shall cease to be such, and the General Partners, as the sole
remaining Partners of the Partnership, shall execute, acknowledge and cause to
be filed a Certificate of Cancellation of the Partnership.
21.4 NO LIABILITY FOR RETURN OF CAPITAL. The General Partners shall not be
----------------------------------
personally liable for the return of all or any part of the Capital Contributions
of the Limited Partners. Any such return shall be made solely from Partnership
assets.
A-55
<PAGE>
21.5 NO RIGHT OF PARTITION. The Partners and Assignees shall have no right
---------------------
to receive Partnership Property in kind, nor shall such Partners or Assignees
have the right to partition the Partnership Property, whether or not upon the
dissolution and termination of the Partnership.
21.6 PRIORITY; RETURN OF CAPITAL. Except as provided in this Agreement, no
---------------------------
Limited Partner shall have priority over any other Limited Partner either as to
the return of Capital Contributions or as to allocations of income and losses or
payments of distributions. Other than upon the dissolution and termination of
the Partnership as provided by this Agreement, there has been no time agreed
upon when the Capital Contribution of each Limited Partner is to be returned.
21.7 ESCHEAT OF DISTRIBUTIONS. If, upon termination and dissolution of the
------------------------
Partnership, there remains outstanding on the books of the Partnership (after a
reasonable period of time determined in the sole discretion of the General
Partners) a material amount of distribution checks which have not been
negotiated for payment by the Limited Partners, the General Partners may, if
deemed to be in the best interest of the Partnership, cause such amounts to be
redistributed pro rata to Limited Partners of record on such final distribution
date who have previously cashed all of their distribution checks; provided,
however, that neither the General Partners nor the Partnership shall be liable
for any subsequent claims for payment of such redistributed distributions. The
General Partners are not required to make such a redistribution, in which case
such amounts may eventually escheat to the appropriate state. Notwithstanding
the foregoing, the proceeds of distribution checks payable to Ohio residents
which have not been negotiated for payment within one year of the distribution
date shall be submitted to the Ohio Division of Unclaimed Funds in accordance
with the Ohio Unclaimed Funds statute, Chapter 169 of the Ohio Revised Code.
ARTICLE XXII
GENERAL PROVISIONS
22.1 NOTICES. Except as otherwise provided herein, any notice, payment,
-------
distribution or other communication which shall be required to be given to any
Partner in connection with the business of the Partnership shall be in writing
and any such notice shall become effective (a) upon personal delivery thereof,
including by overnight mail and courier service, or (b) four days after it shall
have been mailed by United States mail, first class with postage prepaid; in
each case, if to a Limited Partner, addressed to the last address furnished for
such purpose by the Limited Partner to whom it is authorized to be given as of
the time sent for delivery or as of the time of such mailing; and if to a
General Partner or the Partnership, at the principal office of the Partnership,
or at such other address as such General Partner may hereafter specify in a
notice duly given as provided herein.
22.2 SURVIVAL OF RIGHTS. This Agreement shall be binding upon and inure to
------------------
benefit of the Partners and their respective heirs, legatees, legal
representatives, successors and assigns.
22.3 AMENDMENT. Except as specifically provided herein, following the
---------
admission of Additional Limited Partners to the Partnership, this Agreement may
be amended, modified and changed only after obtaining a Majority Vote of the
Limited Partners. When voting on whether to approve or reject proposed changes
to this Agreement, Limited Partners shall be permitted to vote separately on
each significant proposed change.
A-56
<PAGE>
22.4 HEADINGS. The captions of the articles and sections of this Agreement
--------
are for convenience only and shall not be deemed part of the text of this
Agreement.
22.5 AGREEMENT IN COUNTERPARTS. This Agreement, or any amendment hereto,
-------------------------
may be executed in counterparts each of which shall be deemed an original
Agreement, and all of which shall constitute one agreement, by each of the
Partners hereto on the dates respectively indicated in the acknowledgements of
said Partners, notwithstanding that all of the Partners are not signatories to
the original or the same counterpart, to be effective as of the day and year
first above written.
22.6 GOVERNING LAW. This Agreement shall be governed and construed
-------------
according to the laws of the State of Georgia governing partnerships; provided,
however, that causes of action for violations of federal or state securities
laws shall not be governed by this Section 22.6.
22.7 TIME. Time is of the essence in this Agreement.
----
22.8 PRONOUNS. All pronouns and any variations thereof shall be deemed to
--------
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the Person or Persons may require.
22.9 SEPARABILITY OF PROVISIONS. Each provision of this Agreement shall be
--------------------------
considered separable and if for any reason any provision or provisions hereof
are determined to be invalid and contrary to any existing or future law, such
invalidity shall not impair the operation, or affect those portions, of this
Agreement which are valid.
22.10 NO MANDATORY ARBITRATION OF DISPUTES. Except as may be permitted or
------------------------------------
required pursuant to Section 20.4 hereof, nothing in this Agreement or the
Subscription Agreement to be executed by each Limited Partner shall be deemed to
require the mandatory arbitration of disputes between a Limited Partner and the
Partnership or any Sponsor. Nothing contained in this Section 22.10 is intended
to apply to preexisting contracts between broker-dealers and Limited Partners.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
A-57
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby execute this Amended and
Restated Agreement of Limited Partnership under seal as of the date and year
first above written.
INITIAL LIMITED PARTNER:
_________________________________________(SEAL)
Brian M. Conlon
GENERAL PARTNERS:
WELLS PARTNERS, L.P.
A Georgia Limited Partnership
By: WELLS CAPITAL, INC.
A Georgia Corporation
Attest: (As General Partner)
By:___________________________________ By:____________________________________
Name:____________________________ Leo F. Wells, III
Title:___________________________ President
_________________________________________(SEAL)
LEO F. WELLS, III
A-58
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT AND
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<PAGE>
EXHIBIT "B"
SUBSCRIPTION AGREEMENT
To: WELLS REAL ESTATE FUND XII/XIII, L.P.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of units of limited partnership interest
("Units") in Wells Real Estate Fund XII/XIII, L.P., a Georgia limited
partnership (the "Partnership"), set forth on such Subscription Agreement
Signature Page. Payment for the units is hereby made by check payable to
"NationsBank, N.A., as Escrow Agent."
Payments for units will be held in escrow until the Partnership has
received and accepted subscriptions for 125,000 units ($1,250,000), except with
respect to residents of the States of New York and Pennsylvania, whose payments
for units will be held in escrow until the Partnership has received and accepted
subscriptions for 250,000 units ($2,500,000) from all investors.
I hereby acknowledge receipt of the Prospectus of the Partnership dated
_______________, 1999 (the "Prospectus"), which includes the Agreement of
Limited Partnership of the Partnership (the "Partnership Agreement") in the form
attached as Exhibit A to the Prospectus.
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus and
that, if admitted to the Partnership, I shall be bound by the terms and
conditions of the Partnership Agreement, including the power of attorney granted
to the General Partners in Section 19.1 thereof. Subscriptions may be rejected
in whole or in part by the General Partners in their sole and absolute
discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the units is restricted and
will be governed by the Partnership Agreement and all applicable laws as
described in the Prospectus.
(b) Prospective investors should not invest in units unless they have an
adequate means of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
(c) There will be no public market for the units, and accordingly, it may
not be possible to readily liquidate an investment in the Partnership.
I hereby constitute and appoint Wells Partners, L.P. and Leo F. Wells, III,
and each of them acting singly, with full power of substitution, my true and
lawful attorney-in-fact in my name, place and stead and for my use and benefit
(a) to sign, execute, deliver, certify, acknowledge, file and record a
Partnership Agreement in substantially the form attached as Exhibit A to the
Prospectus; and (b) to sign, execute, certify, acknowledge, swear to, file,
record and publish any other certificates, instruments and documents which may
be required of the Partnership under the laws of the State of Georgia or the
laws of any state or any governmental agency, or which such attorney-in-fact
deems necessary or advisable to file, record, publish, or deliver. The
foregoing grant of authority (a) is a special power of attorney coupled with an
interest, (b) is irrevocable and shall survive my death or disability, and (c)
may be exercised by such attorney-in-fact by listing my name along with the
names of all other persons for whom such attorney-in-fact is acting and
executing the Partnership Agreement and such other certificates, instruments and
documents with the single signature of a duly-authorized officer or agent of
such attorney-in-fact for all of the persons whose names are so listed.
B-1
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF
LIMITED PARTNERSHIP UNITS
260.141.11 RESTRICTIONS ON TRANSFER.
------------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules
(the "Rules") adopted under the California Corporate Securities Law (the "Code")
shall cause a copy of this section to be delivered to each issuee or transferee
of such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the broker-
dealer, nor actually present in this state if the sale of such securities is not
in violation of any securities laws of the foreign state, territory or country
concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled or actually present in this state;
B-2
<PAGE>
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
SPECIAL NOTICE FOR MASSACHUSETTS, MAINE AND NEBRASKA RESIDENTS ONLY
In no event may a subscription for units be accepted until at least five
business days after the date the subscriber receives the Prospectus. Residents
of the States of Massachusetts, Maine and Nebraska who first received the
Prospectus only at the time of subscription may receive a refund of the
subscription amount upon request to the General Partners within five days of the
date of subscription.
B-3
<PAGE>
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the
trust, the name of the trustee and the name of the beneficiary.
7. PARTNERSHIP: Identify whether the entity is a general or limited
partnership. The general partners must be identified and their signatures
obtained on the Signature Page. In the case of an investment by a general
partnership, all partners must sign (unless a "managing partner" has been
designated for the partnership, in which case he may sign on behalf of the
partnership if a certified copy of the document granting him authority to
invest on behalf of the partnership is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating the
officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of
the trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child is
permitted in each investment under UGMA or UTMA. In addition, designate the
state under which the gift is being made.
B-4
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE FUND XII/XIII, L.P. SUBSCRIPTION AGREEMENT
- --------------------------------------------------------------------------------
INVESTOR PLEASE FOLLOW THESE INSTRUCTIONS CAREFULLY.
INSTRUCTIONS FAILURE TO DO SO MAY RESULT IN THE REJECTION OF
YOUR SUBSCRIPTION. ALL INFORMATION ON THE
SUBSCRIPTION AGREEMENT SIGNATURE PAGE SHOULD BE
COMPLETED AS FOLLOWS:
- --------------------------------------------------------------------------------
1. INVESTMENT a. GENERAL: A minimum investment of $1,000 (100
units) is required, except for certain states
which require a higher minimum investment. A
CHECK FOR THE FULL PURCHASE PRICE OF THE
UNITS SUBSCRIBED FOR SHOULD BE MADE PAYABLE
TO THE ORDER OF "NATIONSBANK, N.A., AS ESCROW
AGENT." Investors who have satisfied the
minimum purchase requirements in Wells Real
Estate Fund I, Wells Real Estate Fund II,
Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund
IV, L.P., Wells Real Estate Fund V, L.P.,
Wells Real Estate Fund VI, L.P., Wells Real
Estate Fund VII, L.P., Wells Real Estate Fund
VIII, L.P., Wells Real Estate Fund IX, L.P.,
Wells Real Estate Fund X, L.P., Wells Real
Estate Fund XI, L.P. or Wells Real Estate
Investment Trust, Inc. or in any other public
real estate program may invest as little as
$25 (2.5 units) except for residents of
Maine, Minnesota, Nebraska or Washington.
Units may be purchased only by persons
meeting the standards set forth under the
Section of the Prospectus entitled
"Suitability Standards." Please indicate the
state in which the sale was made.
b. DEFERRED COMMISSION OPTION: Please check the
box if you have agreed with your Broker-
Dealer to elect the deferred commission
option, as described in the prospectus. By
electing the deferred commission option, you
are required to pay only $9.40 per Unit
purchased upon subscription. For the next six
years following termination of the offering,
you will have a 1% sales commission ($.10 per
Unit) deducted from and paid out of net cash
from operations otherwise distributable to
you. Election of the deferred commission
option shall authorize the general partners
to withhold such amounts from cash
distributions otherwise payable to you.
- --------------------------------------------------------------------------------
2. CLASS STATUS OF UNITS Please check the appropriate box to identify the
status of units (Cash Preferred Units or Tax
Preferred Units) desired. These classes of units
entitle holders to different rights under the
Partnership Agreement. For a more complete
description of the differences between the two
classes of units, see "Description of the Units"
in the Prospectus. If electing Cash Preferred
Units for some units and Tax Preferred Units for
the remaining units being purchased, please
complete a separate Subscription Agreement
Signature Page for each class of units.
- --------------------------------------------------------------------------------
3. TYPE OF OWNERSHIP Please check the appropriate box to indicate the
type of entity or type of individuals subscribing.
- --------------------------------------------------------------------------------
B-5
<PAGE>
- --------------------------------------------------------------------------------
4. REGISTRATION NAME AND Please enter the exact name in which the Units are
ADDRESS to be held. For joint tenants with right of
survivorship or tenants in common, include the
names of both investors. In the case of
partnerships or corporations, include the name of
an individual to whom correspondence will be
addressed. Trusts should include the name of the
trustee. All investors must complete the space
provided for taxpayer identification number or
social security number. By signing in Section 6,
the investor is certifying that this number is
correct. Enter the mailing address and telephone
numbers of the registered owner of this
investment. In the case of a Qualified Plan or
trust, this will be the address of the trustee.
Indicate the birthdate and occupation of the
registered owner unless the registered owner is a
partnership, corporation or trust.
- --------------------------------------------------------------------------------
5. INVESTOR NAME AND ADDRESS Complete this Section only if the investor's name
and address is different from the registration
name and address provided in Section 4. If the
units are registered in the name of a trust, enter
the name, address, telephone number, social
security number, birthdate and occupation of the
beneficial owner of the trust.
- --------------------------------------------------------------------------------
6. SUBSCRIBER SIGNATURES Please separately initial each representation made
by the investor where indicated. Except in the
case of fiduciary accounts, the investor may not
grant any person a power of attorney to make such
representations on his or her behalf. Each
investor must sign and date this Section. If title
is to be held jointly, all parties must sign. If
the registered owner is a partnership, corporation
or trust, a general partner, officer or trustee of
the entity must sign. PLEASE NOTE THAT THESE
SIGNATURES DO NOT HAVE TO BE NOTARIZED.
- --------------------------------------------------------------------------------
7. ADDITIONAL INVESTMENTS Please check if you plan to make one or more
additional investments in the Partnership. All
additional investments must be in increments of at
least $25 and, unless otherwise indicated on a new
Subscription Agreement Signature Page, you will be
deemed to have elected the same status of units
(Cash Preferred Units or Tax Preferred Units) you
check in Section 2. Additional investments by
residents of Maine must be for the minimum amounts
stated under "Suitability Standards" in the
Prospectus, and residents of Maine must execute a
new Subscription Agreement Signature Page to make
additional investments in the Partnership. If
additional investments in the Partnership are
made, the investor agrees to notify the General
Partners and the Broker-Dealer named on the
Subscription Agreement Signature Page in writing
if at any time he fails to meet the applicable
suitability standards or he is unable to make any
other representations or warranties set forth in
the Prospectus or the Subscription Agreement. The
investor acknowledges that the Broker-Dealer named
in the Subscription Agreement Signature Page may
receive a commission not to exceed 7% of any such
additional investments in the Partnership.
- --------------------------------------------------------------------------------
B-6
<PAGE>
- --------------------------------------------------------------------------------
8. DISTRIBUTIONS a. DISTRIBUTION REINVESTMENT PLAN: By electing
the distribution reinvestment plan, the
investor elects to reinvest all distributions
of net cash from operations in the
Partnership and to have the option in the
future to invest net cash from operations in
limited partnerships sponsored by the General
Partners or their affiliates which have
substantially identical investment objectives
as the Partnership. Unless the General
Partners are otherwise notified in writing,
units purchased pursuant to the distribution
reinvestment plan will initially be treated
as Cash Preferred Units. The investor agrees
to notify the General Partners and the
Broker-Dealer named on the Subscription
Agreement Signature Page in writing if at any
time he fails to meet the applicable
suitability standards or he is unable to make
any other representations and warranties as
set forth in the Prospectus or Subscription
Agreement or in the prospectus and
subscription agreement of any future limited
partnerships sponsored by the General
Partners or their affiliates. The investor
acknowledges that the Broker-Dealer named in
the Subscription Agreement Signature Page may
receive a commission not to exceed 7% of any
reinvested distributions.
b. DISTRIBUTION ADDRESS: If cash distributions
are to be sent to an address other than that
provided in Section 5 (i.e., a bank,
brokerage firm or savings and loan, etc.),
please provide the name, account number and
address.
- --------------------------------------------------------------------------------
9. BROKER-DEALER This Section is to be completed by the Registered
Representative. Please complete all BROKER-DEALER
information contained in Section 9 including
suitability certification. SIGNATURE PAGE MUST BE
SIGNED BY AN AUTHORIZED REPRESENTATIVE.
- --------------------------------------------------------------------------------
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Partnership.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
B-7
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------------------
SEE PRECEDING PAGE Special Instructions:
FOR INSTRUCTIONS
---------------------------------------------------------------
WELLS REAL ESTATE FUND ___, L.P.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
(1) ===== INVESTMENT ==========================================================================================================
------------------------------------------------------
____________________ ______________________ Make Investment Check Payable to:
# of Units Total $ Invested NationsBank, N.A.,
as Escrow Agent
--------------------------------------------------------
(# Units x $10 = $ Invested) [_] Initial Investment (Minimum $1,000)
[_] Additional Investment (Minimum $25)
Minimum purchase $1,000 or 100 units State in which sale was made _________________
------------------------------------------------------ --------------------------------------------------------
Check the following box to elect the deferred
commission option: [_]
(This election must be agreed to by the Broker-Dealer listed below)
(2) ===== CLASS STATUS OF UNITS =============================================================================================
Check appropriate box.
If electing both Cash Preferred Units and Tax Preferred Units, please complete a separate Signature Page for
each type of investment.
[_] CASH PREFERRED UNITS [_] TAX PREFERRED UNITS
(Entitled to first priority on distributions of cash flow (Allocated certain tax deductions but no distributions
from operations) of cash flow from operations)
(3) ===== TYPE OF OWNERSHIP =================================================================================================
[_] IRA (06) [_] Individual (01)
[_] Keogh (10) [_] Joint Tenants With Right of Survivorship (02)
[_] Qualified Pension Plan (11) [_] Community Property (03)
[_] Qualified Profit Sharing Plan (12) [_] Tenants in Common (04)
[_] Other Trust ___________________________________ [_] Custodian: A Custodian for ________________________
For the Benefit of under the Uniform Gift to Minors Act or the Uniform
[_] Partnership (15) Transfers to Minors Act of the State of
__________________________ (08)
[_] Other ______________________________________________
(4) ===== REGISTRATION NAME AND ADDRESS ======================================================================================
Please print name(s) in which Units are to be registered. Include trust name if applicable.
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other ___________________
----------------------------------------------------------
Taxpayer Identification Number
[_] [_]-[_] [_] [_] [_] [_] [_] [_]
----------------------------------------------------------
Social Security Number
[_] [_] [_]-[_] [_]-[_] [_] [_]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
---------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------- -------------- -------------------------
---------------------------------- -----------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
---------------------------------- -----------------------------------------------
---------------------------------- -----------------------------------------------
Birthdate Occupation
---------------------------------- -----------------------------------------------
(5) ===== INVESTOR NAME AND ADDRESS ==========================================================================================
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other _________________________
Name Social Security Number
----------------------------------------------------------
[_] [_] [_]-[_] [_]-[_] [_] [_]
----------------------------------------------------------
---------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
---------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------- -------------- -------------------------
---------------------------------- -----------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
---------------------------------- -----------------------------------------------
---------------------------------- -----------------------------------------------
Birthdate Occupation
---------------------------------- -----------------------------------------------
===============================================================================================================================
(REVERSE SIDE MUST BE COMPLETED)
</TABLE>
<PAGE>
<TABLE>
<S> <C>
(6) ===== SUBSCRIBER SIGNATURES ==========================================================================================
Please separately initial each of the representations below. Except in the case of fiduciary accounts, you may
not grant any person a power of attorney to make such representations on your behalf. In order to induce the
General Partners to accept this subscription, I hereby represent and warrant to you as follows:
(REVERSE SIDE MUST BE COMPLETED)
(a) I have received the Prospectus and the Partnership Agreement. ______________ ______________
Initials Initials
(b) I accept and agree to be bound by the terms and conditions of the
Partnership Agreement. ______________ ______________
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings
and automobiles) of $150,000 or more; or (ii) a net worth (as
described above) of at Initials least $45,000 and had during the
last tax year or estimate that I will have during Initials the
current tax year a minimum of $45,000 annual gross income, or
that I meet the higher suitability requirements imposed by my
state of primary residence as set forth in the Prospectus under
"Suitability Standards." ______________ ______________
Initials Initials
(d) If I am a California resident or if the Person to whom
I subsequently propose to assign or transfer any units is a
California resident, I may not consummate a sale or transfer of
my units, or any interest therein, or receive Initials any
consideration therefor, without the prior written consent of the
Commissioner of Initials the Department of Corporations of the
State of California, except as permitted in the Commissioner's
Rules, and I understand that my units, or any document
evidencing my units, will bear a legend reflecting the substance
of the foregoing understanding.
______________ ______________
Initials Initials
(e) ARKANSAS AND TEXAS RESIDENTS ONLY: I am purchasing the units for
my own account and acknowledge that the investment is not liquid.
______________ ______________
Initials Initials
I declare that the information supplied above is true and correct and may be relied upon by the General Partners in
connection with my investment as a limited partner in the Partnership. Under penalties of perjury, by signing this
Signature Page, I hereby certify that (a) I have provided herein my correct Taxpayer Identification Number, and (b)
I am not subject to back-up withholding as a result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to back-up withholding.
---------------------------------------- ----------------------------------------- ---------------------
---------------------------------------- ----------------------------------------- ---------------------
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
(7) ===== ADDITIONAL INVESTMENTS ============================================================================================
Please check if you plan to make additional investments in the Partnership: [_]
[If additional investments are made, please include social security number or other taxpayer identification
number on your check.]
[All additional investments must be made in increments of at least $25.]
(8) ===== DISTRIBUTIONS =====================================================================================================
8a. Check the following box to participate in the distribution reinvestment plan: [_]
8b. Complete the following section only to direct distributions to a party other than registered owner:
----------------------------------------------------------------------------------------
Name
----------------------------------------------------------------------------------------
Account Number
----------------------------------------------------------------------------------------
Street Address or P.O. Box
----------------------------------------------------------------------------------------
City State Zip Code
-------------------------------------------- ------ ----------------
(9) ===== BROKER-DEALER =====================================================================================================
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete order. Broker-Dealer warrants that it is
a duly licensed Broker-Dealer and may lawfully offer Units in the state designated as the investor's address or the
state in which the sale was made, if different. The Broker-Dealer or authorized representative warrants that he has
reasonable grounds to believe this investment is suitable for the subscriber as defined in Section 3(b) of Appendix F
and that he has informed subscriber of all aspects of liquidity and marketability of this investment as required by
Section 4 of Appendix F (Attachment No. 1 to Dealer Agreement).
------------------------------------------------------ ----------------
Broker-Dealer Name Telephone No. ( )
---------------------------------------------------------------------------------------
Broker-Dealer Street
Address or P.O. Box
----------------------------------------------------------------------------------------
City State Zip Code
-------------------------- ------------------- ------------------
Registered
Representative Name Telephone No. ( )
----------------------------------------------------------------------------------------
Reg. Rep. Street
Address or P.O. Box
----------------------------------------------------------------------------------------
City State Zip Code
--------------------------------------------------------- -----------------------------------------------------
---------------------------------------------------------- ----------------------------------------------------
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s) made payable to
NationsBank, N.A., as Escrow Agent to:
Wells Investment Securities, Inc.
3885 Holcomb Bridge Road
Norcross, Georgia 30092
800-448-1010 or 770-449-7800
Overnight address: Mailing address:
3885 Holcomb Bridge Road P.O. Box 926040
Norcross, Georgia 30092 Norcross, Georgia 30092-9209
FOR GENERAL PARTNER USE ONLY:
-----------------------------------------------------------------------------------------------------------------------
ACCEPTANCE BY GENERAL PARTNERS Amount__________________ Date _______________________________________
Received and Subscription Accepted: Check No. Certificate No._____________________________
By:________________________________ Wells Real Estate Fund ___, L.P.
___________________________ ___________________________________________________________ _____________________
Broker-Dealer # Registered Representative # Account #
------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALPHABETICAL INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information........................................... 125
Compensation of the General Partners and Affiliates.............. 47
Conflicts of Interest............................................ 50
Description of the Units......................................... 66
Distributions and Allocations.................................... 69
Estimated Use of Proceeds........................................ 45
Experts.......................................................... 124
Federal Income Tax Consequences.................................. 94
Fiduciary Duty of the General Partners........................... 55
Financial Statements............................................. 127
Glossary......................................................... 125
Investment by Tax-Exempt Entities and ERISA
Considerations.............................................. 88
Investment Objectives and Criteria............................... 30
Legal Opinions................................................... 124
Management....................................................... 41
Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 76
Plan of Distribution............................................. 117
Prior Performance Summary........................................ 57
Prior Performance Tables......................................... 169
Real Property Investments........................................ 75
Reports to Investors............................................. 116
Risk Factors..................................................... 9
Suitability Standards............................................ 26
Summary of the Offering.......................................... 1
Summary of Partnership Agreement................................. 78
Supplemental Sales Material...................................... 124
</TABLE>
UNTIL ______________, 1999 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS
IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER A PROSPECTUS WHEN ACTING AS
SOLICITING DEALERS.
---------------------------
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN
OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE
SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT PERMITTED.
---------------------------
WELLS REAL ESTATE FUND XII, L.P.
and
WELLS REAL ESTATE FUND XIII, L.P.
Minimum Offering of $1,250,000
for each Partnership
---------------------------
PROSPECTUS
---------------------------
WELLS INVESTMENT
SECURITIES, INC.
_______________, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31 Other Expenses of Issuance and Distribution
-------------------------------------------
Following is an itemized statement of the expenses of the offering
and distribution of the securities to be registered, other than
underwriting commissions:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
SEC Registration Fee $ 19,460
NASD Filing Fee 7,500
Printing Expenses 300,000
Legal Fees and Expenses 250,000
Accounting Fees and Expenses 25,000
Blue Sky Fees and Expenses 175,000
Miscellaneous 1,323,040
----------
Total $2,100,000
==========
</TABLE>
* To be filed by Amendment.
Item 32 Sales to Special Parties
------------------------
Not Applicable
Item 33 Recent Sales of Unregistered Securities
---------------------------------------
Not Applicable
Item 34 Indemnification of the General Partners
---------------------------------------
The Partnership shall indemnify and hold harmless each General Partner
from any loss, liability or damage incurred or suffered by any such
General Partner by reason of any act performed or omitted to be
performed by such General Partner in connection with the business of
the Partnership, including attorneys' fees incurred by such General
Partner in connection with the defense of any claim or action based on
any such act or omission, which attorneys' fees may be paid as
incurred, except to the extent indemnification is prohibited by law;
provided however, that any such indemnification shall only be from the
assets of the Partnership and not from the limited partners. Any
indemnification required herein to be made by the Partnership shall be
made promptly following the fixing of the loss, liability or damage
incurred or suffered by a final judgment of any court, settlement,
contract or otherwise. A General Partner (a) shall be entitled to the
foregoing indemnification, and (b) shall not be liable to the
Partnership for any loss, liability or damage suffered or incurred by
the Partnership, directly or indirectly, in connection with the
activities of such General Partner; provided that no General Partner
whose action or omission to act caused the loss, liability or damage
incurred or suffered may receive indemnification or avoid liability
unless such General Partner determined in good faith that such course
of conduct was in the best interest of the Partnership, and such
course of conduct did not constitute (i) fraud, negligence, misconduct
or knowing violation of law, (ii) a breach of fiduciary duty to the
Partnership or any partner, or (iii) a breach of the Partnership
Agreement. The Partnership shall not pay for any insurance covering
liability of a General Partner for actions or omissions for which
indemnification is not permitted under the Partnership Agreement.
Nothing contained in the Partnership Agreement shall constitute a
waiver by any limited partner of any right which he may have against
any party under federal or state securities laws.
Indemnification of the General Partners will not be allowed for any
liability, loss or damage incurred by them arising under federal and
state securities laws unless (i) there has been a
II-1
<PAGE>
successful adjudication of the merits of each count involving alleged
securities law violations as to the General Partner seeking
indemnification, or (ii) such claims have been dismissed with
prejudice on the merits by a court of competent jurisdiction as to the
General Partner seeking indemnification, or (iii) a court of competent
jurisdiction approves a settlement of the claims against a General
Partner seeking indemnification and finds that indemnification of the
settlement and related costs should be made. Prior to seeking a court
approval for indemnification, the General Partner shall apprise the
court of the position of the Securities and Exchange Commission, the
California Commissioner of the Development of Corporations, the
Massachusetts Securities Division, the Missouri Securities Division,
the Nebraska Bureau of Securities, the Oklahoma Department of
Securities, the Pennsylvania Securities Commission, the Tennessee
Securities Division and the Texas State Securities Board regarding
indemnification for violations of securities laws.
Item 35 Treatment of Proceeds from Stock Being Registered
-------------------------------------------------
Not Applicable
Item 36 Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
--------------------
The following financial statements of Wells Real Estate Fund XII,
L.P. are included in the Prospectus:
Audited Balance Sheet
(1) Report of Independent Public Accountants,
(2) Balance Sheet as of September 30, 1998, and
(3) Notes to Balance Sheet.
The following financial statements of Wells Real Estate Fund
XIII, L.P. are included in the Prospectus:
Audited Balance Sheet
(1) Report of Independent Public Accountants,
(2) Balance Sheet as of September 30, 1998, and
(3) Notes to Balance Sheet.
The following financial statements of Wells Partners, L.P. are
included in the Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1997 and 1996,
(3) Statements of Loss for the years ended December 31,
1997 and 1996,
(4) Statements of Partners' Capital for the years ended
December 31, 1997 and 1996,
(5) Statements of Cash Flows for the years ended December
31, 1997 and 1996,
(6) Notes to Financial Statements, and
(7) Schedule I - Market Value of Investments in
Partnerships.
Unaudited Financial Statements
(1) Balance Sheets as of September 30, 1998 and December
31, 1997,
(2) Statements of Operations for the nine months ended
September 30, 1998 and 1997,
(3) Statement of Partners' Capital for the nine months
ended September 30, 1998 and the year ended December
31, 1997,
(4) Statements of Cash Flows for the nine months ended
September 30, 1998 and 1997, and
II-2
<PAGE>
(5) Condensed Notes to Financial Statements.
The following financial statements of Wells Capital, Inc. and
Subsidiaries are included in the Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31, 1997 and
1996,
(3) Consolidated Statements of (Loss) Income for the years
ended December 31, 1997 and 1996,
(4) Consolidated Statements of Stockholder's Equity for the
years ended December 31, 1997 and 1996,
(5) Consolidated Statements of Cash Flows for the years
ended December 31, 1997 and 1996, and
(6) Notes to Consolidated Financial Statements.
Unaudited Financial Statements
(1) Balance Sheets as of September 30, 1998 and December 31,
1997,
(2) Statements of Operations for the nine months ended
September 30, 1998 and 1997,
(3) Statement of Stockholder's Equity for the nine months
ended September 30, 1998 and the year ended December 31,
1997,
(4) Statements of Cash Flow for the nine months ended
September 30, 1998 and 1997, and
(5) Condensed Notes to Financial Statements.
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit No. Description
- ----------- -----------
1* Form of Dealer Manager Distribution Agreement between Registrant
and Wells Investment Securities, Inc.
3.1 Form of Amended and Restated Agreement of Limited Partnership of
Wells Real Estate Fund XII/XIII, L.P. (included as Exhibit A to
Prospectus)
3.2* Certificate of Limited Partnership of Wells Real Estate Fund XII,
L.P. dated September 15, 1998
3.3* Certificate of Limited Partnership of Wells Real Estate Fund XIII,
L.P. dated September 15, 1998
4 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit B to Prospectus)
5.1* Opinion of Holland & Knight LLP regarding the legality of the
securities of Wells Real Estate Fund XII, L.P. to be offered
5.2* Opinion of Holland & Knight LLP regarding the legality of the
securities of Wells Real Estate Fund XIII, L.P. to be offered
8* Opinion of Holland & Knight LLP regarding tax matters
10.1 Form of Escrow Agreement between Registrant and NationsBank, N.A.
10.2* Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc.
__________________________
* Previously filed in the Registrant's Registration Statement, Commision File
No. 33-66657, on November 2, 1998.
II-3
<PAGE>
10.3* Form of Management Agreement between Registrant and Wells Management
Company, Inc.
23.1 Consent of Holland & Knight LLP (included in Exhibits 5.1, 5.2 and 8)
23.2 Consent of Arthur Andersen LLP
Item 37 Undertakings
------------
(a) The Registrant undertakes to file, during any period in which
offers or sales are being made, a post-effective amendment to this
Registration Statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) to
reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and (iii) 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, including (but not limited
to) any addition or deletion of a managing underwriter.
(b) The Registrant undertakes (i) 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 shall be deemed to be the initial bona fide offering
thereof, (ii) 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 (iii) to remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of
the offering.
(c) 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.
(d) To file a sticker supplement pursuant to Rule 424(c) 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 all
such stickers into a post-effective amendment filed at least once
every three months with the information contained in such amendment
provided simultaneously to the existing limited partners; each sticker
supplement should disclose all compensation and fees received by the
General Partners and their affiliates in connection with any such
acquisition; the post-effective amendment shall include audited
financial statements meeting the requirements of Rule 3-14 of
Regulation S-X only for properties acquired during the distribution
period.
(e) 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 Rule 3-14 of Regulation S-X, 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.
__________________________
* Previously filed in the Registrant's Registration Statement, Commision File
No. 33-66657, on November 2, 1998.
II-4
<PAGE>
(f) The Registrant undertakes to file the financial statements as
required by Form 10-K for the first full fiscal year of operations and
to provide each limited partner the financial statements required by
Form 10-K for such year.
(g) The Registrant undertakes to distribute to each limited
partner, within sixty (60) days after the close of each quarterly
period, a copy of each report on Form 10-Q which is required to be
filed with the Commission or a quarterly report containing at least as
much information as the report on Form 10-Q.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, 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 director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person 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.
(i) The Registrant undertakes that the prospectus will be
supplemented at the close of the offering of Wells Real Estate Fund
XII, L.P. to state the number of participants purchasing units, the
amount of units sold, the cumulative amount of units sold under this
Registration Statement and the amount of interests to be offered in
Wells Real Estate Fund XIII, L.P.
(j) Wells Real Estate Fund XIII, L.P. undertakes that if at the
commencement of the offering of the units of Wells Real Estate Fund
XIII, L.P. (which will not take place until the completion of the
offering of Wells Real Estate Fund XII, L.P. and the filing of the
supplement contemplated by the preceding undertaking), Wells Real
Estate Fund XIII, L.P. will not commence until after a post-effective
amendment to the Registration Statement has been filed and declared
effective. Any such post-effective amendment shall contain such
information as would be required in an original registration statement
with respect to the property being acquired (including audited
financial statements of the property to be acquired meeting the
requirements of Rule 3-14 of Regulation S-X).
II-5
<PAGE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
The information contained on the following pages relates to acquisitions of
properties within the past three (3) years by six (6) prior programs with which
the General Partners and their affiliates have been affiliated and which have
substantially similar investment objectives to the Partnership. This table
provides the potential investor with information regarding the general nature
and location of the properties and the manner in which the properties were
acquired. None of the information in Table VI has been audited.
II-6
<PAGE>
TABLE VI
--------
Wells Funds VII and VIII
------------------------
Name of property CH2M Hill Building
Location of property 3011 S.W. Williston Road
Gainesville, Alachua County, Florida
Type of property Two-story office building
Size of parcel 5 acres
Gross leasable space 62,000 sq. feet
Date of commencement of Fund VII - April 26, 1994
operations/1/ Fund VIII - February 24, 1995
Date of purchase January 20, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $222,627
Contract purchase price
plus acquisition fee $4,668,308
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $648,744
Total Acquisition Cost $5,317,052
___________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-7
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VI, VII and VIII
----------------------------
Name of property BellSouth Building
Location of property 10375 Centurion Parkway North
Jacksonville, Florida
Type of property Four-story office building
Size of parcel 5.55 acres
Gross leasable space 97,075 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Fund VIII - February 24, 1995
Date of purchase April 25, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $15,000
Contract purchase price
plus acquisition fee $1,245,049
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $7,359,984
Total Acquisition Cost $8,605,033
_____________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-8
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VI, VII and VIII
----------------------------
Name of property Tanglewood Commons Shopping Center
Location of property 45 Highway 158 & State Road 1101 (Harper Road)
Clemmons, Forsyth County, North Carolina
Type of property Retail shopping center
Size of parcel 14.683 acres
Gross leasable space 81,000 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Fund VIII - February 24, 1995
Date of purchase May 31, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $2,954,724
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $5,745,739
Total Acquisition Cost $8,700,463
____________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-9
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VI and VII
----------------------
Name of property Stockbridge Village I Expansion
Location of property 3576 Highway 138
Stockbridge, Clayton County, Georgia
Type of property Multi-tenant shopping center
Size of parcel 3.38 acres
Gross leasable space 29,200 sq. feet
Date of commencement of Fund VI - May 17, 1993
operations/1/ Fund VII - April 26, 1994
Date of purchase June 7, 1995
Mortgage financing at
date of purchase N/A
Cash down payment $675,200
Contract purchase price
plus acquisition fee $718,489
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $2,342,483
Total Acquisition Cost $3,060,972
______________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-10
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VIII and IX
-----------------------
Name of property Cellular One Building
Location of property The American Center, Interstate 90/94 and U.S.
Highway 151 Madison, Dade County, Wisconsin
Type of property Four-story office building
Size of parcel 7.09 acres
Gross leasable space 96,750 sq. feet
Date of commencement of Fund VIII - February 24, 1995
operations/1/ Fund IX - February 12, 1996
Date of purchase June 19, 1996
Mortgage financing at
date of purchase N/A
Cash down payment $25,000
Contract purchase price
plus acquisition fee $949,887
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $9,936,117
Total Acquisition Cost $10,886,004
________________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-11
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VIII and IX
-----------------------
Name of property TCI Building
Location of property 1565 Chenault Street, Farmers Branch, Dallas County,
Texas
Type of property One-story office building
Size of parcel 4.864 acres
Gross leasable space 40,000 sq. feet
Date of commencement of Fund VIII - February 24, 1995
operations/1/ Fund IX - February 12, 1996
Date of purchase October 10, 1996
Mortgage financing at
date of purchase N/A
Cash down payment $4,473,060
Contract purchase price
plus acquisition fee $4,473,060
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $193,806
Total Acquisition Cost $4,666,866
_______________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-12
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds X, XI and REIT
--------------------------
Name of property ABB Building
Location of property 1409 Centerpoint Boulevard, Knoxville, Knox County,
Tennessee
Type of property Three-story office building
Size of parcel 5.62 acres
Gross leasable space 83,885 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/1/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ December 31, 1996
Mortgage financing at
date of purchase N/A
Cash down payment $671,248
Contract purchase price
plus acquisition fee $671,248
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $7,208,631
Total Acquisition Cost $7,879,879
_________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Wells Fund IX originally purchased the ABB Building on December 31,
1996. On March 26, 1997, Wells Fund IX contributed its interest in the ABB
Building to the Fund IX-X Joint Venture and on June 11, 1998, Wells Fund XI and
Wells OP (the operating partnership for the Wells REIT) were admitted to the
Fund IX-X Joint Venture as joint venture partners.
/3/ Includes improvements made after acquisitions through September 30,
1998.
II-13
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VIII and IX
-----------------------
Name of property Matsushita Building
Location of property 15233 Bake Parkway, Irvine, Orange County, California
Type of property Two-story office building
Size of parcel 4.4 acres
Gross leasable space 65,006 sq. feet
Date of commencement of Fund VIII - February 24, 1995
operations/1/ Fund IX - February 12, 1996
Date of purchase January 10, 1997
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $7,211,145
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $401,588
Total Acquisition Cost $7,612,733
________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-14
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds VIII and IX
-----------------------
Name of property Cirrus Logic Building
Location of property 305 Interlocken Parkway, Broomfield, Boulder County,
Colorado
Type of property Two-story office building
Size of parcel 4.26 acres
Gross leasable space 49,460 sq. feet
Date of commencement of Fund VIII - February 24, 1995
operations/1/ Fund IX - February 12, 1996
Date of purchase February 20, 1997
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $7,064,550
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $402,096
Total Acquisition Cost $7,466,646
_________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-15
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Ohmeda Building
Location of property Centennial Parkway, Louisville, Boulder County,
Colorado
Type of property Two-story office building
Size of parcel 15 acres
Gross leasable space 106,750 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/1/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ February 13, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $10,331,644
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $572,851
Total Acquisition Cost $10,904,495
_______________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ The Fund IX-X Joint Venture acquired the Ohmeda Building on February
13, 1998, and on June 11, 1998, Wells Fund XI and Wells OP (the operating
partnership of the Wells REIT) were admitted to the Fund IX-X Joint Venture as
joint venture partners.
/3/ Includes improvements made after acquisitions through September 30,
1998.
II-16
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Interlocken Building
Location of property Highway 36, Broomfield, Boulder County, Colorado
Type of property Three-story multi-tenant office building
Size of parcel 5.1 acres
Gross leasable space 51,974 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/1/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ March 20, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $8,293,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $447,766
Total Acquisition Cost $8,740,766
_________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ The Fund IX-X Joint Venture acquired the Interlocken Building on March
20, 1998, and on June 11, 1998, Wells Fund XI and Wells OP (the operating
partnership of the Wells REIT) were admitted to the Fund IX-X Joint Venture as
joint venture partners.
/3/ Includes improvements made after acquisitions through September 30,
1998.
II-17
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Iomega Building
Location of property 2976 South Commerce Way, Ogden, Weber County, Utah
Type of property One-story warehouse and office building
Size of parcel 8.03 acres
Gross leasable space 100,000 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/1/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ April 1, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $ 50,000
Contract purchase price
plus acquisition fee $ 5,050,425
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $ 202,571
Total Acquisition Cost $ 5,252,996
______________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Wells Fund X acquired the Iomega Building on April 1, 1998, and on
June 24, 1998, Wells Fund X contributed the Iomega Building to the Fund IX-X-XI-
REIT Joint Venture.
/3/ Includes improvements made after acquisitions through September 30,
1998.
II-18
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Lucent Building
Location of property 14400 Hertz Quail Springs Parkway, Oklahoma City,
Oklahoma
Type of property One-story office building
Size of parcel 5.3 acres
Gross leasable space 57,186 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/1/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase June 24, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $1,600,000
Contract purchase price
plus acquisition fee $5,504,276
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/2/ $121,802
Total Acquisition Cost $5,626,078
_______________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ Includes improvements made after acquisitions through September 30,
1998.
II-19
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds X, XI and REIT
--------------------------
Name of property Cort Furniture Building
Location of property 10700 Spencer Avenue, Fountain Valley, Orange County,
California
Type of property One-story office and warehouse building
Size of parcel 3.65 acres
Gross leasable space 52,000 sq. feet
Date of commencement of Fund X - February 4, 1997
operations/1/ Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ July 31, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $6,548,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $303,616
Total Acquisition Cost $6,851,616
________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ The Cort Joint Venture (consisting of the Wells REIT and Wells
Development Corporation) acquired the Cort Furniture Building on July 31, 1998,
and on September 1, 1998, the Fund X-XI Joint Venture purchased Wells
Development Corporation's entire equity interest in the Cort Joint Venture.
/3/ Includes improvements made after acquisitions through September 30,
1998.
II-20
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds X, XI and REIT
--------------------------
Name of property Fairchild Building
Location of property 47320 Kato Road, Fremont, Alameda County, California
Type of property Two-story office and manufacturing building
Size of parcel 3.05 acres
Gross leasable space 58,424 sq. feet
Date of commencement of Fund X - February 4, 1997
operations/1/ Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ July 21, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $8,960,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $242,825
Total Acquisition Cost $9,202,825
________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ The Fremont Joint Venture (consisting of the Wells REIT and Wells
Development Corporation) acquired the Fairchild Building on July 21, 1998, and
on October 8, 1998, the Fund X-XI Joint Venture purchased Wells Development
Corporation's entire equity interest in the Fremont Joint Venture.
/3/ Includes improvements made after acquisitions through September 30,
1998.
II-21
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Norcross, and State of Georgia, on the 7th day of
January, 1999.
WELLS REAL ESTATE FUND XII, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
-------------------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
-----------------------------------------
Leo F. Wells, III
General Partner
WELLS REAL ESTATE FUND XIII, L.P.
(Registrant)
By: Wells Partners, L.P.
General Partner
By: Wells Capital, Inc.
General Partner
By: /s/ Leo F. Wells, III
-------------------------------
Leo F. Wells, III
President
By: /s/ Leo F. Wells, III
-------------------------------------------
Leo F. Wells, III
General Partner
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following person in the capacity
and on the date indicated.
Signatures Title Date
- ---------- ----- ----
/s/ Leo F. Wells, III President (Chief Executive Officer), January 7, 1999
- ---------------------- Treasurer and Sole Director of Wells
Leo F. Wells, III Capital, Inc., the sole general partner
of Wells Partners, L.P.
<PAGE>
EXHIBIT INDEX
-------------
Sequential
Exhibit No.
- ----------
1* Form of Dealer Manager Distribution Agreement between Registrant
and Wells Investment Securities, Inc.
3.1 Form of Amended and Restated Agreement of Limited Partnership of
Wells Real Estate Fund XII/XIII, L.P. (included as Exhibit A to
Prospectus)
3.2* Certificate of Limited Partnership of Wells Real Estate Fund XII,
L.P. dated September 15, 1998
3.3* Certificate of Limited Partnership of Wells Real Estate Fund
XIII, L.P. dated September 15, 1998
4 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit B to Prospectus)
5.1* Opinion of Holland & Knight LLP regarding the legality of the
securities of Wells Real Estate Fund XII, L.P. to be offered
5.2* Opinion of Holland & Knight LLP regarding the legality of
securities of Wells Real Estate Fund XIII, L.P. to be offered
8* Opinion of Holland & Knight LLP regarding tax matters
10.1 Form of Escrow Agreement between Registrant and NationsBank, N.A.
10.2* Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc.
10.3* Form of Management Agreement between Registrant and Wells
Management Company, Inc.
23.1 Consent of Holland & Knight LLP (included in Exhibits 5.1, 5.2
and 8)
23.2 Consent of Arthur Andersen LLP
* Previously filed in the Registrant's Registration Statement, Commission File
No. 33-66657, on November 2, 1998.
<PAGE>
EXHIBIT 10.1
FORM OF ESCROW AGREEMENT BETWEEN
REGISTRANT AND NATIONSBANK, N.A.
<PAGE>
________________, 1999
NationsBank, N.A.
3700 Crestwood Parkway
Suite 1050
Duluth, GA 30136
Attn: Robert Mann
Re: Wells Real Estate Fund ___, L.P. Escrow Agreement
Ladies and Gentlemen:
Leo F. Wells, III and Wells Partners, L.P. are the general partners (the
"General Partners") of Wells Real Estate Fund ___, L.P. (the "Partnership"), the
issuer for an offering of units of limited partnership interest (the "Units").
Wells Investment Securities, Inc., a Georgia corporation (the "Dealer Manager"),
will act as Dealer Manager for the offering of the Units. The Partnership will
sell a minimum of 125,000 Units at a price of $10.00 per Unit, for a total
minimum capital raised of $1,250,000 (the "Required Capital"). The Partnership
hereby appoints you as Escrow Agent for purposes of holding the proceeds from
the sale of the Units, and the Partnership shall deposit with you such proceeds
to be held by you as Escrow Agent on the terms and conditions hereinafter set
forth:
1. Persons subscribing to purchase the Units will be instructed by the
Dealer Manager or any soliciting dealers to remit the purchase price in the form
of checks, drafts or money orders (hereinafter called "instruments of payment")
payable to the order of, or funds wired in favor of, "Nations Bank, N.A., as
Escrow Agent." Within one business day after receipt of instruments of payment
from the offering, the Dealer Manager will send to you: (a) each subscriber's
name, address, number of Units purchased and purchase price remitted, and (b)
the instruments of payment from such subscribers for deposit by you into the
deposit account entitled NationsBank, N.A., as Escrow Agent for Wells Real
Estate Fund ___, L.P. (the "Escrow Account"), which deposit shall occur within
one business day after you receive such materials. Instruments of payment and
wired funds received from residents of New York shall be placed in a separate
deposit account entitled "NationsBank, N.A., as Escrow Agent for New York
Residents (Wells Real Estate Fund ___, L.P.)."
2. The aforesaid instruments of payment are to be promptly processed for
collection by you following deposit by the Dealer Manager into the Escrow
Account. The proceeds thereof are to be held in the Escrow Account until such
funds are either returned to the subscribers in accordance with paragraph 3
hereof or otherwise disbursed in accordance with paragraph 6 hereof. In the
event any of the instruments of payment are returned to you for nonpayment prior
to receipt by you of the Required Capital, you shall promptly notify the Dealer
Manager in writing of such nonpayment, and you are authorized to debit the
Escrow Account in the amount of such return payment as well as any interest
earned on the investment represented by such payment.
3. In the event that at the close of business on _____________, 1999
(the "Expiration Date") you are not in receipt of evidence of subscriptions
accepted on or before such date, and instruments of payment dated not later than
that date (or actual wired funds), for the purchase of Units providing for total
purchase proceeds that equal the Required Capital (exclusive of any funds
received from subscriptions for Units from entities which we have notified you
are affiliated with the General Partners or their Affiliates and exclusive of
subscriptions from New York residents), you shall promptly notify the
Partnership that such instruments of payment have not been received by you.
Thereafter, you agree to use your best efforts to obtain an executed IRS Form W-
9 from each subscriber. Promptly following the Expiration Date, and in any event
no later than five business days after the Expiration Date, you shall promptly
return by your check the funds deposited in the Escrow Account, or shall return
the instruments of payment delivered to you if such instruments have not been
processed for collection prior to such time, directly to each subscriber at the
address given to the Partnership. Included in the remittance shall be a
proportionate share
<PAGE>
of the income earned in the account allocable to each subscriber's investment in
accordance with the terms and conditions specified in paragraph 7 hereof, except
that in the case of subscribers who have not provided to you an executed Form W-
9, you shall withhold thirty-one percent (31%) of the earnings attributable to
those subscribers in accordance with IRS Regulations. In the event you receive
an executed Form W-9 from a subscriber after you have returned such subscriber's
proceeds, net of the thirty-one percent (31%) withholding, you shall promptly
refund by your check the amount withheld to such subscriber. Notwithstanding the
foregoing, you shall not be required to remit any payments until funds
represented by such payments have been collected by you.
In the event that the Partnership rejects any subscription for which
you have already collected funds, you shall promptly issue a refund check to the
rejected subscriber. If the General Partners reject any subscription for which
you have not yet collected funds but have submitted the subscriber's check for
collection, you shall promptly issue a check in the amount of the subscriber's
check to the rejected subscriber after you have cleared such funds. If you have
not yet submitted a rejected subscriber's check for collection, you shall
promptly remit the subscriber's check directly to the subscriber.
4. Following receipt by you of cash and instruments of payment (or
wired funds) of the Required Capital prior to the time provided in paragraph 3
hereinabove, you shall notify the Partnership in writing within one business day
when such funds have been collected through normal banking channels and
deposited in the Escrow Account.
5. Prior to the disbursement of funds deposited in the Escrow Account in
accordance with the provisions of paragraph 3 or 6 hereof, you shall invest all
of the funds deposited in the Escrow Account in "Short-term Investments" (as
defined below) and you are further authorized and you agree to reinvest all
earnings and interest derived therefrom in any of the Short-term Investments
specified below. In the event that instruments of payment are returned to you
for nonpayment, you are authorized to debit the Escrow Account in accordance
with paragraph 2 hereof.
"Short-term Investments" include obligations of, or obligations
guaranteed by, the United States government or bank money-market accounts or
certificates of deposit of national or state banks that have deposits insured by
the Federal Deposit Insurance Corporation (including certificates of deposit of
any bank acting as a depository or custodian for any such funds, including,
without limitation, such certificates or instruments of The Bank of New York),
which mature on or before the Expiration Date, unless such instrument cannot be
readily sold or otherwise disposed of for cash by the Expiration Date without
any dissipation of the offering proceeds invested.
The following securities are not permissible investments:
(a) money-market mutual funds;
(b) corporate equity or debt securities;
(c) repurchase agreements;
(d) bankers' acceptances;
(e) commercial paper; and
(f) municipal securities.
6. All disbursements from the Escrow Account, except for disbursements
under the provisions of paragraph 3 hereof, shall be made by you only pursuant
to the provisions of this paragraph 6. Except for disbursements authorized upon
court order, you shall hold all funds in the Escrow Account until (i) the date
checks for Required Capital have cleared normal banking channels after receipt
by you of the Required Capital, and (ii) receipt of letter instructions from the
Partnership directing disbursements of such funds to the Partnership.
Notwithstanding the foregoing, all subscriptions received from New York and
Pennsylvania residents must be retained by you until such time as the
Partnership raises a total of $2,500,000. In disbursing such funds, you are
authorized to rely solely upon such letter instructions which you receive from
the Partnership whether or not such instructions are correct, true or authentic;
provided that, if in your opinion such letter instructions from the
2
<PAGE>
Partnership are unclear, you are authorized to rely upon the legal counsel to
the Partnership in distributing such funds to the effect that distribution of
the funds is authorized by the letter instructions of the Partnership and that
distribution of the funds in that manner is authorized by and in compliance with
such letter. However, you shall not be required to disburse any funds
attributable to instruments of payment which have not been collected by you,
provided that you shall use your best efforts to promptly collect such funds
after your receipt of disbursement instructions from the Partnership in
accordance with this paragraph, and shall disburse such funds in compliance with
the disbursement instructions from the Partnership.
7. In the event the offering of Units terminates prior to receipt of the
Required Capital, income earned on subscription proceeds deposited in the Escrow
Account ("Gross Escrow Income") minus the total escrow expenses ("Net Escrow
Income") shall be remitted to subscribers in compliance with paragraph 3. Each
subscriber's pro rata portion of Net Escrow Income shall be determined as
follows: The total amount of Net Escrow Income shall be multiplied by a
fraction, the numerator of which is determined by multiplying the number of
Units purchased by said subscriber times the number of days said subscriber's
proceeds are invested prior to termination of the offering, and the denominator
of which is the total of the numerators for all such subscribers.
Notwithstanding the foregoing, (i) escrow expenses may be deducted from the
Escrow Account only to the extent of Gross Escrow Income, and the General
Partners shall reimburse the Escrow Agent for any escrow expenses in excess of
such amount, and (ii) Maine, Missouri, Ohio and Pennsylvania residents will be
paid their pro rata portion of income earned on subscription proceeds deposited
in the Escrow Account without any deductions for escrow expenses. You shall
promptly notify the Partnership of the amount of Net Escrow Income which
subscribers who are Maine, Missouri, Ohio or Pennsylvania residents would have
received if escrow expenses were not deducted from Gross Escrow Income, and the
General Partner shall reimburse you for such pro rata escrow expenses
attributable to subscribers who are Maine, Missouri, Ohio or Pennsylvania
residents. You shall promptly remit all such Net Escrow Income in accordance
with paragraph 3.
8. As compensation for serving as Escrow Agent hereunder, you shall
receive a fee, as set forth on Schedule A attached hereto.
9. In performing any of your duties hereunder, you shall not incur any
liability to anyone for any damages, losses or expenses, except for willful
default, breach of trust, or gross negligence, and accordingly you shall not
incur any such liability with respect to any action taken or omitted (1) in good
faith upon advice of your counsel given with respect to any questions relating
to your duties and responsibilities under this Agreement, or (2) in reliance
upon any instrument, including any written instrument or instruction provided
for in this Agreement, not only as to its due execution and validity and
effectiveness of its provisions but also as to the truth and accuracy of
information contained therein, which you shall in good faith believe to be
genuine, to have been signed or presented by a proper person or persons and to
conform to the provisions of this Agreement.
10. The Partnership hereby agrees to indemnify and hold you harmless
against any and all losses, claims, damages, liabilities and expenses, including
the reasonable cost of attorneys' fees and disbursements, that may be imposed on
you or incurred by you in connection with your acceptance of appointment as the
Escrow Agent hereunder, or the performance of your duties hereunder, including
any litigation arising from this Agreement or involving the subject matter
hereof, except where such losses, claims, damages, liabilities and expenses
result from willful default, breach of trust or gross negligence.
11. In the event of a dispute between the parties hereto sufficient
in your discretion to justify doing so, you shall be entitled to tender into the
registry or custody of any court of competent jurisdiction all money or property
in your hands under this Agreement, together with such legal pleadings as you
deem appropriate, and thereupon be discharged from all further duties and
liabilities under this Agreement. In the event of any uncertainty as to your
duties hereunder, you may refuse to act under the provisions of this Agreement
pending order of a court of competent jurisdiction and you shall have no
liability to the Partnership or to any other person as a result of such action.
Any such legal action may be brought in such court as you shall determine to
have jurisdiction thereof. The filing of any such legal proceedings shall not
deprive you of your compensation earned prior to such filing.
3
<PAGE>
12. All written notices and letters required hereunder to you shall only
be effective if delivered personally or by certified mail, return receipt
requested to NationsBank, N.A., 3700 Crestwood Parkway, Suite 1050, Duluth,
Georgia 30136, Attn: Robert Mann. All written notices and letters required
hereunder to the Partnership or the Dealer Manager shall only be effective if
delivered personally or by certified mail, return receipt requested to Leo F.
Wells, III, 3885 Holcomb Bridge Road, Norcross, Georgia 30092.
13. This Agreement shall be governed by the laws of the State of Georgia
as to both interpretation and performance.
14. The provisions of this Agreement shall be binding upon the legal
representatives, heirs, successors and assigns of the parties hereto.
15. The Partnership hereby acknowledges that you are serving as Escrow
Agent only for the limited purposes herein set forth, and hereby agrees that it
will not represent or imply that you, by serving as Escrow Agent hereunder or
otherwise, have investigated the desirabilities or advisability of investment in
the Partnership, or have approved, endorsed or passed upon the merits of the
Units or the Partnership. The Partnership further agrees to instruct the Dealer
Manager, and each of its representatives, and any other representative who may
offer Units to persons from time to time, that they shall not represent or imply
that you have investigated the desirability or advisability of investment in the
Partnership, or have approved, endorsed or passed upon the merits of the Units
or the Partnership, nor shall they use your name in any manner whatsoever in
connection with the offer or sale of the Units other than by acknowledgment that
you have agreed to serve as Escrow Agent for the limited purposes herein set
forth.
16. This Agreement and any amendment hereto may be executed by the parties
hereto in one or more counterparts, each of which shall be deemed to be an
original.
17. In the event that you receive instruments of payment (or wired funds)
after the Required Capital has been received and the proceeds of the Escrow
Account have been distributed to the Partnership, you are hereby authorized to
deposit such instruments of payment to any deposit account as directed by the
Partnership. The application of said funds into a deposit account directed by
the Partnership shall be a full acquittance to you and you shall not be
responsible for the application of said funds.
18. The Escrow Agent shall be bound only by the terms of this Escrow
Agreement and shall not be bound or incur any liability with respect to any
other agreements or understanding between any other parties, whether or not the
Escrow Agent has knowledge of any such agreements or understandings.
19. Indemnification provisions set forth herein shall survive the
termination of this Agreement.
20. Upon acceptance and distribution of the Required Capital, this Escrow
Agreement shall terminate and the Escrow Agent shall have no further
responsibility or liability with regard to the terms of this Agreement.
21. The Escrow Agent has no responsibility for accepting, rejecting or
approving subscriptions.
22. This Agreement shall not be modified, revoked, released or terminated
unless reduced to writing and signed by all parties hereto, subject to the
following paragraph.
Should, at any time, any attempt be made to modify this Agreement in a
manner that would increase the duties and responsibilities of the Escrow Agent
or to modify this Agreement in any manner which the Escrow Agent shall deem
undesirable, or at any other time, the Escrow Agent may resign by notifying the
Partnership in writing, by certified mail, and until (i) the acceptance by a
successor escrow agent as shall be appointed by the Partnership; or (ii) thirty
(30) days following the date upon which notice was mailed, whichever occurs
sooner, the Escrow
4
<PAGE>
Agent's only remaining obligation shall be to perform its duties hereunder in
accordance with the terms of the Agreement.
23. The Escrow Agent may resign at any time from its obligations under
this Escrow Agreement by providing written notice to the Partnership. Such
resignation shall be effective on the date specified in such notice which shall
be not less than thirty (30) days after such written notice has been given. The
Escrow Agent shall have no responsibility for the appointment of a successor
escrow agent. Unless otherwise provided in this Agreement, final termination of
this Escrow Agreement shall occur on the date that all funds held in the Escrow
Account are distributed either (a) to the Partnership pursuant to paragraph 6
hereof, or (b) to subscribers pursuant to paragraphs 3 and 7 hereof.
24. The Escrow Agent may be removed for cause by the Partnership by
written notice to the Escrow Agent effective on the date specified in such
notice. The removal of the Escrow Agent shall not deprive the Escrow Agent of
its compensation earned prior to such removal.
Agreed to as of the _____ day of ______________, 1999.
WELLS REAL ESTATE FUND ___, L.P.
A Georgia Limited Partnership
By: Wells Partners, L.P.
A Georgia Limited Partnership
(General Partner)
By: Wells Capital, Inc.
A Georgia Corporation
Attest: (General Partner)
By:____________________________ By:_____________________________
Name: Brian M. Conlon Leo F. Wells, III
Title: Assistant Secretary President
By:________________________________
LEO F. WELLS, III
General Partner
WELLS INVESTMENT SECURITIES, INC.
A Georgia Corporation
Attest:
By:_______________________ By:________________________________
Name:_____________________ Leo F. Wells, III
Title:____________________ President
[SIGNATURES CONTINUED ON NEXT PAGE]
5
<PAGE>
The terms and conditions contained above are
hereby accepted and agreed to by:
NATIONSBANK, N.A.
Attest: Escrow Agent
By:__________________________ By:_________________________________
Name:________________________ Name:_______________________________
Title:_______________________ Title:______________________________
6
<PAGE>
SCHEDULE A TO
ESCROW AGREEMENT FOR
WELLS REAL ESTATE FUND ___, L.P.
Schedule of Fees - Escrow Agency
NationsBank, N.A.
Administration Fee - Payable Annually $250.00
For costs incurred in connection with returned checks $ 29.00
per returned check
Charges for refunding subscription proceeds if Required Capital is not met will
be negotiated between the parties.
Charges for filing reports or information as may be required by Internal Revenue
Service regulations or for the performance of any services not contemplated at
the time of opening the account, or not of a routine administrative nature, or
not specifically covered in this schedule, will be determined by appraisal.
Actual out-of-pocket expenses such as counsel fees, cost of special checks,
postage, insurance, telephone, telegraph, etc... will be billed at cost.
7
<PAGE>
EXHIBIT 23.2
CONSENT OF ARTHUR ANDERSEN LLP
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent accountants, we hereby consent to the use of our reports and to
all references to our Firm included in or made a part of this registration
statement.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 11, 1999
