<PAGE>
As filed with the Securities and Exchange Commission on July 25, 2000
Registration No. 33-66657
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------
POST-EFFECTIVE AMENDMENT NO. 3 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
-------------------
WELLS REAL ESTATE FUND XII, L.P.
(Exact name of registrant as specified in governing instruments)
6200 The Corners Parkway, Suite 250
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 58-2438242
(State or other (I.R.S. Employer
Jurisdiction of Incorporation) Identification Number)
-------------------
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. [_] _____________________
<PAGE>
[The following is text to a sticker to be attached to the front cover page of
the prospectus in a manner that will not obscure the Risk Factors:]
SUPPLEMENTAL INFORMATION - The prospectus of Wells Real Estate Fund XII,
L.P. consists of this sticker, the prospectus dated March 22, 1999, Supplement
No. 1 dated September 1, 1999, Supplement No. 2 dated October 10, 1999,
Supplement No. 3 dated April 25, 2000 and Supplement No. 5 dated July 25, 2000
(Supplement No. 5 includes and supercedes Supplement No. 4 dated May 24, 2000
(the supplements are contained inside the back cover page of the prospectus).
Supplement No. 1 includes descriptions of transactions involving joint ventures
with affiliates, certain acquisitions of interests in real estate properties and
various other revisions to the prospectus. Supplement No. 2 includes a
description of an acquisition of an office building in Fort Myers, Florida.
Supplement No. 3 includes updated audited financial statements and unaudited
prior performance tables. Supplement No. 5 includes a description of an
acquisition of an office building in Troy, Michigan and various other revisions
to the prospectus.
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
$1,250,000 MINIMUM OFFERING
-------------------------------------------------
Units at a Purchase Price of $10.00 per Unit
-------------------------------------------------
<TABLE>
<S> <C>
We are offering and selling to the public
7,000,000 units of limited partnership interest of
Wells Real Estate Fund XII, L.P., the proceeds YOU SHOULD SEE THE COMPLETE DISCUSSION
of which will be invested in real estate properties OF THE RISK FACTORS BEGINNING ON PAGE 9.
such as office buildings. Upon your purchase of THE MOST SIGNIFICANT RISKS RELATING TO AN
units, you will elect to have your units treated as INVESTMENT IN THE PARTNERSHIP INCLUDE
either cash preferred units or tax preferred units. THE FOLLOWING:
. Cash preferred units entitle you to . inability to resell or dispose of the
distributions of cash flow from units, except at a substantial
operations. discount from the per unit price.
. Tax preferred units entitle you to a . total reliance on the general
higher percentage of any growth in the partners.
value of the partnership's real estate . authorization of substantial fees to
properties and allocations of tax the general partners and their
deductions. affiliates.
. limited voting rights of investors.
You must purchase at least 100 units for . if we only sell 125,000 units, we
$1,000 except in certain states as described on may buy only one property.
page 27 of this prospectus. Your money will be . liquidation of the partnership may
placed in an interest-bearing escrow account with not occur for over 12 years.
NationsBank, N.A. until we receive a minimum . conflicts of interest facing the
of $1,250,000 (125,000 units). Your money general partners.
will be promptly returned to you if we do not
sell the minimum amount of units by September
22, 1999.
============================================
</TABLE>
THE OFFERING:
<TABLE>
<S> <C>
. We will offer units in Wells Real Estate . We will pay selling commissions to
Fund XII, L.P. until the earlier of broker-dealers of 7% and a dealer
March 21, 2001, or the date we sell all manager fee for reimbursement of
$70,000,000 worth of units. marketing expenses of 2.5% out of
. Our units will be offered to the public the offering proceeds raised.
at $10 per unit for a total offering of . We will invest approximately 84%
$70,000,000. of the offering proceeds raised in
real estate properties, and the
balance will be used to pay fees
and expenses.
</TABLE>
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.
MARCH 22, 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....................... 16
Real Estate Risks............................................. 18
Federal Income Tax Risks...................................... 20
Retirement Plan and Qualified Plan Risks...................... 23
SUITABILITY STANDARDS.............................................. 26
INVESTMENT OBJECTIVES AND CRITERIA................................. 30
General....................................................... 30
Acquisition and Investment Policies........................... 30
Development and Construction of Properties.................... 32
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......................................................... 40
The General Partners.......................................... 40
Affiliated Companies.......................................... 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........................................... 67
Election of Cash Preferred Units or Tax Preferred Units....... 67
Cash Preferred Units.......................................... 68
Tax Preferred Units........................................... 68
Effect of Change of Status of Units........................... 69
</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........................ 72
Partnership Allocations....................................... 72
Monthly Distributions......................................... 75
REAL PROPERTY INVESTMENTS.......................................... 76
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................................ 79
Liabilities of the Limited Partners; Nonassessability of
Units......................................................... 79
Other Activities of the General Partners...................... 79
Rights and Obligations of Limited Partners.................... 79
Voting Rights of the Limited Partners......................... 79
Mergers and Consolidations.................................... 80
Special Partnership Provisions................................ 80
Removal of General Partners................................... 81
Assignability of General Partners' Interests.................. 81
Books and Records; Rights to Information; Annual Audits....... 81
Meetings of Limited Partners.................................. 81
Transferability of Units...................................... 82
Repurchase of Units........................................... 83
Distribution Reinvestment Plan................................ 84
Proxy to Liquidate............................................ 86
Dissolution and Termination................................... 87
INVESTMENT BY TAX-EXEMPT ENTITIES AND ERISA CONSIDERATIONS......... 88
General....................................................... 88
Minimum Distribution Requirements............................. 89
Plan Assets - Generally....................................... 89
Plan Assets - Definition...................................... 89
Plan Asset Regulations - Available Exemptions................. 90
Plan Asset Consequences - Prohibited Transaction Excise Tax... 92
Annual Valuation.............................................. 93
FEDERAL INCOME TAX CONSEQUENCES.................................... 94
Tax Opinion................................................... 95
Partnership Status Generally.................................. 97
Publicly Traded Partnerships.................................. 98
General Principles of Partnership Taxation.................... 99
Anti-Abuse Rules.............................................. 100
</TABLE>
(ii)
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<TABLE>
<S> <C>
Deductibility of Losses - Limitations......................... 100
Allocations of Profit and Loss................................ 101
Taxable Income Without Cash Distributions..................... 105
Investment by Qualified Plans and Other Tax-Exempt Entities... 105
Investment by Charitable Remainder Trusts..................... 107
Syndication and Organizational Expenses....................... 108
Activities Not Engaged in For Profit.......................... 108
Taxation of Real Estate Operations............................ 108
Sales of Limited Partnership Units............................ 110
Dissolution and Liquidation of the Partnership................ 110
Capital Gains and Losses...................................... 111
Election for Basis Adjustments................................ 111
Alternative Minimum Tax....................................... 111
Penalties..................................................... 112
Tax Shelter Registration...................................... 112
Partnership Tax Information................................... 113
Partner Tax Returns........................................... 113
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........................................ 123
LEGAL OPINIONS..................................................... 124
EXPERTS............................................................ 124
ADDITIONAL INFORMATION............................................. 124
GLOSSARY........................................................... 125
FINANCIAL STATEMENTS............................................... 126
PRIOR PERFORMANCE TABLES........................................... 150
FORM OF AMENDED AND RESTATED AGREEMENT OF LIMITED
PARTNERSHIP OF WELLS REAL ESTATE FUND XII, L.P..................... EXHIBIT A
FORM OF SUBSCRIPTION AGREEMENT AND SUBSCRIPTION
AGREEMENT SIGNATURE PAGE........................................... 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.:
Wells Real Estate Fund XII, L.P. is a newly formed Georgia limited
partnership. The business address and registered office of the limited
partnership 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.)
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." An affiliate of a
general partner includes generally any entity in which a general partner owns
10% or more or otherwise controls, any person owning, directly or indirectly,
10% or more of a general partner and any officer, director or partner of a
general partner.
SUMMARY RISK FACTORS:
Following are the most significant risks relating to an investment in the
partnership:
. The partnership agreement imposes substantial restrictions on transfers of
your units. No public market for the 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 for $8.50
per unit or less for at least the first three years following termination
of the offering.
. You will have limited voting rights and, therefore, will have minimal
control over the partnership's operations.
. 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 7,000,000 units. If we only sell the minimum 125,000 units, we may buy
only one property. There is a greater risk
1
<PAGE>
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.
. 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 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.
. 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.
2
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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 real estate properties. Although we are authorized to
purchase all types of 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, and may in fact acquire any such type of property, we will
primarily seek to invest in high grade commercial office buildings, many of
which will be located in suburban areas. 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. (Wells REIT) or other future Wells programs. We anticipate that
most of our properties will be leased to tenants with a net worth in excess of
$100 million 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. Whenever possible, we intend to execute
leases for our properties at or prior to the closing of the acquisition of such
properties.
POSSIBLE LEVERAGE OF PROPERTIES:
We will not borrow any money to acquire our real estate properties. While
the general partners have never borrowed funds for Wells programs sponsored in
the past and do not intend to borrow any money for the partnership, 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 of all
properties acquired by the partnership for purposes of maintenance, repair or
improvement of such properties. See the "Investment Objectives and Criteria -
Borrowing Policies" section of the prospectus on page 36 for a more detailed
discussion of our borrowing policies.
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, expenses relating to the selection
and acquisition of properties and the costs of the offering and organizing the
partnerships.
3
<PAGE>
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.
===============================================================================
Description Cash Tax
Preferred Preferred
-------------------------------------------------------------------------------
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
===============================================================================
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. Our investment objective of maximizing
distributable
4
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cash will directly benefit holders of cash preferred units, and will not benefit
holders of tax preferred units.
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. Our investment objective of realizing growth in the value of our
properties upon the ultimate sale of such properties will benefit holders of tax
preferred units to a greater extent than holders of cash preferred units.
If you want to read more about each class of unit, please see the
"Description of the Units" section of the prospectus on page 67. If you want to
read more about the allocation and distribution of cash flow from operations
and the net proceeds from the sale or exchange of properties or the allocation
of taxable income and loss, please see the "Distributions and Allocations"
section of the prospectus on page 69.
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.
. 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.
5
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<S> <C> <C>
======================== ====================
LEO F. WELLS, III WELLS
(GENERAL PARTNERS) PARTNERS, L.P.
(GENERAL PARTNER)
======================== ====================
100%
==================================
WELLS REAL ESTATE FUNDS, INC. GENERAL
PARTNER
==================================
100% 100% 100%
=============== ================== ==================
WELLS WELLS WELLS CAPITAL,
MANAGEMENT INVESTMENT INC.
COMPANY, INC. SECURITIES, INC.
(PROPERTY (DEALER
MANAGER) MANAGER)
=============== ================== ==================
100%
===============
WELLS
DEVELOPMENT
CORPORATION
===============
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PRIOR OFFERING SUMMARY:
The general partners and their affiliates have previously sponsored 12
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 $316,443,170 from
approximately 26,705 investors in these 13 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
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:
6
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<CAPTION>
===============================================================================================================
Type of Compensation Form of Compensation $$ Amount for $$ Amount for
Minimum Offering Maximum Offering
(125,000 units) (7,000,000 units)
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Organizational and
Offering Stage
---------------------------------------------------------------------------------------------------------------
Sales Commission 7% of gross offering proceeds $87,500 $4,900,000
---------------------------------------------------------------------------------------------------------------
Dealer Manager Fee 2.5% of gross offering $31,250 $1,750,000
proceeds
---------------------------------------------------------------------------------------------------------------
Organization and 3% of gross offering proceeds $37,500 $2,100,000
Offering Expenses
---------------------------------------------------------------------------------------------------------------
Acquisition and
Development Stage
---------------------------------------------------------------------------------------------------------------
Acquisition and 3% of gross offering proceeds $37,500 $2,100,000
Advisory Fees
---------------------------------------------------------------------------------------------------------------
Acquisition Expenses .5% of gross offering $ 6,250 $ 350,000
proceeds
---------------------------------------------------------------------------------------------------------------
Operational Stage
---------------------------------------------------------------------------------------------------------------
Property Management 4.5% of gross revenues N/A N/A
and Leasing Fee
---------------------------------------------------------------------------------------------------------------
Initial Lease-Up Fee Competitive fee for N/A N/A
for Newly Constructed geographic location of
Property property based on a survey of
brokers and agents
(customarily equal to the first
month's rent)
---------------------------------------------------------------------------------------------------------------
Cash Distributions 10% of current cash flow N/A N/A
after cash preferred priority
return
---------------------------------------------------------------------------------------------------------------
Liquidation Stage
---------------------------------------------------------------------------------------------------------------
Real Estate 3% of sale price after N/A N/A
Commission investors 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>
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
(NASAA Guidelines).
7
<PAGE>
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
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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
MARKETABILITY AND TRANSFERABILITY 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 Internal Revenue 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.")
THIS OFFERING IS ONLY SUITABLE FOR LONG-TERM INVESTORS.
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. 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.") For each of these reasons, you should view
your investment in units strictly as a long-term investment.
MANAGEMENT RISKS
YOU ARE PARTICIPATING IN A BLIND POOL OFFERING AND MUST RELY TOTALLY ONT HE
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
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economic, financial and other information regarding the specific properties in
which the proceeds of this offering will be invested. You should be aware that
the appraisals we are required to obtain for each property we acquire 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 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 OUR BUSINESS.
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. Therefore, Mr. Wells
alone will determine the propriety of his own actions, which could result in a
conflict of interest when he is faced with any significant decision relating to
partnership affairs. (See "Fiduciary Duty of the General Partners.")
WE DEPEND 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 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
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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 our properties to the
extent that we have insufficient funds for such purposes. (See "Management.")
CONFLICTS OF INTEREST RISKS
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 our business and these other activities.
During times of intense activity in other programs and ventures, the general
partners may devote less time and resources to our business than is necessary or
appropriate. (See "Conflicts of Interest.")
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. There is a risk that the general partners
will choose a property that provides lower returns to us 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 a loss of revenue
due to 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 Wells
programs for the acquisition, development or improvement of properties including
Wells Fund XI or the Wells REIT. We may also purchase and develop properties in
joint ventures or in partnerships, co-tenancies or other co-ownership
arrangements with 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.
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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 the 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.
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 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
Section 8.16 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.
THE GENERAL PARTNERS MAY FACE CONFLICTS OF INTEREST WHEN THEY DETERMINE THE
FAIR MARKET VALUE OF YOUR UNITS PURSUANT TO THE REPURCHASE RESERVE.
In the event that the general partners establish a repurchase reserve,
after three years the purchase price under the repurchase reserve will be 90% of
the fair market value of your units. The general partners will determine the
fair market value of your units in accordance with the estimated value of units
to be determined annually for ERISA purposes. Since we would be using funds
that would otherwise be distributed to investors to fund the repurchase reserve,
if established, the general partners may have an incentive to value your units
lower than an independent third party appraiser. This would adversely affect
those investors who desire to resell their units to the partnership pursuant to
the repurchase reserve.
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GENERAL INVESTMENT RISKS
THE GEORGIA REVISED UNIFORM LIMITED PARTNERSHIP ACT (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, GRULPA does not grant you any specific voting rights.
Therefore, your voting rights in our operations are severely limited. (See
"Summary of Partnership Agreement--Voting Rights of the Limited Partners.")
YOU ARE BOUND BY THE MAJORITY VOTE ON MATTERS ON WHICH YOU ARE ENTITLED TO
VOTE.
You may approve any of the above actions by majority vote of the limited
partners. 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 7,000,000 UNITS WILL RESULT IN A LESS DIVERSIFIED
PORTFOLIO OF PROPERTIES.
If we sell less than 7,000,000 units, we will purchase fewer properties
resulting in less diversification in terms of the number of properties owned,
the geographic regions in which our properties are located and the types of
properties we invest in. 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.
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,
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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 units, 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 will be $8.50 per
unit until three years from the termination of the offering. After three years
from the termination of the offering, the price per unit will be 90% of the fair
market value of your units. The fair market value utilized for purposes of
establishing the purchase price per unit will be the estimated value of units to
be determined 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 the
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 the units, the selection and acquisition
of our properties, and the management and leasing of our properties. The
general partners will be paid substantial fees for these services, which will
reduce the amount of cash available for investment in properties or distribution
to limited partners. (See "Compensation of the General Partners and
Affiliates.")
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
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 10 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.
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Proceeds from the sale of a property will generally be distributed to
investors. The general partners, in their sole discretion, may not make such
distribution if such proceeds are used to:
. purchase land underlying any of our 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 our existing 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 properties and for payment of
various fees and expenses. (See "Estimated Use of Proceeds.") In addition, we
do not anticipate that we 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 CORPORATION 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 (Wells Development), an affiliate of the general
partners. 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
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;
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. 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,
and it is unlikely that we would be able to obtain a refund of such earnest
money deposit from it 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.
Our failure or the failure of our 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.")
SPECIAL RISKS REGARDING STATUS OF UNITS
IF YOU ELECT CASH PREFERRED UNITS, YOU 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.
IF YOU ELECT TAX PREFERRED UNITS, YOU MAY NOT BE ABLE TO USE YOUR 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.
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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 is 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 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 $50,000,000 in units (5,000,000 units) and has $2,500,000 of
cash available for distribution and $2,000,000 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.
=========================================================================
Allocations 90% CPU/10% TPU 75% CPU/25% TPU 50% CPU/50% TPU
-------------------------------------------------------------------------
Cash Flow per CPU $0.55 $0.67 $1.00
-------------------------------------------------------------------------
Tax Losses per TPU $4.00 $1.60 $0.80
=========================================================================
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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 its lease or the expiration of one of our leases. We may have difficulty
obtaining a new tenant for any vacant space we have in our properties. If the
vacancy continues for a long period of time, we may suffer reduced revenues
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.
Substantially all of our net offering proceeds available for investment will be
used for investment in partnership properties, and we do not anticipate that we
will maintain permanent working capital reserves. We also 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.
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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 COSTS AND REDUCE RETURNS.
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 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.
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UNCERTAIN MARKET CONDITIONS AND THE BROAD DISCRETION OF THE GENERAL
PARTNERS RELATING TO THE FUTURE DISPOSITION OF PROPERTIES COULD ADVERSELY AFFECT
THE RETURN ON YOUR INVESTMENT.
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. 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 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 INTERNAL REVENUE SERVICE (IRS) MAY CHALLENGE OUR CHARACTERIZATION OF
MATERIAL TAX ASPECTS OF YOUR INVESTMENT IN US.
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 units. We
will not seek any rulings from the IRS regarding any of the tax issues discussed
herein. Further,
20
<PAGE>
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 (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 agreement 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 following the year of purchase, or longer if required to satisfy the
outstanding commission obligation. (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.
WE 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
21
<PAGE>
. 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 distributions of our net income could be treated as
portfolio income to you rather than passive income.
THE DEDUCTIBILITY OF LOSSES WILL BE SUBJECT TO PASSIVE LOSS LIMITATIONS.
Section 469 of the Internal Revenue 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 OUR 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.
WE 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 of our 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.
WE 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.
22
<PAGE>
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 our 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
the resale potential of our 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 Internal Revenue 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:
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<PAGE>
. 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 Internal Revenue 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 TO BE 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, i.e., 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 Internal Revenue 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. 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 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 Internal Revenue 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;
24
<PAGE>
. 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 Internal Revenue 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 Internal Revenue 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;
. to protect the value of our investment in a property; or
. to make one of our properties 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.
Therefore, 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 our properties
which is allocable to tax-exempt investors would be characterized as
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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 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
. 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 IRAs, provided
that they contribute in increments of at least $25. It should
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<PAGE>
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 Internal Revenue
Code or an IRA as defined in Section 408(a) of the Internal Revenue 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 Internal Revenue 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
$60,000 and net worth of $60,000, certificate: "It is unlawful to consummate a
or 2) net worth of $225,000 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."
-----------------------------------------------------------------------------------------------------------------------------------
Florida 1) Current annual gross income of 100 units ($1,000) Units of subsequent partnership reinvestment
$45,000 and net worth of $45,000, plan must be registered or exempt from
or 2) net worth of $150,000 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 contribute
$45,000 and net worth of $45,000, from separate IRAs to satisfy minimum
or 2) net worth of $150,000 purchase.
----------------------------------------------------------------------------------------------------------------------------------
Maine 1) Current annual gross income of 250 units ($2,500); Husband and wife may not jointly contribute
$50,000 and net worth of $50,000, 200 units ($2,000) for from separate IRAs to satisfy minimum
or 2) net worth of $200,000 IRAs 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
===================================================================================================================================
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
STATE INCOME/NET WORTH MINIMUM OTHER LIMITATIONS
REQUIREMENTS PURCHASE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Michigan Current annual gross income of 100 units ($1,000) Investor may not invest more than 10% of
$45,000 and net worth of $45,000, net worth.
or 2) net worth of $150,000
-----------------------------------------------------------------------------------------------------------------------------------
Minnesota Current annual gross income of 250 units ($2,500); 200 N/A
$45,000 and net worth of $45,000, units ($2,000) for IRAs
or 2) net worth of $150,000 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 contribute
$60,000 and net worth of $60,000, from separate IRAs to satisfy minimum
or 2) net worth of $225,000 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, except reinvestment plan must be at least $50 per
or 2) net worth of $150,000 for IRAs and qualified year and made through a Nebraska broker.
retirement plans
-----------------------------------------------------------------------------------------------------------------------------------
New 1) Current annual gross income of 100 units ($1,000) N/A
Hampshire $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, except released from escrow until $2,500,000 raised
or 2) net worth of $150,000 for IRAs in offering.
-----------------------------------------------------------------------------------------------------------------------------------
North 1) Current annual gross income of 250 units ($2,500) N/A
Carolina $45,000 and net worth of $45,000, except
or 2) net worth of $150,000 for IRAs and qualified
retirement plans
-----------------------------------------------------------------------------------------------------------------------------------
Ohio 1) Current annual gross income of 250 units ($2,500) Investor may not invest more than 10% of
$45,000 and net worth of $45,000, except net worth.
or 2) net worth of $150,000 for IRAs
-----------------------------------------------------------------------------------------------------------------------------------
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, from separate IRAs to satisfy minimum
or 2) 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 1) Current annual gross income of 100 units ($1,000) Investor must have a net worth of at least ten
$45,000 and net worth of $45,000, times amount of investment in the
or 2) net worth of $150,000 partnership. Subscription proceeds from PA
investors held 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.
===================================================================================================================================
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
===================================================================================================================================
STATE INCOME/NET WORTH MINIMUM OTHER LIMITATIONS
REQUIREMENTS PURCHASE
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
South 1) Net worth of $150,000, or 2) 250 units ($2,500) except N/A
Carolina State and federal income subject to IRAs and qualified
maximum 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
$45,000 and net worth of $45,000, be made through Texas registered broker.
or 2) 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, from separate IRAs to satisfy minimum
or 2) 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
. 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 units is suitable for the investor,
and (2) transmit promptly to the partnership all fully completed and duly
executed Subscription Agreements.
29
<PAGE>
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
high grade commercial office buildings, which are newly constructed, under
construction, or which have been previously constructed and have operating
histories. The general partners are not limited to such investments, however.
The general partners may invest in other commercial properties such as shopping
centers, business and industrial parks, manufacturing facilities and warehouse
and distribution facilities. The general partners will attempt to acquire
commercial 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 commercial
properties which are not preleased to such tenants or in other types of
commercial properties such as hotels or motels. 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 most recently sponsored
Wells programs has been to invest primarily in office buildings located in
densely populated suburban markets. (See "Prior Performance Summary.")
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.
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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 - Taxation of Real Estate
Operations - 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.
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.
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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 as
are acceptable to the general partners;
. audited financial statements covering recent operations of any
properties having operating histories unless such statements are not
required to be filed with the Securities and Exchange Commission and
delivered to investors; 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, general overbuilding or excess supply in the market area.
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
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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. Development of real estate
properties is subject to risks relating to a builder's ability to control
construction costs or to build in conformity with plans, specifications and
timetables. (See "Risk Factors - Real Estate Risks.")
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
. 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.
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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 12 months prior to
reselling to the partnership. The partnership may not acquire any property
which is currently owned by Wells Development as of the date of this prospectus.
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
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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.
The general partners have developed specific standards for determining the
creditworthiness of potential tenants of our 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's 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.
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In an attempt to limit or avoid speculative purchases, to the extent
possible, the general partners will seek to secure leases with tenants at or
prior to the closing of an acquisition of the partnership's properties.
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 not borrow money to acquire any of its properties.
Further, as a matter of partnership policy, the general partners do not intend
to cause the partnership to borrow any funds subsequent to the acquisition of
its properties. However, in order to give the general partners flexibility in
the management of the partnership, section 11.3(e) of the partnership agreement
authorizes the partnership to borrow funds for the following limited purposes:
. for partnership operating purposes in the event of unexpected
circumstances in which the partnership's cash resources 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 may not 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 of the partnership's properties. (See
section 11.3(e) of the partnership agreement.)
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 Internal Revenue 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.
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The partnership may borrow funds from the general partners or their
affiliates for the purposes listed above 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., 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. (See section
11.3(e) of the partnership agreement.)
The general partners have agreed to advance the partnership on an interest-free
basis an aggregate amount of up to 1% of gross offering proceeds to the extent
that the partnership has insufficient funds for maintenance and repair of its
properties.
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 another 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
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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:
. 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
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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.")
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.
The partnership shall not pay, directly or indirectly, any commission or
fee, except as specifically permitted under Article XII of the partnership
agreement, to the general partners or their affiliates in connection with the
reinvestment or distribution of proceeds from the sale, exchange or financing of
the partnership's properties.
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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.
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 except for
permitted temporary investments pending utilization of partnership
funds. The partnership intends to invest the proceeds of the offering
such that it will comply at all times with the existing exemptions
from the definition of "investment company" under the Investment
Company Act of 1940 and the Regulations thereunder.
MANAGEMENT
THE GENERAL PARTNERS
The general partners of the partnership are: Wells Partners, L.P. and Mr.
Leo F. Wells, III, individually.
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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 both an estimated fair market value basis and a generally accepted
accounting principles 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; and Wells Development
Corporation (Wells Development), a company he organized in 1997 to temporarily
own, operate, manage, and/or develop real properties. Mr. Wells is also the
President and a Director of the Wells REIT. Mr. Wells was a real estate salesman
and property manager from 1970 to 1973 for Roy D. Warren & Company, an Atlanta
real estate company, and he was associated from 1973 to 1976 with Sax Gaskin
Real Estate Company, during which time he became a Life Member of the Atlanta
Board of Realtors Million Dollar Club. From 1980 to February 1985, he served as
Vice President of Hill-Johnson, Inc., a Georgia corporation engaged in the
construction business. Mr. Wells holds a Bachelor of Business Administration
degree in Economics from the University of Georgia. Mr. Wells is a member of the
International Association for Financial Planning (IAFP) and is a registered NASD
principal.
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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 10 years
of experience in the securities industry and is a licensed registered
representative and financial principal with the NASD. Additionally, he has
previous experience as controller and Chief Financial Officer of two regional
broker-dealers. In 1976, Mr. Comer graduated with honors from Georgia State
University with a Bachelor of Business Administration 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
42
<PAGE>
Instruments and as 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.
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 actions 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.")
AFFILIATED COMPANIES
PROPERTY MANAGER
Partnership properties will be managed and leased initially by Wells
Management Company, Inc. (Wells Management), which is a wholly owned subsidiary
of Wells Real Estate Funds, Inc. Wells Management is engaged in the business of
real estate management. It was organized and commenced active operations in 1983
to lease and manage real estate projects which the general partners or their
affiliates operate or in which the general partners or their affiliates own an
interest. As of December 31, 1998, Wells Management was managing in excess of
277,852 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
43
<PAGE>
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, 1998, Wells
Management reported $1,581,235 in gross operating revenues and $352,963 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
. 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-
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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 the partnership.
Many of the figures set forth below represent the best estimate of the general
partners since they cannot be precisely calculated at this time. The percentage
of the gross proceeds of the offering of units to be invested in partnership
properties is estimated to be approximately 84%.
45
<PAGE>
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
---------------- ----------------
Amount Percent Amount Percent
------- ------- ------ -------
<S> <C> <C> <C> <C>
Gross Offering Proceeds (1) $1,250,000 100% $70,000,000 100%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (2) 118,750 9.5% 6,650,000 9.5%
Organization and Offering Expenses (3) 37,500 3% 2,100,000 3%
---------- ------ ----------- ------
Amount Available for Investment (4) $1,093,750 87.5% $61,250,000 87.5%
Acquisition and Development:
Acquisition and Advisory Fees (5) $ 37,500 3% $ 2,100,000 3%
Acquisition Expenses (6) 6,250 .5% 350,000 .5%
Initial Working Capital Reserve (7) (7) - (7) -
---------- ----- ------------ ------
Amount Invested in Properties (4)(8) $1,050,000 84% $58,800,000 84%
========== ===== ============ ======
</TABLE>
_________________________
(Footnotes to "Estimated Use of Proceeds")
1. The amounts shown for gross offering proceeds do not reflect the possible
discounts in commissions and other fees as described in "Plan of
Distribution."
2. Includes selling commissions equal to 7% of aggregate gross offering
proceeds which commissions may be reduced under certain circumstances and a
dealer manager fee equal to 2.5% of aggregate gross offering proceeds, both
of which are payable to the Dealer Manager, an affiliate of the general
partners. The Dealer Manager, in its sole discretion, may reallow selling
commissions of up to 7% of gross offering proceeds to other broker-dealers
participating in this offering attributable to the units sold by them and
may reallow out of its dealer manager fee up to 1.5% of gross offering
proceeds in marketing fees to broker-dealers participating in this offering
based on such factors as the volume of units sold by such participating
broker-dealers, marketing support provided by such participating broker-
dealers and bona fide conference fees incurred. In no event shall the total
underwriting compensation, including selling commissions, the dealer manager
fee and underwriting expense reimbursements, exceed 10% of gross offering
proceeds, except for an additional .5% of gross offering proceeds which may
be paid as a reimbursement of expenses incurred for due diligence purposes
and which is included in the organization and offering expenses described in
Footnote 3 below. (See "Plan of Distribution.")
3. Organization and offering expenses consist of estimated legal, accounting,
printing and other accountable offering expenses other than selling
commissions and the dealer manager fee and reimbursements to the general
partners and their affiliates for payments to nonaffiliated broker-dealers
of certain bona fide due diligence expenses in an amount not to exceed .5%
of gross offering proceeds. The general partners and their affiliates will
be responsible for the payment of organization and offering expenses other
than selling commissions and the dealer manager fee to the extent they
exceed 3% of gross offering proceeds without recourse against or
reimbursement by the partnership.
4. Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the offering and,
thereafter, the working capital reserves of the partnership, may be invested
in short-term, highly-liquid investments including government obligations,
bank certificates of deposit, short-term debt obligations and interest-
bearing accounts.
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<PAGE>
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, which amount is
within the limit imposed by the NASAA Guidelines that at least 80% of
proceeds must be invested in properties.
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.
47
<PAGE>
<TABLE>
<CAPTION>
Form of Compensation Determination Estimated
and Entity Receiving of Amount Maximum
-------------------- --------- Dollar Amount
-------------
(1)
---
Organizational and Offering Stage
<S> <C> <C>
Selling Commissions - Up to 7% of gross offering proceeds before reallowance of $4,900,000
The Dealer Manager commissions earned by participating broker-dealers. The Dealer ($87,500 in the
Manager intends to reallow 100% of commissions earned to event the
participating broker-dealers. partnership sells
only the
minimum of
125,000 units)
Dealer Manager Fee - Up to 2.5% of gross offering proceeds before reallowance to $1,750,000
The Dealer Manager participating broker-dealers. The Dealer Manager, in its sole ($31,250 in the
discretion, may reallow a portion of its dealer manager fee of up to event the
1.5% of the gross offering proceeds to be paid to such participating partnership sells
broker-dealers as a marketing fee, based on such factors as the volume only the
of units sold by such participating broker-dealers, marketing support minimum of
and bona fide conference fees incurred. 125,000 units)
Reimbursement of Up to 3% of gross offering proceeds. All organization and offering $2,100,000
Organization and expenses (excluding selling commissions and the dealer manager fee) ($37,500 in the
Offering Expenses - The will be advanced by the general partners and their affiliates and event the
General Partners or reimbursed by the partnership. partnership sells
Their Affiliates only the
minimum of
125,000 units)
Acquisition and Development Stage
Acquisition and For the review and evaluation of potential real property acquisitions, a $2,100,000
Advisory fee of up to 3% of gross offering proceeds. ($37,500 in the
Fees - The General event the
Partners partnership sells
or Their Affiliates only the
minimum of
125,000 units)
Reimbursement of Up to .5% of gross offering proceeds for reimbursement of expenses $350,000
Acquisition Expenses - related to real property acquisitions, such as legal fees, travel expenses, ($6,250 in the
The General Partners property appraisals, title insurance premium expenses and other closing event the
or Their Affiliates costs. partnership sells
only the
minimum of
125,000 units)
Operational Stage
Property Management For supervising the management of the partnership properties, a fee Actual amounts
and Leasing Fees - equal to the lesser of: (A)(1) for commercial properties which are not are dependent
Wells Management leased on a long-term net lease basis, 4.5% of gross revenues, and (2) upon results of
Company, Inc. in the case of commercial properties which are leased on a long-term operations and
(10 or more years) net lease basis, 1% of gross revenues plus, in the therefore cannot
case of leases to new tenants, initial leasing fees equal to 3% of gross be determined at
revenues over the first five years of the lease term, or (B) the the present time.
amounts
</TABLE>
48
<PAGE>
<TABLE>
<S> <C> <C>
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 as determined by a survey of brokers and agents in
such area (customarily equal to the first month's rent).
Share of Net Cash A noncumulative amount equal to one-tenth of net cash from operations Actual amounts
From Operations - The subordinated in each fiscal year to distributions of net cash from are dependent
General Partners operations to investors electing cash preferred units equal to 10% of upon results of
their net capital contributions. operations and
therefore cannot
be determined at
the present time.
Liquidation Stage
Subordinated After investors have received a return of their net capital contributions Actual amounts
Participation in and their Preferential Limited Partner Return, then the general partners are dependent
Nonliquidating Net Sale are entitled to receive the following amounts: upon results of
Proceeds and operations and
Liquidating (a) an amount equal to their capital contributions, therefore cannot
Distributions - The be determined at
General Partners (b) then, if and only in the event that investors have received any the present time.
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
Commissions - exceeding the lesser of: (A) 50% of the reasonable, customary and are dependent
The general partners or competitive real estate brokerage commissions customarily paid for the upon results of
Their Affiliates sale of a comparable property in light of the size, type and location of operations and
the property, or (B) 3% of the gross sales price of each property, therefore cannot
subordinated to distributions to investors from sale proceeds of an be determined at
amount which, together with prior distributions to the investors, will the present time.
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")
49
<PAGE>
1. The estimated maximum dollar amounts are based on the sale of a maximum of
7,000,000 units.
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. and Wells Management Company, Inc. 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 13 other public real estate 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. (Wells REIT)
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:
. 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;
51
<PAGE>
. 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 their
affiliates 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;
. 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.
52
<PAGE>
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 Wells program 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 Wells
program 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. 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 partnership will not have the
benefit of independent property management. (See "Management.")
LACK OF SEPARATE REPRESENTATION
Holland & Knight LLP 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.
JOINT VENTURES WITH AFFILIATES OF THE GENERAL PARTNERS
The partnership is likely to enter into one or more joint venture
agreements with other 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
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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's 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.")
GUIDELINES AND LIMITS IMPOSED BY PARTNERSHIP AGREEMENT
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
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"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 Wells programs and will use their best efforts to
assure that the partnership will be treated at least as favorably as any other
Wells 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. The general partners shall
exercise their fiduciary duty to ensure the safekeeping and authorized use of
all funds and assets of the partnership, whether or not in their immediate
possession or control, and shall not use or employ, or permit another to use or
employ, such funds or assets in any manner except for the exclusive benefit of
the partnership. In addition, the partnership shall not permit the general
partners to contract away the fiduciary duty owed to the limited partners by the
general partners under common law.
Where the question has arisen, courts have held that a limited partner may
institute legal action either (1) on behalf of himself or all other similarly
situated limited partners, referred to as a class action, to recover damages for
a breach by a general partner of his fiduciary duty, or (2) on behalf of the
partnership, referred to as 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
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. the limited partner was a partner at the time the transaction
complained of occurred or such partner became a partner by operation
of law or pursuant to the terms of the partnership agreement by
assignment from a person who was a partner at the time of such
transaction.
Under GRULPA, a general partner of a Georgia limited partnership has the
same liabilities to the partnership and the other partners as a partner in a
partnership without limited partners. Accordingly, in any action alleging a
breach of fiduciary duty by the general partners to either the limited partners
or the partnership, it is not anticipated that the general partners would be
able to successfully assert as a defense the general presumption, which is often
referred to as the "business judgment rule," that actions taken by the directors
of a corporation on behalf of the corporation are reasonable. However, since any
such action would likely involve 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
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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:
. 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. The partnership will not pay the cost of
liability insurance insuring the general partners against any liability as to
which the general partners may not be indemnified pursuant to the partnership
agreement.
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
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not assume that they will experience returns, if any, comparable to those
experienced by investors in such prior real estate programs.
The individual general partner, Leo F. Wells, III, has served as a general
partner of a total of 12 publicly offered real estate limited partnerships.
These 12 limited partnerships and the year in which each of their offerings was
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 Wells
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 Wells
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, a real estate investment trust.
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
(REIT Fund). The REIT Fund is a mutual fund which 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 REIT Fund began its offering
on January 12, 1998, and as of December 31, 1998, the REIT Fund had raised
$13,858,576 from 766 investors.
PUBLICLY OFFERED UNSPECIFIED REAL ESTATE PROGRAMS
The general partners and their affiliates have previously sponsored the
above listed 12 publicly offered real estate limited partnerships and the Wells
REIT offered on an unspecified property or "blind pool" basis. Each of these 12
publicly offered real estate limited partnerships had two classes of units,
Class A Units, which were essentially equivalent to the partnership's cash
preferred units, and Class B Units, which were essentially equivalent to the
partnership's tax preferred units. The total amount of funds raised from
investors in the offerings of these 12 publicly offered limited partnerships and
the Wells REIT, as of December 31, 1998, was approximately $316,443,170, and the
total number of investors in such programs was approximately 26,705.
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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, Wells Fund IX and Wells Fund X available for investment in real
properties have been invested in properties. As of February 15, 1999,
approximately 35% of the proceeds of the offering of Wells Fund XI and
approximately 89.5% of the proceeds of the offering of the Wells REIT available
for investment in real properties had been invested in properties. For the
fiscal year ended December 31, 1998, approximately 75% of the aggregate gross
rental income of these 13 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 Wells programs has liquidated or sold
any of its real properties to date and, accordingly, no assurance can be made
that Wells 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 $252,097,627 of which $170,000 (or approximately .07%) had not yet
been expended on the development of certain of the projects which are still
under construction. Of the aggregate amount, approximately 73% was or will be
spent on acquiring or developing office buildings, and approximately 27% was or
will be spent on acquiring or developing shopping centers. Of the aggregate
amount, approximately 6% was or will be spent on new properties, 49% on existing
or used properties and 45% 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 13 Wells programs as of December 31,
1998:
Type of Property New Used Construction
---------------- ---- ----- -------------
Office Buildings 6% 41% 26%
Shopping Centers 0% 9% 18%
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;
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. a shopping center in Cherokee County, Georgia; and
. 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 12 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 that the general partners were
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.
The prospectus of Wells Fund II and Wells Fund II-OW provided that the
properties purchased by Wells Fund II and Wells Fund II-OW would typically be
held for a period of eight to 12 years, but that the general partners may
exercise their discretion as to whether and when to sell the properties owned by
Wells Fund II and Wells Fund II-OW and that the partnerships were under no
obligation to sell their properties at any particular time. Wells Fund II and
Wells Fund II-OW acquired their properties between 1987 and 1989, and have not
yet liquidated or sold any of their properties. Further, the properties of Wells
Fund II and Wells Fund II-OW may not be sold for some time in the future.
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:
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. 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
. 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 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, $15,590,210
of units of Wells Fund V were treated as Class A Units, and $1,415,810 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 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.
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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.
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, $21,877,575 of units of Wells Fund VI were
treated as Class A Units, and $3,122,425 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, recognized net income of $795,654 in 1997 and
recognized net income of $855,788 in 1998.
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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, $20,095,174 of units in Wells
Fund VII were treated as Class A Units, and $4,085,000 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;
. 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, recognized net income
of $733,149 in 1997 and recognized net income of $754,334 in 1998.
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 Units, and $5,907,350 were attributable to sales of Class B 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,
$26,745,845 of units in Wells Fund VIII were treated as Class A Units, and
$5,286,844 of units were treated as Class B Units. Wells Fund VIII owns
interests in the following properties:
. a two story office building in Alachua County, Florida near
Gainesville;
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. 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
. 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),
recognized net income of $936,590 in 1996, recognized net income of $1,102,567
in 1997 and recognized net income of $1,269,171 in 1998.
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 Units, and $5,640,690 were attributable to sales of Class B Units. After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 1998, $29,898,750 of units in
Wells Fund IX were treated as Class A Units, and $5,101,250 of units were
treated as Class B 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;
. 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, recognized net
income of $1,091,766 in 1997 and recognized net income of $1,449,955 in 1998.
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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 Units, and $5,967,920 were attributable to sales of Class B Units. After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units as of December 31, 1998, $21,258,042 of units in
Wells Fund X were treated as Class A Units and $5,870,870 of units were treated
as Class B Units. Wells Fund X owns interests in the following properties:
. a three story office building in Knox County, Tennessee;
. a two story office building in Boulder County, Colorado;
. 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 and recognized net
income of $1,050,329 in 1998.
WELLS FUND XI terminated its offering on December 30, 1998, and received
gross proceeds of $16,532,802 representing subscriptions from 1,345 limited
partners. $13,029,424 of the gross proceeds were attributable to sales of Class
A Units and $3,503,378 were attributable to sales of Class B Units. Wells Fund
XI owns interests in the following properties:
. a three story office building in Knox County, Tennessee;
. a one story office building 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.
Wells Fund XI recognized net income of $143,295 in 1998.
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THE WELLS REIT began its offering on January 30, 1998. As of December 31,
1998, the Wells REIT had received gross proceeds of $31,540,360 representing
subscriptions from 1,019 stockholders. The Wells REIT owns interests in the
following properties:
. a three story office building in Knox County, Tennessee;
. a one story office building 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;
. a two story office and manufacturing building in Alameda County,
California;
. a four story office building in Hillsborough County, Florida; and
. a four story office building in Dauphin County, Pennsylvania.
The Wells REIT recognized net income of $334,034 in 1998.
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 12 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.
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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 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 following the year of
purchase 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
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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.")
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
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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 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.
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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 following the year of purchase, or longer if required to
satisfy the outstanding commission obligation, 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.
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 a cash preferred unit, 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 a
tax preferred unit;
. then, to the general partners until they have received an amount equal
to their capital contributions;
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. 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.
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's 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.
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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 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
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. 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.
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;
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. 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 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. An investor's capital account would become negative 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.
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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 (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.
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.
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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.
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
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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.
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 March 31, 1999. Renovations and
replacements of equipment have been and are being made as warranted as the
assessment progresses. The costs incurred by the general partners and their
affiliates 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.
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The general partners are in the process of confirming with the
partnership's 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 off-site facility from 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.
The general partners believe that the partnership's risk of Year 2000
problems is minimal. In the unlikely event there is a problem, the worst case
scenarios would include the risks that the elevator or security systems within
the partnership's properties would fail or the key third-party vendors upon
which the partnership relies would be unable to provide accurate investor
information. In the event that the elevator shuts down, the general partners
have devised a plan for each building whereby the tenants will use the stairs
until the elevators are fixed. In the event that the security system shuts
down, the general partners have devised a plan for each building to hire
temporary on-site security guards. In the event that a third-party vendor has
Year 2000 problems relating to investor information, the general partners intend
to perform a full system back-up of all investor information as of December 31,
1999 so that the partnership will have accurate hard-copy investor information.
SUMMARY OF PARTNERSHIP AGREEMENT
The rights and obligations of investors will be governed by the Amended and
Restated Agreement of Limited Partnership, 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 a potential purchase of units.
The following statements are intended to supplement other statements in this
prospectus concerning the partnership agreement and related matters. The
following statements 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 itself.
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POWERS OF THE GENERAL PARTNERS
The general partners have 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 the partnership.
(Articles XI and XVI.)
LIABILITIES OF THE LIMITED PARTNERS; NONASSESSABILITY OF UNITS
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 to the partnership as
limited partners. Under GRULPA, limited partners have no personal liability for
partnership debts or obligations in excess of their capital contributions.
Units acquired by investors 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. (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.)
OTHER ACTIVITIES OF THE GENERAL PARTNERS
The general partners may participate in other business ventures including,
without limitation, the syndication, ownership or management of other real
estate. They shall not be liable 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
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.
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
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. 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(a).)
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).) Except as otherwise provided in the
partnership agreement in connection with a "partnership roll-up" transaction as
described in "Mergers and Consolidations" 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.")
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. If the rights or benefits of the limited partners are to be
diminished by an amendment to the partnership agreement, the limited partners
holding a majority of the units who would be adversely effected must consent to
such amendment. (Section 16.2.)
Amendments to the partnership agreement receiving the requisite vote will
be executed by a general partner on behalf of all limited partners acting
pursuant to the power of attorney contained in the partnership agreement.
(Section 19.1.)
MERGERS AND CONSOLIDATIONS
The partnership agreement prohibits the general partners from initiating
any transaction 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 (1) the
partnership obtains a current appraisal of all of the partnership's assets by an
independent appraiser, and (2) limited partners owning more than 50% of the
units consent in writing to such transaction. (Section 11.3(u).)
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 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. Mr. Wells
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).)
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The general partners and their affiliates may not receive any rebates or
give-ups or participate in any reciprocal business arrangements which would
circumvent the provisions of the partnership agreement. (Section 12.7(a).)
REMOVAL OF GENERAL PARTNERS
A general partner may be removed by a vote of limited partners holding a
majority 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 will be
determined by independent appraisers and paid to him or it as provided in
Section 20.4 of the partnership agreement. The partnership may pay this amount
in annual installments over a period of five years or more commencing on the
first anniversary of the date of the promissory note. Such promissory note
shall bear an annual interest rate of 9%.
The partnership may, with the consent of a majority in interest of the
limited partners, sell the former general partner's interest to an affiliate of
the remaining general partners, and admit such person to the partnership as a
substitute general partner. However, the purchase price to be paid to the
partnership for the partnership interest of the former general partner shall be
at least the fair market value determined by the appraisal described above.
Such substitute general partner or partners may pay the purchase price in
installments in the manner set forth above.
ASSIGNABILITY OF GENERAL PARTNERS' INTERESTS
A general partner may designate a successor or additional general partner
provided that the interests of the limited partners are not adversely affected
and provided such general partner gives 90 days written notice to all partners.
The remaining general partners and limited partners holding a majority of the
units must consent to such designation. 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 a majority 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.
Limited partners have the right to inspect, examine and obtain copies of such
books and records at reasonable times and at their expense. 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 the independent certified public accountants selected by
the partnership. (Section 15.2(b).)
MEETINGS OF LIMITED PARTNERS
There will not be any 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,
a statement of the wording of any resolution proposed for adoption by the
limited
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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,
including the following:
. except in certain limited circumstances, the proposed transferee must
meet the minimum suitability standards set forth in this prospectus;
. investors may only transfer a number of units such that, after the
transfer, both the transferor and transferee shall own at least the
minimum number of units required to be purchased by an investor.
There is no such requirement for transfers made on behalf of a
retirement plan, or by gift, inheritance, divorce, or to an affiliate;
. investors who desire to transfer their units must pay a transfer fee
in an amount sufficient to cover transfer costs;
. 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;
. 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 Internal Revenue Code, unless the partnership
receives a ruling from the IRS that the proposed sale or exchange will
not cause such a termination; and
. investors owning units purchased pursuant to the deferred commission
option will have limited rights to transfer their units for a period
of six years following the year of purchase, or longer if required to
satisfy the outstanding commission obligation. (Section 17.3(a).)
Additional restrictions on transfers of units are imposed on the residents
of various states under the securities laws of such states. In addition to the
above restrictions, the partnership agreement contains substantial restrictions
on the transfer or assignment of units in order to prevent the partnership from
being deemed a "publicly traded partnership." These provisions are based on
restrictions contained in the Section 7704 Regulations described in the "Federal
Income Tax Consequences" section of this prospectus. The most significant
transfer restriction 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. The
partnership agreement also 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 from the beginning 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.)
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Transferees of units are not eligible to participate in the partnership's
distribution reinvestment plan with respect to investment of their distributions
in additional units of this partnership. Transferees are not disqualified,
however, from participation in the partnership's distribution reinvestment plan
with respect to investment of their distributions in units issued by subsequent
Wells programs, 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 recognized by the
partnership not later than the last day of the calendar month following receipt
of notice of the assignment and all required documentation and shall be entitled
to receive distributions attributable to the units properly transferred to him.
(Section 17.5.) Any such assignee shall not have any of the other rights of a
limited partner, including the right to vote as a limited partner and the right
to inspect and copy the partnership's books. Assignments of units are
restricted in the same manner as transfers of units.
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 general partners have the sole
discretion whether to establish or terminate the repurchase reserve.
If a repurchase reserve is established, 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. However, 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
partnership from being deemed a "publicly traded partnership" under the Internal
Revenue Code, the opportunity of limited partners to have their units
repurchased has been substantially restricted, 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.
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 units to be repurchased and of the effective date of the repurchase
transaction, which will be not less than 60 nor more than 75 calendar days
following the receipt of the written request by the partnership. For the first
three full fiscal years following the year in which the offering of units
terminates, the purchase price under the repurchase reserve will be $8.50 per
unit. Thereafter, the purchase price per unit will be equal to 90% of the fair
market value of the units. The fair market value utilized for purposes of
establishing
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the purchase price per unit will be the estimated value of units to be
determined 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.
The partnership will, as soon as possible following return of properly
executed documents from the limited partner, repurchase the units of the limited
partner. 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. The partnership may not repurchase less than all of the units of
any 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).)
Prospective investors should not, under any circumstances, assume that they will
be able to resell their units to the partnership due to the various restrictions
and limitations relating to the potential establishment of a repurchase reserve
by 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. (See "Federal Income Tax Consequences - Sales of
Limited Partnership Units.")
DISTRIBUTION REINVESTMENT PLAN
It is anticipated that a 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 period or in units
issued by subsequent Wells programs which have substantially identical
investment objectives as the partnership. (Section 8.15.) In addition, in the
event the distribution reinvestment plan is made available, it is anticipated
that investors in Wells Fund III and investors holding Class A Units in Wells
Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII, Wells
Fund IX,
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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 this offering.
The general partners have the discretion to 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 participating in the distribution reinvestment plan may purchase
fractional units and shall only be subject to certain minimum investment
requirements and other restrictions imposed by the general partners. 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 excess
distributions of net cash from operations to the participants.
Net cash from operations may only be reinvested in units issued by
subsequent Wells program 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 Wells program and such prospectus allows
investment pursuant to a distribution reinvestment plan;
. a registration statement covering the interests in the subsequent
Wells program 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;
. the participant executes the subscription agreement included with the
prospectus for the subsequent Wells program;
. the participant qualifies under applicable investor suitability
standards as contained in the prospectus for the subsequent Wells
program; and
. the subsequent Wells program has substantially identical investment
objectives as the partnership.
Investors who invest in subsequent Wells programs pursuant to a distribution
reinvestment plan will become, and will be treated as, limited partners in such
subsequent Wells program in all respects and, as such, will receive the same
applicable reports as other limited partners in the subsequent Wells program as
required by the then applicable NASAA Guidelines.
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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 withdraw
from participation in the distribution reinvestment plan. A 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. 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 the
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. Each holder of units is
permitted to identify, change or eliminate the name of his account executive at
a participating dealer with respect to distributions reinvested. In the event
that no account executive is identified, 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. The partnership will retain for
additional investment in real estate amounts which would otherwise have been
paid as selling commissions. Accordingly, the economic benefit to investors who
do not identify account executives will be shared with all investors, 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.
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 10 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.
PROXY TO LIQUIDATE
At any time commencing eight years after the termination of the offering,
limited partners holding 10% of the outstanding units may direct in writing that
the general partners formally proxy the limited partners to determine whether
the assets of the partnership should be liquidated. In such
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event, 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 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. (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;
. 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 the State of Georgia. (Section 20.1.)
In addition to the above 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. 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. Partnership cash
shall be distributed first to creditors to satisfy debts and liabilities of the
partnership, other than loans or advances made by partners. The general
partners may also establish reserves deemed reasonably necessary to satisfy
contingent or unforeseen liabilities or obligations of the partnership.
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Remaining cash will then be used to repay loans or advances made by partners and
to pay any fees due the general partners. The balance, if any, shall be
distributed among the partners in accordance with the positive balances 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 Internal Revenue 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 Internal Revenue 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;
. 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
Internal Revenue 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 Internal Revenue Code imposes similar prohibitions on
retirement plans, and IRAs and Keogh Plans covering only self-
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employed individuals which are not subject to ERISA are, nevertheless, subject
to the "prohibited transaction" rules under the Internal Revenue Code. For
purposes of both ERISA and the Internal Revenue 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 Internal Revenue 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 Internal Revenue 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.)
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 Internal
Revenue 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
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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."
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 Internal Revenue Code and any entity
whose underlying assets include Plan Assets by reason of plan investment in the
entity. Wells programs typically have equity participation by "benefit plan
investors" that is significant, as defined above. 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
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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 Internal Revenue Code
(See "Federal Income Tax Consequences - Publicly Traded Partnerships"), certain
additional restrictions on the transferability of units have been incorporated
into the partnership agreement which are intended to prevent such
reclassification of the partnership (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 Internal Revenue Code,
however, so the incorporation of the Section 7704 Restrictions into the
partnership agreement potentially has the 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
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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 Internal Revenue 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 Internal Revenue
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 Internal Revenue
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" under ERISA and
a "disqualified person" under the Internal Revenue 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 Internal Revenue
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.
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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 Internal Revenue 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.
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.
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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 Internal Revenue Code, Treasury Regulations, including Temporary
and Proposed Regulations promulgated thereunder ("Regulations"), current
positions of the Internal Revenue Service (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.
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 Internal
Revenue 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,
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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 (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 prospectively or retroactively. Changes in
the Internal Revenue 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 Internal Revenue Code since the
partnership limits transfers of units,
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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 Internal Revenue 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:
. 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 Internal Revenue Code for
purposes of determining certain potential exemptions from the
applicability of the accuracy-related penalty provisions of the
Internal Revenue 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 Internal Revenue 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 Internal
Revenue Code, limiting deductions attributable to activities not entered into
for profit, at the partner level. Accordingly, potential investors are urged
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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 Internal Revenue Code which, in effect, operate to
allow a business entity that is not otherwise required to be classified as a
corporation, i.e., 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.
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 the entity classification Regulations, and IRS rulings and
judicial decisions under Section 7701(a) of the Internal Revenue Code, 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.
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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 Internal Revenue 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.
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.
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The partnership agreements 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 Internal Revenue 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 Internal Revenue 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.
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 Internal Revenue 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.
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ANTI-ABUSE RULES
As noted under "General Principles of Partnership Taxation" above,
partnerships are not liable for income taxes imposed by the Internal Revenue
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 Internal Revenue 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 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 Internal Revenue 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.
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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 Internal Revenue 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.)
AT RISK LIMITATION
The deductibility of partnership losses is limited further by the "at risk"
limitations set forth in Section 465 of the Internal Revenue 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
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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 Internal Revenue 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 Internal Revenue 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:
. 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) of the Regulations 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
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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. The
qualified income offset provision was added to the partnership agreement to
satisfy the test for "economic effect" under the Section 704(b) Regulations;
however, it should be noted in this regard that such qualified income offset
provision will have 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 agreement further provides for a special allocation of
nonliquidating net sale proceeds in favor of limited partners electing cash
preferred units, which will apply 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 the amount of such allocation shall not exceed 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.
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:
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. 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 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
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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 following the year of purchase, or longer if
required to satisfy the outstanding commission obligation. (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.
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
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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.
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
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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 Internal Revenue Code. Section 401(a)(9) of the Internal
Revenue Code provides generally that certain minimum distributions from
retirement plans must be made commencing no later than the April 1st following
the calendar year during which the recipient attains age 70 1/2. Accordingly, if
units are 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 Internal Revenue
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 CRT is also exempt from federal income taxation if
the trust is established and maintained in compliance with highly complex rules
contained in the Internal Revenue Code and underlying 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.)
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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 Internal Revenue 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.
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 Internal Revenue 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 Internal
Revenue 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
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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 Internal Revenue 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 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
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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 Internal Revenue 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 Internal
Revenue Code, which portion 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 Internal Revenue 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
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"inventory" as defined in Section 751 of the Internal Revenue 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 Internal
Revenue 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 Internal Revenue
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 Internal Revenue 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 Internal Revenue 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.
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.
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PENALTIES
Under Section 6662 of the Internal Revenue 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 may be 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 Internal
Revenue 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 Internal Revenue
Code.
In addition to the substantial understatement penalty, described above,
Section 6662 of the Internal Revenue Code also imposes a 20% penalty on any
portion of an underpayment of tax attributable to (1) any substantial valuation
misstatement, defined generally as a situation 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 Internal Revenue Code, or a careless, reckless or
intentional disregard of federal income tax rules or regulations.
TAX SHELTER REGISTRATION
Any entity deemed to be a "tax shelter," as defined in Section 6111 of the
Internal Revenue 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.
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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
Internal Revenue Code prior to the offer and sale of the units.
PARTNERSHIP TAX INFORMATION
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.
PARTNER TAX RETURNS
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.
AUDITS
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 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
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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 Internal Revenue 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 Internal Revenue 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 prospective investor is urged to
consult his own tax advisor with respect to his own tax situation, the effect of
any legislative, regulatory or administrative developments or proposals on an
investment in units in the partnership, or other potential changes in applicable
tax laws.
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STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above, prospective
investors should consider potential state and local tax consequences of an
investment in the partnership. This prospectus makes no attempt to summarize
the state and local tax consequences to an investor in those states in which the
partnership may own properties or carry on activities. 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.
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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 agreement, 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 in the discretion of the general partners
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
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. 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 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 agreement 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.")
The general partners shall cause to be 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. The partnership will provide without charge a copy of any
such report upon request by a limited partner. In addition, upon request from
any prospective investor or limited partner, the partnership will provide
without charge a copy of the NASAA Guidelines, as referred to elsewhere in this
prospectus.
PLAN OF DISTRIBUTION
A minimum of 125,000 units and a maximum of 7,000,000 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,
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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 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
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for purchases made pursuant to the distribution reinvestment plan or
reinvestment plans of other public real estate programs.
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 September 22, 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, North Carolina, 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 the Regulations. Units purchased by the general partners or
their affiliates will not be counted for the purpose of achieving the minimum
offering.
Initial subscribers shall be admitted to the partnership and the payments
transferred from escrow to the partnership within 15 days after the partnership
has received and accepted subscriptions for at least $1,250,000, 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
119
<PAGE>
other states may impose different requirements than those set forth herein. Any
such additional requirements will be set forth in a supplement to this
prospectus.
The offering of units of the partnership will terminate upon the earlier of
(1) March 21, 2001, or (2) the date on which all $70,000,000 in units have been
sold.
The proceeds of this offering will be received and held in trust for the
benefit of purchasers of units and will be retained in trust after closing to be
used only for the purposes set forth in the "Estimated Use of Proceeds" section.
After the close of the minimum offering, subscriptions will be accepted or
rejected within 30 days of receipt by the partnership, and if rejected, all
funds shall be returned to subscribers within 10 business days. Investors whose
subscriptions are accepted will be deemed admitted as limited partners of the
partnership on the day on which their subscriptions are accepted.
The general partners may sell units to retirement plans of broker-dealers
participating in the offering, to broker-dealers in their individual capacities,
to IRAs and qualified plans of their registered representatives or to any one of
their registered representatives in their individual capacities for 93% of the
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>
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
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
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<PAGE>
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 Internal Revenue 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 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
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<PAGE>
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.
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. Investors electing the deferred commission option
will be required to pay a total of $9.40 per unit purchased upon subscription,
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<PAGE>
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 the year of purchase of the units, or longer if required to satisfy
the outstanding commission obligation, $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, or longer if required to satisfy the outstanding commission obligation,
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 or
their affiliates 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, as determined 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 the year of purchase
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. (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.")
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.
123
<PAGE>
The offering of units in the partnership is made only by means of this
prospectus. Although the information contained in such sales material will 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
The financial statements of Wells Real Estate Fund XII, L.P., as of
December 31, 1998, the financial statements of Wells Partners, L.P. as of
December 31, 1998 and 1997, and for each of the years in the two year period
ended December 31, 1998, and the financial statements of Wells Capital, Inc. as
of December 31, 1998 and 1997, and for each of the years in the two year period
ended December 31, 1998, 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.
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
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<PAGE>
. the Midwest Regional Office in Chicago, Illinois at 500 West Madison
Street, Suite 1400, Chicago, Illinois 66661-2511.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission (the address of such site is http://www.sec.gov).
GLOSSARY
The following are definitions of certain terms used in this prospectus and
not otherwise defined herein or in the partnership agreement:
"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.
"DEALER MANAGER" means Wells Investment Securities, Inc.
"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.
"IRA" means an individual retirement account established pursuant to
Section 408 or Section 408A of the Internal Revenue 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.
"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.
"PROPERTY MANAGER" means Wells Management Company, Inc.
"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 Internal Revenue Code.
125
<PAGE>
INDEX TO AUDITED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
WELLS PARTNERS, L.P.
Report of Independent Public Accountants 127
Balance Sheets as of December 31, 1998 and 1997 128
Statements of Income (Loss) for the years ended December 31, 1998 and 1997 129
Statements of Partners' Capital for the years ended December 31, 1998 and 1997 130
Statements of Cash Flows for the years ended December 31, 1998 and 1997 131
Notes to Financial Statements 132
Schedule I - Market Value of Investment in Limited Partnerships 134
WELLS CAPITAL, INC.
Report of Independent Public Accountants 135
Balance Sheets as of December 31, 1998 and 1997 136
Statements of Income (Loss) for the years ended December 31, 1998 and 1997 137
Statements of Stockholder's Equity for the years ended December 31, 1998 and 1997 138
Statements of Cash Flows for the years ended December 31, 1998 and 1997 139
Notes to Financial Statements 140
WELLS REAL ESTATE FUND XII, L.P.
Report of Independent Public Accountants 145
Balance Sheet as of December 31, 1998 146
Notes to Balance Sheet 147
</TABLE>
126
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Partners, L.P.:
We have audited the accompanying balance sheets of WELLS PARTNERS, L.P. (a
Georgia limited partnership) as of December 31, 1998 and 1997 and the related
statements of income (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, 1998 and 1997 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 27, 1999
127
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CASH $ 70 $ 70
INVESTMENT IN LIMITED PARTNERSHIPS 667,863 127,665
----------- ------------
Total assets $ 667,933 $ 127,735
=========== ============
COMMITMENTS AND CONTINGENCIES
</TABLE>
PARTNERS' CAPITAL
<TABLE>
<S> <C> <C>
GENERAL PARTNER $ 12,956 $ 6,761
LIMITED PARTNERS 654,977 120,974
----------- ------------
Total partners' capital $ 667,933 $ 127,735
=========== ============
</TABLE>
The accompanying notes are an integral part of these balance sheets.
128
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
-------- -------
<S> <C> <C>
EQUITY IN INCOME (LOSS) OF LIMITED PARTNERSHIPS $539,398 $(953)
======== =======
</TABLE>
The accompanying notes are an integral part of these statements.
129
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<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 5,395 534,003 539,398
--------- --------- ---------
BALANCE AT DECEMBER 31, 1998 $12,956 $654,977 $667,933
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
130
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 539,398 $ (953)
Adjustment to reconcile net income (loss) to net cash provided by
operating activities:
Equity in (income) loss of partnerships (539,398) 953
----------- ---------
Net cash provided by operating activities 0 0
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in limited partnerships (800) 0
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
General partner contribution 800 0
----------- ---------
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.
131
<PAGE>
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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., 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 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 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.
2. INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership does not control the Funds, Beaver Ruin, or Carter
Boulevard; however, it does exercise significant influence. Accordingly,
investment in limited partnerships is recorded using the equity method of
accounting. Each of the partnerships in which the Partnership invests,
except for Beaver Ruin and Carter Boulevard, has been formed with the
purpose to acquire and operate commercial real properties, including both
properties which are to be developed or are under development and properties
which are newly constructed or have operating histories. Beaver Ruin and
Carter Boulevard were formed to acquire and eventually sell the Beaver Ruin
and Carter Boulevard properties. The Partnership's investment in limited
partnerships at December 31, 1998 and 1997 includes the following:
132
<PAGE>
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
19.2% ownership interest in Beaver Ruin $502,230 $ 81,529
51.27% ownership interest in Carter Boulevard
164,833 45,535
Fund X 0 201
Fund XI 0 400
Fund XII 400 0
Fund XIII 400 0
----------- ------------
$667,863 $127,665
=========== ============
</TABLE>
In 1997, the assets of Beaver Ruin and Carter Boulevard were comprised
primarily of an investment in a parcel of undeveloped land. 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. The
Partnership's share of net proceeds of $502,230 through its 19.2% interest
in Beaver Ruin and $164,833 through its 51.27% interest in Carter Boulevard
was forwarded to an escrow agent to implement a Section 1031 exchange. The
Partnership recognized a gain for accounting purposes of approximately
$540,000. In October 1998, $818,141 of the $3,112,875 in sale proceeds were
invested in another parcel of undeveloped land located in Knoxville,
Tennessee.
Fund XI owns all of its properties through an investment in two joint
ventures which, as of December 31, 1998, owned interests in seven office
buildings.
Fund XII and Fund XIII had no operations during the year ended December 31,
1998.
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 has not requested 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 partner
contends that the Partnership is not subject to federal or state income
taxes, and therefore, none have been provided for in the accompanying
balance sheets. The partners are required to include their respective share
of profits and losses in their individual income tax returns.
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.
133
<PAGE>
SCHEDULE I
WELLS PARTNERS, L.P.
(A GEORGIA LIMITED PARTNERSHIP)
MARKET VALUE OF INVESTMENT IN LIMITED PARTNERSHIPS
AS OF DECEMBER 31, 1998
(UNAUDITED)
<TABLE>
<S> <C>
* 19.2% OWNERSHIP INTEREST IN BEAVER RUIN ARC WAY, LTD. $502,230
* 51.27% OWNERSHIP INTEREST IN CARTER BOULEVARD, LTD. 164,833
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND XII, L.P. 400
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND XIII, L.P. 400
---------
$667,863
=========
</TABLE>
*The market value of the limited partnership investment is
based on the sales price of the undeveloped land owned by
Beaver Ruin and Carter Boulevard which was sold to an
unrelated third party during 1998. Prior to this sale, the
undeveloped land was the only asset owned by the limited
partnership.
The accompanying notes are an integral part of this schedule.
134
<PAGE>
REPORT OF INDEPENDENTPUBLIC ACCOUNTANTS
To Wells Capital, Inc.:
We have audited the accompanying balance sheets of WELLS CAPITAL, INC. (a
Georgia corporation) as of December 31, 1998 and 1997 and the related statements
of income (loss), stockholder's equity, and cash flows for the years then ended.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. as of
December 31, 1998 and 1997 and the results of its operations and its cash flows
for the years then ended in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 27, 1999
135
<PAGE>
WELLS CAPITAL, INC.
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
1998 1997
----------- ------------
<S> <C> <C>
CURRENT ASSETS:
Cash $ 41,571 $ 313,093
Due from affiliates 105,428 360,023
Other receivables 7,547 0
----------- -----------
Total current assets 154,546 673,116
DEFERRED OFFERING COSTS 1,107,044 328,333
INVESTMENT IN AFFILIATED COMPANIES 324,093 16,898
----------- -----------
Total assets $1,585,683 $1,018,347
=========== ===========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable $ 7,514 $ 34,621
Due to affiliates 1,060,143 579,638
----------- -----------
Total liabilities 1,067,657 614,259
----------- -----------
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 210,885 96,947
----------- -----------
Total stockholder's equity 518,026 404,088
----------- -----------
Total liabilities and stockholder's equity $ 1,585,683 $1,018,347
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
136
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
----------- -----------
REVENUES:
<S> <C> <C>
Acquisition and advisory fees $1,682,555 $1,085,157
Equity in income (loss) of affiliated companies 5,672 (10)
----------- ----------
1,688,227 1,085,147
----------- ----------
EXPENSES:
Salaries and wages 1,517,818 1,086,698
Occupancy 0 24,277
General and administrative 56,471 435,755
----------- ----------
1,574,289 1,546,730
----------- ----------
NET INCOME (LOSS) $ 113,938 $ (461,583)
=========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
137
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK CONTRIBUTED RETAINED STOCKHOLDER'S
---------------------
SHARES AMOUNT CAPITAL EARNINGS EQUITY
------- -------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
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
Net income 0 0 0 113,938 113,938
------- -------- ----------- ---------- ------------
BALANCE, DECEMBER 31, 1998 600 $600 $306,541 $ 210,885 $ 518,026
======= ======== =========== ========== ============
</TABLE>
The accompanying notes are an integral part of these statements.
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<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998 AND 1997
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 113,938 $(461,583)
Adjustments to reconcile net income (loss) to net cash provided by
operating activities:
Equity in (income) loss of affiliated companies (5,672) 10
Changes in assets and liabilities:
Due from affiliates 254,595 512,820
Deferred offering costs (778,711) (328,333)
Other receivables (7,547) 31,300
Accounts payable (27,107) (169,719)
Due to affiliates 480,505 579,638
-------------- -------------
Total adjustments (83,937) 625,716
-------------- -------------
Net cash provided by operating activities 30,001 164,133
-------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from affiliated companies 277 87
Additional investment in affiliated companies (301,800) 0
-------------- -------------
Net cash (used in) provided by investing activities (301,523) 87
-------------- -------------
NET (DECREASE) INCREASE IN CASH (271,522) 164,220
CASH AT BEGINNING OF YEAR 313,093 148,873
-------------- -------------
CASH AT END OF YEAR $ 41,571 $ 313,093
============== =============
</TABLE>
The accompanying notes are an integral part of these statements.
139
<PAGE>
WELLS CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
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 Company is a
wholly owned subsidiary of Wells Real Estate Funds, Inc., and the sole
stockholder of Wells Real Estate Funds, Inc. 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 future 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"), 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"). Funds IV, V, VI, VII, VIII, IX, X,
XI, XII, and XIII have the same investment objectives as Funds I, II, II-
OW, and III.
During 1997, the Company was the sole shareholder in Wells Real Estate
Investment Trust, Inc. ("Wells REIT"), a Maryland corporation that
qualifies as a real estate investment trust, as well as the sole
shareholder of Wells S&P REIT Index Fund ("Mutual Fund"). Both of these
entities were in the initial stages of formation and had no operations
during 1997. Consequently, both the Wells REIT and Mutual Fund were
consolidated in the Company's financial statements for 1997. The
accompanying 1997 balance sheet includes all of the assets and liabilities
of the Wells REIT and Mutual Fund, and all intercompany balances were
eliminated for the year ended December 31, 1997.
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<PAGE>
The registration statement pertaining to the Wells REIT became effective on
January 30, 1998. The registration statement will remain effective until
January 30, 2003 or until the sale of 15,000,000 shares of common stock.
The Wells REIT intends to offer for sale a maximum of 15,000,000 shares of
common stock, $.01 par value per share, at a price of $10 per share. During
1997, the Wells REIT sold 100 shares to the Company at the proposed initial
public offering price of $10 per share. Substantially all of the Wells
REIT's business is conducted through Wells Operating Partnership, L.P. (the
"Operating Partnership"), a Delaware limited partnership. During 1997, the
Operating Partnership issued 20,000 limited partnership units to the
Company in exchange for $200,000. The Company's ownership interest in the
Wells REIT was approximately 1% as of December 31, 1998. The Company does
not have control over the operations of the Wells REIT, however, it does
exercise significant influence. Accordingly, the Company's investment in
the Wells REIT is recorded using the equity method of accounting for the
year ended December 31, 1998.
The Mutual Fund's objective is to provide investment results which
correspond to the performance of the S&P Real Estate Investment Trust
Composite Price Index (the "Index"). During 1997, the Mutual Fund sold
10,000 shares to the Company at the proposed public offering price of $10
per share. The Company's ownership interest in the Mutual Fund was
approximately 7% as of December 31, 1998. The Company does not have
control over the operations of the Mutual Fund, however, it does exercise
significant influence. Accordingly, the Company's investment in the Mutual
Fund is recorded using the equity method of accounting for the year ended
December 31, 1998.
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 for organization
and offering expenses. The Company also paid, or is currently
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<PAGE>
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, Fund
XI, and Fund XII. Pursuant to the partnership agreements of Fund IV, Fund
V, Fund XI, and Fund XII, these partnerships can only pay up to 3% of total
limited partners' contributions for organization and offering expenses. The
remaining partnerships can reimburse the Company up to 5% of total limited
partners' contributions for organization and offering costs pursuant to the
partnership agreements.
The Wells REIT can reimburse the Company up to 3% of total shareholder
contributions for organization and offering expenses. The Mutual Fund pays
to Wells Asset Management, Inc., an affiliate of the Company, a management
fee equal to 0.50% of the daily average value of net assets. Wells Asset
Management, Inc. uses these funds to reimburse the Company without
limitation for organization and offering expenses.
During the years ended December 31, 1998 and 1997, the Company paid
organization and offering costs related to Fund IX of $0 and $24,486,
respectively, of which $5,938 was paid to related parties. During 1997,
the Company expensed $24,486 of organization and offering costs related to
Fund IX, which exceeded the 5% reimbursement limitation.
During the years ended December 31, 1998 and 1997, the Company paid
organization and offering costs related to Fund X of $21,423 and
$1,516,779, respectively, of which $34 and $23,961, respectively, were paid
to related parties. During 1998 and 1997, the Company expensed $21,423 and
$258,023, respectively, of organization and offering costs related to Fund
X which exceeded the 5% reimbursement limitation.
During the years ended December 31, 1998 and 1997, the Company paid
organization and offering costs related to Fund XI of $692,610 and
$109,442, respectively, none of which was paid to related parties. As of
December 31, 1998, the Company had a receivable for unreimbursed
organization and offering costs of $109,139 related to Fund XII, $548,729
related to Wells REIT, and $449,176 related to the Mutual Fund.
Due from affiliates at December 31, 1998 and 1997 represents primarily
acquisition and advisory fees paid by the Company on behalf of Fund X, Fund
XI, and Wells REIT. 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:
1998 1997
--------- ---------
Fund X $ 2,539 $ 105,008
Fund XI 89,930 194,020
Wells REIT 6,746 0
Shareholder 0 60,000
Other affiliates 6,213 995
-------- ---------
$105,428 $ 360,023
======== =========
Due to affiliates includes the liability for advances from Wells Management
Company, Inc. ("Wells Management"), an affiliate of the Company. These
advances were used to fund the general operations of the Company. The
Company anticipates repaying this obligation to Wells Management during
1999.
142
<PAGE>
3. INVESTMENT IN AFFILIATED COMPANIES
The following is a rollforward of the Company's investment in affiliated
companies for the year ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
------------ -------------
<S> <C> <C>
Investment in affiliated companies, beginning of
year $ 16,898 $16,995
Contribution to affiliated companies 301,800 0
Equity in income (loss) of affiliated companies 5,672 (10)
Distributions from affiliated companies (277) (87)
------------- -----------
Investment in affiliated companies, end of year $324,093 $16,898
============= ===========
</TABLE>
The Company's investment in each affiliated company at December 31, 1998
and 1997 is as follows:
<TABLE>
<CAPTION>
1998 1997
------------- -------------
<S> <C> <C>
Fund I $ 11,027 $11,027
Fund II 2,721 2,721
Wells Partners 9,345 3,150
Wells REIT 201,000 0
Mutual Fund 100,000 0
------------- -----------
$324,093 $16,898
============= ===========
</TABLE>
As of December 31, 1998 and 1997, 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, 1998 and 1997, 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.
Wells REIT owns all of its properties through three joint ventures, which,
as of December 31, 1998, owned interests in four office buildings, two
office and one warehouse building, and one office and manufacturing
building.
The Mutual Fund attempts to duplicate the investment results of the Index.
The Index is made up of approximately 100 stocks which constitute a
representative sample of all publicly traded Real Estate Investment Trusts.
Under normal market conditions, at least 90% of the Mutual Fund's total
assets will be invested in the stocks included in the Index, with the
remaining 10% invested in money market instruments and U.S. government
securities. The proportion of the Mutual Fund's assets invested in each
stock held in the Mutual Fund's portfolio, is substantially similar to the
proportion of the Index represented by the stock. The Mutual Fund will
normally be invested in all of the stock which comprise the S&P REIT Index.
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<PAGE>
4. ACQUISITION AND ADVISORY FEES
Acquisition and advisory fees of $578,645 and $1,103,910 were earned from
Fund XI and Wells REIT, respectively, during 1998.
Acquisition and advisory fees of $1,085,517 were also earned from Fund X
during 1997. Pursuant to the partnership agreements, total fees earned may
not exceed 5% of limited partners' contributions for Fund X, and 3% for
Fund XI, Fund XII, Fund XIII, and Wells REIT. As of December 31, 1998,
$2,539 of fees due from Fund X, $89,930 of fees due from Fund XI, and
$6,746 of fees due from Wells REIT remained uncollected and are included in
due from affiliates.
5. COMMITMENTS AND CONTINGENCIES
The Company has guaranteed the indebtedness of Wells Management for an
amount not to exceed $200,000. Management believes, however, that Wells
Management has sufficient resources to repay their 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.
144
<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 December 31, 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 December 31, 1998 in conformity with generally accepted accounting
principles.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 27, 1999
145
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
CASH $ 600
DEFERRED OFFERING COSTS 109,139
--------
$109,739
========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Due to affiliates $109,139
--------
PARTNERS' CAPITAL:
General partners 500
Limited partner 100
--------
Total partners' capital 600
--------
Total liabilities and partners' capital $109,739
========
The accompanying notes are an integral part of this balance sheet.
146
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO BALANCE SHEET
DECEMBER 31, 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. 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 cash preferred units or tax preferred units.
Thereafter, limited partners shall have the right to change their prior
elections to have some or all of their units treated as cash preferred
units or tax preferred 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 which class of unit is selected. The Partnership had no
operations as of December 31, 1998.
The Partnership was formed to acquire and operate commercial real estate
properties, including properties which are either to be developed,
currently under 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 cash preferred 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
cash preferred units and 10% to the general partners. No such distributions
will be made to the limited partners holding tax preferred units.
147
<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 tax preferred units until they receive an amount
necessary to equal the net cash available for distribution
received by the limited partners holding cash preferred 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 cash preferred units and a 15% per annum cumulative
return on net capital contributions for all periods during which
the units were treated as tax preferred 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 cash preferred 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 tax preferred 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
148
<PAGE>
provisions of the partnership agreement; (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero; and (c) allocations to limited partners holding 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 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
offering proceeds, will be paid by Wells Capital, Inc., an affiliate of the
general partners, and not by the Partnership. Organization and offering
expenses do not include sales or underwriting commissions but do include
such costs as legal and accounting fees, printing costs, and other offering
expenses. There were no organization and offering expenses incurred or paid
as of December 31, 1998.
3. RELATED-PARTY TRANSACTIONS
The Partnership anticipates entering 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 would 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 (ten or more years) net lease basis, the maximum property
management fee from such leases would 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.
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<PAGE>
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information relating
to real estate investment programs sponsored by the general partners or their
affiliates which have investment objectives substantially similar to 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.
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.
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 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.
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<PAGE>
"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.
151
<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, 1995. 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. All figures are as of
December 31, 1998.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real
Estate Fund Estate Fund Estate Fund Estate Fund
VIII, L.P. IX, L.P. X, L.P. XI, L.P.
----------------- ----------------- ------------------ ------------------
<S> <C> <C> <C> <C>
Dollar Amount Raised $32,042,689/(3)/ $35,000,000/(4)/ $ 27,128,912/(5)/ $ 16,532,802/(6)/
========== ========== ========== ==========
Percentage Amount Raised 100.0%/(3)/ 100.0%/(4)/ 100%/(5)/ 100%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 10.0% 9.5%
Organizational Expenses 5.0% 5.0% 5.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0% 0.0%
---------- ---------- ---------- ----------
Percent Available for Investment 85.0% 85.0% 85.0% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property .1% 2.0% 2.4% 0.0%
Cash Down Payment 80.0% 66.4% 42.1% 29.5%
Acquisition Fees/(2)/ 4.5% 4.5% 4.5% 3.5%
Development and Construction Costs .4% 10.1% 12.0% 0.0%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---------- ---------- ---------- -----------
Total Acquisition and Development Cost 85.0% 83.0% 61.0% 33.0%
Percent Leveraged 0.0% 0.0% 0.0% 0.0%
========== ========== ========== ===========
Date Offering Began 01/06/95 01/05/96 12/31/96 12/31/97
Length of Offering 12 mo. 12 mo. 12 mo. 12mo.
Months to Invest 90% of Amount
Available for Investment (Measured from 17 mo. 14 mo. 19 mo. /(7)/
Beginning of Offering)
Number of Investors as of 12/31/98 2,247 2,118 1,812 1,345
</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 $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.
(4) 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.
(5) 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.
152
<PAGE>
(6) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
(7) As of December 31, 1998, Wells Real Estate Fund XI, 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, 1998 was 33% of the total dollar
amount raised.
153
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by 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, 1995. These partnerships have not sold or
refinanced any of their properties to date. All figures are as of December 31,
1998.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Other
Estate Fund Estate Fund Estate Fund Estate Fund Public
VIII, L.P. IX, L.P. X, L.P. XI, L.P. Programs/(1)/
------------ ------------ ------------ ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 01/06/95 01/05/96 12/31/96 12/31/97 --
Dollar Amount Raised $32,042,689 $35,000,000 $27,128,912 $16,532,802 $174,198,406
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 174,295 $ 309,556 $ 260,748 $ 151,911 $ 749,861
Acquisition Fees
Real Estate Commissions -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 1,281,708 $ 1,400,000 $ 1,085,157 $ 578,648 $ 8,877,691
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 5,898,456 $ 4,472,419 $ 2,100,001 $ 87,465 $ 31,156,353
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 165,073 $ 82,791 $ 39,957 $ 6,267 $ 1,089,740
Partnership Management Fee -- -- -- -- --
Reimbursements $ 171,240 $ 72,803 $ 41,659 $ 14,623 $ 1,300,327
Leasing Commissions $ 225,234 $ 174,185 $ 110,655 $ 17,559 $ 1,148,836
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., Wells Real Estate Fund VI, L.P. and Wells Real Estate Fund
VII, 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, 1998, the amount of such fees due the
General Partners totaled $2,283,808.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offerings of Wells Real
Estate Funds VIII, IX, X, and XI, 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.
154
<PAGE>
(4) Includes $567,231 in net cash provided by operating activities, $4,769,678
in distributions to limited partners and $561,547 in payments to sponsor
for Wells Real Estate Fund VIII, L.P.; $732,687 in net cash provided by
operating activities, $3,409,953 in distributions to limited partners and
$329,779 in payments to sponsor for Wells Real Estate Fund IX, L.P.;
$500,687 in net cash provided by operating activities, $1,407,043 in
distributions to limited partners and $192,271 in payments to sponsor for
Wells Real Estate Fund X, L.P.; $50,858 in net cash used by operating
activities, $99,874 in distributions to limited partners and $38,449 in
payments to sponsor for Wells Restate Fund XI, L.P.; and $2,917,222 in net
cash provided by operating activities, $24,700,228 in distributions to
limited partners and $3,538,903 in payments to sponsor for other public
programs.
155
<PAGE>
TABLE III
(UNAUDITED)
The following six tables set forth operating results of Wells programs the
offerings of which have been completed since December 31, 1993. 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.
156
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VI, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 939,519 $ 884,802 $ 675,782 $ 1,002,567 $ 819,535
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 82,168 82,898 80,479 94,489 112,389
Depreciation and Amortization/(3)/ 1,563 6,250 6,250 6,250 6,250
---------- ---------- ---------- ------------- -----------
Net Income GAAP Basis/(4)/ $ 855,788 $ 795,654 $ 589,053 $ 901,828 700,896
========== ========== ========== ============= ===========
Taxable Income: Operations $1,206,968 $1,091,770 $ 809,389 $ 916,531 667,682
========== ========== ========== ============= ===========
Cash Generated (Used By):
Operations (70,649) (57,206) (2,716) 278,728 276,376
Joint Ventures 1,829,428 1,500,023 1,044,891 766,212 203,543
---------- ---------- ---------- ------------- -----------
Less Cash Distributions to Investors: $1,758,779 $1,442,817 $1,042,175 $ 1,044,940 $ 479,919
Operating Cash Flow 1,745,626 1,442,817 1,042,175 1,044,940 245,800
Return of Capital 9,986 125,314 -- --
Undistributed Cash Flow from Prior Year Operations 13,153 -- $ 18,027 216,092 --
---------- ---------- ---------- ------------- -----------
Cash Generated (Deficiency) after Cash Distributions $ 13,153 $ (9,986) (143,341) $ (216,092) $ 234,119
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 12,163,461
---------- ---------- ---------- ------------- -----------
$ 13,153 $ (9,986) $ (143,341) $ (216,092) $12,397,580
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- 1,776,909
Return of Original Limited Partner's Investment -- -- -- -- --
Property Acquisitions and Deferred Project Costs 135,602 310,759 234,924 10,721,376 5,912,454
---------- ---------- ---------- ------------- -----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (122,449) $ (320,745) $ (378,265) $ (10,937,468) $ 4,708,217
========== ========== ========== ============= ===========
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 81 78 59 57 43
- Operations Class B Units (280) (247) (160) (60) (12)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 80 75 56 56 41
- Operations Class B Units (171) (150) (99) (51) (22)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 80 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 80 67 50 61 14
- Return of Capital Class A Units 0 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>
________________________
157
<PAGE>
(1) Includes $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, $856,710 in equity in earnings of
joint ventures and $28,092 from investment of reserve funds in 1997, and
$928,000 in equity in earnings of joint ventures and $11,519 from
investment of reserve funds in 1998. At December 31, 1998, the leasing
status was 95%.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $107,807 for 1994, $264,866 for 1995, $648,478 for 1996,
$896,753 for 1997, and $917,224 for 1998.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $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; $1,677,826 to Class A
Limited Partners, $(882,172) to Class B Limited Partners and $0 to the
General Partners for 1997; and $1,770,058 to Class A Limited Partners
$(914,270) to Class B Limited Partners and $0 to the general partners for
1998.
158
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------ ------------ ----------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 846,306 $ 816,237 $ 543,291 $ 925,246 $ 286,371
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 85,722 76,838 84,265 114,953 78,420
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 4,688
---------- ---------- --------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 754,334 $ 733,149 $ 452,776 $ 804,043 $ 203,263
========== ========== ========= ============ ===========
Taxable Income: Operations $1,109,096 $1,008,368 $ 657,443 $ 812,402 $ 195,067
========== ========== ========= ============ ===========
Cash Generated (Used By):
Operations (72,194) (43,250) 20,883 431,728 47,595
Joint Ventures 1,770,742 1,420,126 760,628 424,304 14,243
---------- ---------- --------- ------------ -----------
$1,698,548 $1,376,876 $ 781,511 $ 856,032 $ 61,838
Less Cash Distributions to Investors:
Operating Cash Flow 1,636,158 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 $ 62,390 $ (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
---------- ---------- --------- ------------ -----------
$ 62,390 $ (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 181,070 169,172 736,960 14,971,002 4,477,765
---------- ---------- --------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (118,680) $ (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 85 86 62 57 29
- Operations Class B Units (224) (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 82 78 55 55 28
- Operations Class B Units (134) (111) (58) (16) 17
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 81 70 43 52 7
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 81 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 62 54 29 30 4
- Return of Capital Class A Units 19 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 100%
in the Table
</TABLE>
_____________
159
<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, $785,398 in equity in earnings of joint ventures and $30,839
from investment of reserve funds in 1997, and $839,037 in equity in earnings
of joint ventures and $7,269 from investment of reserve funds in 1998. At
December 31, 1998, 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 $25,468 for 1994, $140,533 for 1995, $605,247 for 1996,
$877,869 for 1997, and $955,245 for 1998.
(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; $1,615,965 to class A Limited Partners,
$(882,816) to Class B Limited Partners and $0 to the General Partners for
1997; and $1,704,213 to Class A Limited Partners, $(949,879) to Class B
Limited Partners and $0 to the General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$1,364,217.
160
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- ------------- ------------ ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ 1,362,513 $ 1,204,018 $ 1,057,694 $ 402,428 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 87,092 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250
----------- ------------ ----------- -----------
Net Income GAAP Basis/(4)/ 1,269,171 $ 1,102,567 $ 936,590 273,914
=========== ============ =========== ===========
Taxable Income: Operations 1,683,192 $ 1,213,524 $ 1,001,974 404,348
=========== ============ =========== ===========
Cash Generated (Used By):
Operations (63,946) 7,909 623,268 204,790
Joint Ventures 2,293,504 1,229,282 279,984 20,287
----------- ------------ ----------- -----------
$ 2,229,558 $ 1,237,191 $ 903,252 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 2,218,400 1,237,191 903,252 --
Return of Capital -- 183,315 2,443 --
Undistributed Cash Flow from Prior Year -- -- 225,077 --
----------- ------------ ----------- -----------
Operations $ 11,158 $ (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
----------- ------------ ----------- -----------
11,158 $ (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 1,850,859 10,675,811 7,931,566 6,618,273
----------- ------------ ----------- -----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $(1,839,701) $(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 91 73 46 28
- Operations Class B Units (212) (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 89 65 46 17
- Operations Class B Units (131) (95) (33) (3)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 83 54 43 --
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 83 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 69 42 33 --
- Return of Capital Class A Units 16 12 10 --
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
</TABLE>
______________
(1) Includes $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, $1,034,907
in equity in earnings of joint ventures and $169,111 from investment of
reserve funds in 1997, and $1,346,367 in equity in earnings of joint
ventures and $16,146 from investment of reserve funds in 1998. At December
31, 1998, the leasing status was 99% 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, $841,666 for 1997, and
$1,157,355 for 1998.
161
<PAGE>
(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;
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997; and $2,431,246 to Class A
Limited Partners, $(1,162,075) to Class B Limited Partners and $0 to the
General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$989,966.
162
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,561,456 $ 1,199,300 $ 406,891 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 105,251 101,284 101,885
Depreciation and Amortization/(3)/ 6,250 6,250 6,250
----------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 1,449,955 $ 1,091,766 $ 298,756
=========== ============ ===========
Taxable Income: Operations $ 1,906,011 $ 1,083,824 $ 304,552
=========== ============ ===========
Cash Generated (Used By):
Operations $ 80,147 $ 501,390 $ 151,150
Joint Ventures 2,125,489 527,390 --
----------- ------------ -----------
$ 2,205,636 $ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 2,188,189 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 $ 17,447 $ (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
----------- ------------ -----------
17,447 $ (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 9,455,554 13,427,158 6,544,019
----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(9,438,107) $(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 88 53 28
- Operations Class B Units (218) (77) (11)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 85 46 26
- Operations Class B Units (123) (47) (48)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 73 36 13
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 73 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 61 29 10
- Return of Capital Class A Units 12 7 3
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
</TABLE>
________________________
(1) Includes $23,007 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, and
$1,481,869 in equity in earnings of joint ventures and $79,587 from
investment of reserve funds in 1998. At December 31, 1998, the leasing
status was 99% 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, $469,126 for 1997, and $1,143,407 for
1998.
(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
163
<PAGE>
Partners for 1996; $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997; and
$2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited
Partners and $0 to the General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$609,724.
164
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,204,597 $ 372,507 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 99,034 88,232
Depreciation and Amortization/(3)/ 55,234 6,250
----------- -----------
Net Income GAAP Basis/(4)/ $ 1,050,329 $ 278,025
=========== ===========
Taxable Income: Operations $ 1,277,016 $ 382,543
=========== ===========
Cash Generated (Used By):
Operations 300,019 $ 200,668
Joint Ventures 886,846 --
----------- -----------
1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 1,186,865 --
Return of Capital 19,510 --
Undistributed Cash Flow From Prior Year Operations 200,668 --
----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 27,128,912
----------- -----------
$ (220,178) $27,329,580
Use of Funds:
Sales Commissions and Offering Expenses 300,725 3,737,363
Return of Original Limited Partner's Investment -- 100
Property Acquisitions and Deferred Project Costs 17,613,067 5,188,485
----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $18,133,970 $18,403,632
=========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 85 28
- Operations Class B Units (123) (9)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 78 35
- Operations Class B Units (64) 0
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 66 --
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 56 --
- Return of Capital Class A Units 10 --
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 48 --
- Return of Capital Class A Units 18 --
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in 100%
the Table
</TABLE>
________________________
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542 from
investment of reserve funds in 1997, and $869,555 in equity in earnings of
joint ventures, $120,000 in rental income and $215,042 from investment of
reserve funds in 1998. At December 31, 1998, the leasing status was 99%
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, and $674,986 for 1998.
(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
165
<PAGE>
Partners for 1997, and $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998.
(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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled
$388,585.
166
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF WELLS PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ 262,729 N/A N/A N/A N/A
Profit on Sale of Properties --
Less: Operating Expenses/(2)/ 113,184
Depreciation and Amortization/(3)/ 6,250
-----------
Net Income GAAP Basis/(4)/ $ 143,295
===========
Taxable Income: Operations $ 177,692
===========
Cash Generated (Used By):
Operations (50,858)
Joint Ventures 102,662
-----------
51,804
Less Cash Distributions to Investors:
Operating Cash Flow 51,804
Return of Capital 48,070
Undistributed Cash Flow From Prior Year Operations --
-----------
Cash Generated (Deficiency) after Cash Distributions (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions --
Increase in Limited Partner Contributions 16,532,801
-----------
16,484,731
Use of Funds:
Sales Commissions and Offering Expenses 1,779,661
Return of Original Limited Partner's Investment --
Property Acquisitions and Deferred Project Costs 5,412,870
-----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 9,292,200
===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 50
- Operations Class B Units (77)
Capital Gain (Loss) --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 18
- Operations Class B Units (17)
Capital Gain (Loss) --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 14
- Return of Capital Class A Units --
- Return of Capital Class B Units --
Source (on Cash Basis)
- Operations Class A Units 7
- Return of Capital Class A Units 7
- Operations Class B Units --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 11
- Return of Capital Class A Units 3
- Return of Capital Class B Units --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
______________________
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998. At December 31, 1998, the leasing
status was 99% 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 $105,458 for 1998.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998.
(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
167
<PAGE>
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, 1998, the aggregate amount of such
priority distributions payable to Class B Limited Partners totalled $24,621.
168
<PAGE>
EXHIBIT A
FORM OF AMENDED AND RESTATED AGREEMENT
OF LIMITED PARTNERSHIP OF
WELLS REAL ESTATE FUND XII, L.P.
<PAGE>
WELLS REAL ESTATE FUND XII, 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-50
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, L.P.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into effective as of the 22nd day of March, 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 September 15, 1998, 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 XII, 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 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
A-3
<PAGE>
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 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
A-4
<PAGE>
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 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.
A-5
<PAGE>
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 Cash Preferred
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 Tax Preferred 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.
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.
A-6
<PAGE>
3.53 "RETIREMENT PLANS" shall mean Individual Retirement Accounts
established under Section 408 or Section 408A 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 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 Tax Preferred 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.
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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,
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develop, construct, own, operate, improve, lease and otherwise manage for
investment purposes, either alone or in association with others, a diversified
portfolio of income-producing commercial or industrial properties as shall from
time to time be acquired by the Partnership and to engage in any or all general
business activities related to or incidental to such principal purpose.
4.2 OBJECTIVES. The business of the Partnership shall be conducted with
----------
the following objectives:
(a) To maximize Net Cash From Operations;
(b) To preserve, protect and return the Partners' investment in the
Partnership; and
(c) To realize appreciation in value of Partnership Properties.
ARTICLE V
NAMES AND ADDRESSES OF PARTNERS
The names of the General Partners are Wells Partners, L.P., a Georgia
limited partnership, and Leo F. Wells, III. The name of the Initial Limited
Partner is Brian M. Conlon. The business address of the General Partners and
the Initial Limited Partner is 3885 Holcomb Bridge Road, Norcross, Georgia
30092. The names and addresses of all the Additional Limited Partners shall be
set forth in the books and records of the Partnership.
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ARTICLE VI
TERM
The Partnership term commenced upon the filing of the Certificate and shall
continue until December 31, 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.
8.2 GENERAL PARTNERS. The General Partners shall make Capital
----------------
Contributions to the Partnership as follows:
<TABLE>
<CAPTION>
Name Dollar Amount
---- -------------
<S> <C>
Wells Partners, L.P. $400
Leo F. Wells, III 100
----
Total $500
</TABLE>
8.3 GENERAL PARTNER PURCHASE OF UNITS. The Capital Contributions of the
---------------------------------
General Partners, together with the Capital Contribution of the Initial Limited
Partner, shall constitute the initial capital of the Partnership and shall not
entitle the General Partners to any Units. The General Partners may, in their
discretion, make additional Capital Contributions to the capital of the
Partnership in exchange for the purchase of Units. Any General Partner who
purchases Units shall continue, in all respects, to be treated as a General
Partner but shall receive the income, losses and cash distributions with respect
to any Units purchased by such General Partner on the same basis as other
Partners may receive with respect to their Units. Units purchased by the
General Partners or their Affiliates shall not be entitled to vote on any
transaction requiring Limited Partner approval.
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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 7,000,000 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 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 7,000,000
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
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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, Minnesota, Missouri, Ohio and Pennsylvania
residents). Notwithstanding the above, subscriptions from residents of New York
and Pennsylvania may not be released from escrow to the Partnership until the
receipt and acceptance by the General Partners of subscriptions from all sources
for not less than 250,000 Units.
8.9 PUBLIC OFFERING. Except as otherwise provided in this Agreement, the
---------------
General Partners shall have sole and complete discretion in determining the
terms and conditions of the offer and sale of Units and are hereby authorized
and directed to do all things which they deem to be necessary, convenient,
appropriate and advisable in connection therewith, including, but not limited
to, the preparation and filing of the Registration Statement with the Securities
and Exchange Commission and the securities commissioners (or similar agencies or
officers) of such jurisdictions as the General Partners shall determine, and the
execution or performance of agreements with selling agents and others concerning
the marketing of the Units, all on such basis and upon such terms as the General
Partners shall determine.
8.10 RETURN AND WITHDRAWAL OF CAPITAL.
--------------------------------
(a) Any proceeds of the Offering of the Units not invested or
committed to the acquisition or development of specific real properties within
the later of two years from the effective date of the Registration Statement or
one year after the termination of the Offering (except for necessary operating
expenses and any reserves under Section 11.3(h) of this Agreement) shall be
distributed pro rata to the Limited Partners as a return of capital. In such
event, the amount paid to the Limited Partners shall include Front-End Fees but
only to the extent such fees exceed the adjusted allowable Front-End Fees based
on the obligation of the General Partners pursuant to Section 12.2(b) hereof to
commit at least 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.
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(b) No Partner, including a withdrawing Partner, shall have any right
to withdraw or make a demand for withdrawal of any such Partner's Capital
Contribution (or the capital interest reflected in such Partner's Capital
Account) until the full and complete winding up and liquidation of the business
of the Partnership unless such withdrawal is provided for herein.
8.11 REPURCHASE OF UNITS. After one year following the termination of the
-------------------
Offering of Units, the Partnership shall have the right, in the sole discretion
of the General Partners, to use funds held in the Repurchase Reserve to purchase
Units upon written request of a Limited Partner. The establishment of a
Repurchase Reserve is in the sole discretion of the General Partners, and if
established, the Repurchase Reserve may be terminated and/or reestablished at
any time in the sole discretion of the General Partners.
(a) In no event shall the Repurchase Reserve exceed 5% of the Cash
Flow in any given year.
(b) A Limited Partner wishing to have his Units repurchased must mail
or deliver a written request to the Partnership (executed by the trustee or
authorized agent in the case of Retirement Plans) indicating his desire to have
such Units repurchased. Such requests will be considered by the General
Partners in the order in which they are received.
(c) In the event that the General Partners decide to honor a request,
they will notify the requesting Limited Partner in writing of such fact, of the
purchase price for the repurchased Units and of the effective date of the
repurchase transaction (which shall be not less than 60 nor more than 75
calendar days following the receipt of the written 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 $8.50
per Unit until three years from the termination of the offering, 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
determined 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.
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(j) Repurchases of Units out of the Repurchase Reserve shall be
subject to the restrictions set forth in Section 17.3(g) hereof.
(k) In addition to the restrictions set forth in Section 17.3(g)
hereof, (i) repurchases out of the Repurchase Reserve may not exceed in the
aggregate more than 2% of total Capital Contributions throughout the life of the
Partnership excluding repurchases of Units relating to the death or legal
incapacity of the owner or a substantial reduction in the owner's net worth or
income (defined to mean an involuntary loss of not less than 50% of income or
net worth during the year in which such repurchase occurs); and (ii) not more
than 2% of the outstanding Units may be purchased in any year, provided in each
case that the Partnership has sufficient cash to make the purchase and that the
purchase will not be in violation of any other applicable legal requirements.
(l) In no event shall Units owned by the General Partners or their
Affiliates be repurchased by the Partnership.
8.12 INTEREST ON CAPITAL CONTRIBUTIONS. No interest shall be paid on any
---------------------------------
Capital Contributions.
8.13 OWNERSHIP BY LIMITED PARTNER OF INTEREST IN AFFILIATES OF GENERAL
-----------------------------------------------------------------
PARTNERS. No Limited Partner (other than a General Partner, in the event that
--------
he or it is also a Limited Partner) shall at any time, either directly or
indirectly, own any stock or other interest in any Affiliate of any General
Partner if such ownership, by itself or in conjunction with the stock or other
interest owned by other Limited Partners would, in the opinion of counsel for
the Partnership, jeopardize the classification of the Partnership as a
partnership for federal income tax purposes. The General Partners shall be
entitled to make such reasonable inquiry of the Limited Partners and prospective
Limited Partners as is required to establish compliance by the Limited Partners
with the provisions of this Section 8.13.
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.
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(b) If a Limited Partner withdraws from participation in the
Distribution Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt by the General
Partners of written notice of such withdrawal. In the event a Limited Partner
transfers his Units, such transfer shall terminate the Limited Partner's
participation in the plan as of the first day of the quarter in which such
transfer is effective.
(c) Distributions may be reinvested in a subsequent limited
partnership only if (i) prior to the time of such reinvestment, the Limited
Partner has received the final prospectus (and any supplements thereto) offering
interests in the subsequent limited partnership and such prospectus allows
investment pursuant to a distribution reinvestment plan; (ii) a registration
statement covering the interests in the subsequent limited partnership has been
declared effective under the Securities Act of 1933; (iii) the offer or sale of
such interests is qualified for sale under the applicable state securities laws;
(iv) the participant executes the subscription agreement included with the
prospectus for the subsequent limited partnership; (v) the participant qualifies
under the applicable investor suitability standards as contained in the
prospectus for the subsequent limited partnership; and (vi) the subsequent
limited partnership has substantially identical investment objectives as the
Partnership. If (A) any of the foregoing conditions are not satisfied at the
time of a distribution or (B) no interests are available to be purchased, such
distributions will be paid in cash.
(d) Each Limited Partner electing to participate in the Distribution
Reinvestment Plan hereby agrees that his investment in this Partnership or any
subsequent limited partnership sponsored by the General Partners or their
Affiliates shall be deemed to constitute his agreement to be a limited partner
of the partnership in which such investment is made and to be bound by the terms
and conditions of the agreement of limited partnership of such partnership, and
if, at any time, he fails to meet the applicable limited partnership investor
suitability standards or cannot make the other investor representations or
warranties set forth in the then current limited partnership prospectus,
partnership agreement or subscription agreement relating thereto, he will
promptly notify the General Partners in writing.
(e) The General Partners may, at their option, elect not to provide
the Distribution Reinvestment Plan or terminate any such plan at any time
without notice to the Limited Partners.
8.16 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
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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
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 described
in the Prospectus shall for a period of six years following the year of purchase
(or longer if required to satisfy the commissions due with respect to such
Units) have deducted and withheld from distributions of Net Cash From Operations
otherwise payable to such Limited
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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 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;
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(f) Then, if and only in the event that Limited Partners have received
Excess Limited Partner Distributions, as hereinafter defined, to the General
Partners until they have received distributions of Nonliquidating Net Sale
Proceeds equal to 20% of the sum of any such Excess Limited Partner
Distributions and distributions to the General Partners pursuant to this Section
9.2(f) (the term "Excess Limited Partner Distributions" means any distributions
to Limited Partners over the life of their investment in the Partnership in
excess of the sum of their Net Capital Contributions plus their Preferential
Limited Partner Return); and
(g) Thereafter, 80% to the Limited Partners on a per Unit basis and
20% to the General Partners; provided, however, that in no event will the
General Partners be allocated or receive distributions in excess of the NASAA
Guidelines Resale Proceeds Maximum Amount, as defined herein. It is the intent
of the foregoing proviso that the General Partners receive no more of the net
proceeds from the sale or financing of Partnership Properties than is allowed
pursuant to Article IV, Section E.2.b. of the NASAA Guidelines, and in the event
the allocations pursuant to this Article IX would otherwise result in the
General Partners receiving any such excess distributions, such excess
distributions otherwise distributable to the General Partners will instead be
reallocated in favor of and distributed to the Limited Partners on a per Unit
basis. As used herein, the term "NASAA Guidelines Resale Proceeds Maximum
Amount" means an amount equal to 15% of aggregate Nonliquidating Net Sale
Proceeds and Liquidating Distributions remaining after payments to all Limited
Partners from such proceeds of amounts equal to 100% of their Net Capital
Contributions plus amounts equal to a 6% per annum return on their Net Capital
Contributions, calculated on a cumulative (noncompounded) basis.
Notwithstanding the foregoing, in the event that the Partnership sells any
Partnership Property at a sale price which is less than the Purchase Price
originally paid for such Partnership Property, then prior to the distribution of
Nonliquidating Net Sale Proceeds under Section 9.2(a) above, the Limited
Partners holding 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
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(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;
(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
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(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;
(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;
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(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;
(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
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(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 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 their sole discretion.
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10.7 ALLOCATION AMONG GENERAL PARTNERS. All allocations made under this
---------------------------------
Article X to the General Partners shall be apportioned among the General
Partners in such percentages as they may from time to time agree among
themselves.
10.8 ITEM PRORATIONS. Any fiscal year of the Partnership in which the
---------------
Partnership realizes any Gain on Sale shall be divided into multiple accounting
periods, the first of which shall begin on the first day of such fiscal year and
shall end on the Sale Date, and the second of which shall begin on the day
following such Sale Date and shall end on the following Sale Date, if any, and
if no further Sale Date occurs, then on the last day of such fiscal year. Any
Net Income realized by the Partnership in any of such accounting periods shall
be allocated to the Partners in the manner provided in Section 10.3 hereof as if
such accounting period were a complete fiscal year of the Partnership. Any Net
Loss, depreciation, amortization or cost recovery deductions incurred by the
Partnership in any of such accounting periods shall be allocated to the Partners
in the manner provided in Sections 10.1 and 10.2 hereof as if such accounting
period were a complete fiscal year of the Partnership. The Net Income, Net
Loss, depreciation, amortization and cost recovery deductions so allocated to
the Partners shall be reflected in their respective Capital Accounts before any
Gain on Sale realized by the Partnership during such accounting period is
allocated to the Partners under Section 10.4 hereof.
10.9 ALLOCATIONS IN RESPECT TO TRANSFERRED UNITS. If any Units are
-------------------------------------------
transferred during any fiscal year, all items attributable to such Units for
such year shall be allocated between the transferor and the transferee by taking
into account their varying interests during the year in accordance with Section
706(d) of the Code, utilizing any conventions permitted by law and selected by
the General Partners, in their sole and absolute discretion. Solely for
purposes of making such allocations, the Partnership shall recognize the
transfer of such Units as of the end of the calendar quarter during which it
receives written notice of such transfer, provided that if the Partnership does
not receive a written notice stating the date such Units were transferred and
such other information as may be required by this Agreement or as the General
Partners may reasonably require within 30 days after the end of the year during
which the transfer occurs, then all such items shall be allocated to the Person
who, according to the books and records of the Partnership, on the last day of
the year during which the transfer occurs, was the owner of the Units. The
General Partners and the Partnership shall incur no liability for making
allocations in accordance with the provisions of this Section 10.9, whether or
not the General Partners or the Partnership have knowledge of any transfer of
ownership of any Units.
10.10 ALLOCATIONS IN RESPECT TO REPURCHASED UNITS. If any Units are
-------------------------------------------
repurchased pursuant to Section 8.11 hereof during any fiscal year, all items
attributable to such Units for such year shall be determined by the General
Partners (a) pro rata with respect to the number of months such Units were
outstanding during such year, (b) on the basis of an 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).
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ARTICLE XI
MANAGEMENT OF THE PARTNERSHIP
11.1 MANAGEMENT. The General Partners shall conduct the business of the
----------
Partnership, devoting such time thereto as they, in their sole discretion, shall
determine to be necessary to manage Partnership business and affairs in an
efficient manner. Any action required to be taken by the General Partners
pursuant to this Agreement shall be duly taken only if it is approved, in
writing or otherwise, by all the General Partners, unless the General Partners
agree among themselves to a different arrangement for said approval.
11.2 POWERS OF THE GENERAL PARTNERS. The General Partners shall have full
------------------------------
charge of overall management, conduct and operation of the Partnership, and
shall have the authority to act on behalf of the Partnership in all matters
respecting the Partnership, its business and its property, and, without limiting
in any manner the foregoing, authority:
(a) To do on behalf of the Partnership all things which, in their sole
judgment, are necessary, proper or desirable to carry out the Partnership's
business, including, but not limited to, the right, power and authority: (i) to
execute all agreements and other documents necessary to implement the purposes
of the Partnership, to take such action as may be necessary to consummate the
transactions contemplated hereby and by the Prospectus, and to make all
reasonably necessary arrangements to carry out the Partnership's obligations in
connection therewith; (ii) to employ, oversee and dismiss from employment any
and all employees, agents, independent contractors, real estate managers,
contractors, engineers, architects, developers, designers, brokers, attorneys
and accountants; (iii) to sell, exchange or grant an option for the sale of all
or substantially all (subject to the requirement to obtain a Majority Vote of
the Limited Partners pursuant to Section 16.1 hereof with respect to a sale of
all or substantially all of the real properties acquired by the Partnership) or
any portion of the real and personal property of the Partnership, at such price
or amount, for cash, securities or other property and upon such other terms as
the General Partners, in their sole discretion, deem proper; (iv) to let or
lease all or any portion of the Partnership Properties for any purpose and
without limit as to the term thereof, whether or not such term (including
renewal terms) shall extend beyond the date of the termination of the
Partnership and whether or not the portion so leased is to be occupied by the
lessee or, in turn, subleased in whole or in part to others; (v) to create, by
grant or otherwise, easements and servitudes; (vi) to borrow money and incur
indebtedness; provided, however, the Partnership shall not be permitted to incur
any indebtedness except as authorized in Section 11.3(e) hereof; (vii) to draw,
make, accept, endorse, sign and deliver any notes, drafts or other negotiable
instruments or commercial paper; (viii) to execute such agreements and
instruments as may be necessary, in their discretion, to operate, manage and
promote the Partnership assets and business; (ix) to construct, alter, improve,
repair, raze, replace or rebuild all or any portion of the Partnership
Properties; (x) to submit to arbitration any claim, liability or dispute
involving the Partnership (provided that such claims will be limited to actions
against the Partnership not involving securities claims by the Limited Partners
and provided further that no claim, liability or dispute of a Limited Partner
will be subject to mandatory arbitration); (xi) to compromise any claim or
liability due to the Partnership; (xii) to execute, acknowledge or verify and
file any notification, application, statement and other filing which the General
Partners consider either required or desirable to be filed with any state or
federal securities administrator or commission; (xiii) to make any tax elections
to be made by the Partnership; (xiv) to place record title to any of its assets
in the name of a nominee, agent or a trustee; (xv) to do any or all of the
foregoing, discretionary or otherwise, through agents selected by the General
Partners, whether compensated or uncompensated by the Partnership; (xvi) to
execute and 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
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or a secondary market (or the substantial equivalent thereof)" within the
meaning of Section 7704 of the Code, and take (and cause Affiliates to take) all
steps reasonably necessary or appropriate to prevent any such trading of
interests, including without limitation, voiding transfers if the General
Partners reasonably believe such transfers will cause the Partnership to be
treated as a "publicly traded partnership" under the Code or Treasury
Regulations thereunder; (xviii) at the appropriate time, to register the Units
with the Securities and Exchange Commission pursuant to the Securities Exchange
Act of 1934; and (xix) to do any or all of the foregoing for such consideration
and upon such other terms or conditions as the General Partners, in their
discretion, determine to be appropriate; provided, however, in no event shall
the General Partners or their Affiliates receive compensation from the
Partnership unless specifically authorized by Article XII hereof, by Articles IX
and X hereof or by the "Compensation of the General Partners and Affiliates"
section of the Prospectus.
(b) Notwithstanding anything contained herein to the contrary, subject
to the provisions contained in Section 16.2 hereof, to amend this Agreement
without the consent or vote of any of the Limited Partners: (i) to reflect the
addition or substitution of Limited Partners or the reduction of Capital
Accounts upon the return of capital to Partners; (ii) to add to the
representations, duties or obligations of the General Partners or their
Affiliates or surrender any right or power granted herein to the General
Partners or their Affiliates for the benefit of the Limited Partners; (iii) to
cure any ambiguity, to correct or supplement any provision herein which may be
inconsistent with any other provision herein, or to add any other provision with
respect to matters or questions arising under this Agreement which will not be
inconsistent with the provisions of this Agreement; (iv) to delete or add any
provision from or to this Agreement requested to be so deleted or added by the
staff of the Securities and Exchange Commission or by the staff of any state
regulatory agency, the deletion or addition of which provision is deemed by the
staff of any such regulatory agency to be for the general benefit or protection
of the Limited Partners; and (v) to attempt to have the provisions of this
Agreement comply with federal income tax law and regulations thereunder.
(c) To possess and exercise, as may be required, all of the rights and
powers of general partners as more particularly provided by the Act, except to
the extent that any of such rights may be limited or restricted by the express
provisions of this Agreement.
(d) To execute, acknowledge and deliver any and all instruments and
take such other steps as are necessary to effectuate the foregoing. Any such
instruments may be executed on behalf of the Partnership by either of the
General Partners, except that any instrument pursuant to which the Partnership
acquires or disposes of any interest in real property shall require the
signature, personally or by attorney-in-fact, of each of the General Partners.
11.3 LIMITATIONS ON POWERS OF THE GENERAL PARTNERS. The General Partners
---------------------------------------------
shall observe the following policies in connection with Partnership operations:
(a) Pending initial investment of its funds, or to provide a source
from which to meet contingencies, including, without limitation, the working
capital reserve and Repurchase Reserve, the Partnership may temporarily invest
its funds in short-term, highly liquid investments where there is appropriate
safety of principal, such as government obligations, bank or savings and loan
association certificates of deposit, short-term debt obligations and interest-
bearing accounts; provided that, following one year after the commencement of
the operations of the Partnership, no more than 45% of the value (as defined in
Section 2(a)(41) of the Investment Company Act of 1940, as amended) of the
Partnership's total assets (exclusive of government securities and cash items)
will consist of, and no more than 45% of the Partnership's net income after
taxes (for any four consecutive fiscal quarters combined) will be derived from,
securities other than (i) government securities; (ii) securities issued by
majority owned subsidiaries of the Partnership which are not investment
companies; and (iii) securities
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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 available cash resources are deemed
insufficient for the maintenance and repair of Partnership Properties or for the
protection or replacement of the Partnership's assets, and (ii) in order to
finance improvement of and improvements to Partnership Properties at such time
as the General Partners may deem such improvements to be necessary or
appropriate to protect capital previously invested in such Partnership
Properties, to protect the value of the Partnership's investment in a particular
Partnership Property, or to make a particular Partnership Property more
attractive for sale or lease; provided, however, that the aggregate amount of
Partnership borrowings shall at no time exceed 25% of the total purchase price
of Partnership Properties. The Partnership may borrow such funds from the
General Partners, their Affiliates or others, provided that if any such
borrowing is from the General Partners or their Affiliates, (i) such borrowing
may not constitute a "financing" as that term is defined under the NASAA
Guidelines (i.e., all indebtedness encumbering Partnership Properties or
incurred by the Partnership, "the principal amount of which is scheduled to be
paid over a period of not less than 48 months, and not more than 50 percent of
the principal amount of which is scheduled to be paid during the first 24
months"); (ii) interest and other financing charges or fees charged on any such
borrowing may not exceed amounts which would be charged by unrelated lending
institutions on comparable financing for the same purpose in the same locality
as the Partnership's principal place of business; and (iii) no prepayment charge
or penalty shall be required with respect to any such borrowing.
(f) The Partnership shall not reinvest Cash Flow or any proceeds from
the sale of a Partnership Property in new properties except that if the
Partnership requires funds to exercise an option to acquire property under lease
or to purchase from any co-venturer an interest in a property that the
Partnership owns jointly with such Person, the Partnership may either distribute
the net proceeds of any sale of Partnership Property to the Partners or may
reinvest such proceeds for the aforementioned purposes; provided, however, that
in any event, a portion of such proceeds sufficient to cover any increase in
Limited Partners' federal and state income taxes attributable to the sale
(assuming a 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
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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, in the sole discretion of the General
Partners, 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 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
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price contract with a general contractor that has a substantial net worth; (iii)
a retention of a reasonable portion of the Purchase Price as a potential offset
to such Purchase Price in the event the seller does not perform in accordance
with the purchase and sale agreement; or (iv) a program of disbursements control
which provides for direct payments to subcontractors and suppliers.
(l) The Partnership shall make no construction loans to builders of
Partnership Properties and shall make no periodic progress or other advance
payments to such builders unless the Partnership has first received an
architect's certification as to the percentage of the project which has been
completed and as to the dollar amount of the construction then completed.
(m) The Partnership shall not acquire property in exchange for Units.
(n) The Partnership shall not obtain nonrecourse financing from a
Limited Partner or any party affiliated with a Limited Partner.
(o) The Partnership shall not purchase a Partnership Property if (i)
the acquisition price of such Partnership Property is not a fixed amount
determined as of the date of acquisition; or (ii) any amount payable in
connection with such acquisition or the time for making payments thereunder is
dependent, in whole or in part, upon revenues, income or profits derived from
the Partnership Property.
(p) The Partnership shall not take back an "all-inclusive" or
"wraparound" note in connection with the sale or other disposition of a
Partnership Property.
(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
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be authorized to merge or consolidate the Partnership with any other partnership
or corporation or to convert the Partnership to a real estate investment trust
unless first obtaining a Majority Vote of the Limited Partners to any such
transaction. In addition, the General Partners shall not be authorized to enter
into or effect any Roll-Up unless such Roll-Up complies with the following terms
and conditions:
(i) An appraisal of all assets of the Partnership shall be obtained
from a competent Independent Expert. If the appraisal will be included in a
prospectus used to offer the securities of a Roll-Up Entity, the appraisal shall
be filed with the Securities and Exchange Commission and the states as an
exhibit to the registration statement for the offering. The assets of the
Partnership shall be appraised on a consistent basis. The appraisal shall be
based on an evaluation of all relevant information and shall indicate the
current value of the Partnership's assets as of a date immediately prior to the
announcement of the proposed Roll-Up. The appraisal shall assume an orderly
liquidation of the Partnership's assets over a 12 month period, shall consider
other balance sheet items, and shall be net of the assumed cost of sale. The
terms of the engagement of the Independent Expert shall clearly state that the
engagement is for the benefit of the Partnership and its Limited Partners. A
summary of the independent appraisal, indicating all material assumptions
underlying the appraisal, shall be included in a report to the Limited Partners
in connection with the proposed Roll-Up.
(ii) In connection with the proposed Roll-Up, the person sponsoring
the Roll-Up shall provide each Limited Partner with a document which instructs
the Limited Partner on the proper procedure for voting against or dissenting
from the Roll-Up and shall offer to Dissenting Limited Partners the choice of:
(A) accepting the securities of the Roll-Up Entity offered in the proposed Roll-
Up which have substantially the same terms and conditions as the security
originally held, provided that the receipt or retention of that security is not
a step in a series of subsequent transactions that directly or indirectly
through acquisition or otherwise involves future contributions or
reorganizations involving the Roll-Up Entity; or (B) one of the following: (I)
remaining as Limited Partners in the Partnership and preserving their interests
therein on the same terms and conditions as existed previously, or (II)
receiving cash in an amount equal to the Limited Partners' pro rata share of the
appraised value of the net assets of the Partnership.
(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.
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(vi) The Partnership may not participate in any proposed Roll-Up
which would result in the Limited Partners having (A) voting rights which do not
generally follow the voting rights of the Limited Partners pursuant to this
Agreement or (B) democracy rights in the Roll-Up Entity which are less than
those provided for under Sections VII.A. and VII.B. of the NASAA Guidelines. If
the Roll-Up Entity is a corporation, the voting rights shall correspond to the
voting rights provided for in the NASAA Guidelines to the greatest extent
possible.
(vii) The Partnership may not participate in any proposed Roll-Up
which includes provisions which would otherwise materially impede or frustrate
the accumulation of shares by any purchaser of the securities of the Roll-Up
Entity (except to the minimum extent necessary to preserve the tax status of the
Roll-Up Entity). The Partnership may not participate in any proposed Roll-Up
which would limit the ability of a Limited Partner to exercise the voting rights
of his securities in the Roll-Up Entity on the basis of the limited partnership
interests or other indicia of ownership held by that Limited Partner.
(viii) The Partnership may not participate in any proposed Roll-Up
in which the Limited Partners' rights of access to the records of the Roll-Up
Entity will be less than those provided for under Section VII.D. of the NASAA
Guidelines.
(ix) The Partnership may not participate in any proposed Roll-Up in
which any of the costs of the transaction would be borne by the Partnership if
the proposed Roll-Up is not approved by a Majority Vote of the Limited Partners.
(x) The Partnership may not participate in any proposed Roll-Up in
which the rights of Limited Partners are not protected as to fees of General
Partners. The rights of Limited Partners shall be presumed not to be protected
as to fees of General Partners if: (A) General Partners are not prevented from
receiving both unearned management fees discounted to a present value, if those
fees were not previously provided for in this Agreement and disclosed to Limited
Partners, and new asset-based fees; (B) property management fees and other
management fees are not appropriate, not reasonable and greater than what would
be paid to third parties for performing similar services; or (C) changes in fees
which are substantial and adverse to Limited Partners are not approved by an
independent committee according to the facts and circumstances of each
transaction. For purposes of this provision, "management fee" means a fee paid
to the General Partners, their Affiliates, or other persons for management and
administration of the limited partnership Roll-Up Entity.
(xi) The Person proposing a Roll-Up shall pay all solicitation
expenses related to the transaction, including all preparatory work related
thereto, in the event the Roll-Up is not approved. For purposes of this
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.
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11.4 EXPENSES OF THE PARTNERSHIP.
---------------------------
(a) Subject to Sections 11.4(b) and 11.4(c) below, the Partnership
shall reimburse the General Partners for (i) all Organization and Offering
Expenses incurred by them, and (ii) the actual cost to them of goods and
materials used for or by the Partnership and obtained from entities unaffiliated
with the General Partners.
(b) Except as provided below and in Sections 11.4(a) and 11.4(c), all
of the Partnership's expenses shall be billed directly to and paid by the
Partnership. The General Partners may be reimbursed for the administrative
services necessary to the prudent operation of the Partnership provided that the
reimbursement shall be at the lower of the General Partners' actual cost or the
amount the Partnership would be required to pay to independent parties for
comparable administrative services in the same geographic location. No payment
or reimbursement will be made for services for which the General Partners are
entitled to compensation by way of a separate fee. Excluded from allowable
reimbursements shall be: (i) rent or depreciation, utilities, capital
equipment, other administrative items; and (ii) salaries, fringe benefits,
travel expenses and other administrative items incurred by or allocated to any
controlling Persons of the General Partners or their Affiliates. A controlling
Person, for purposes of this Section 11.4(b), shall be deemed to include, but
not be limited to, any Person, whatever his title, who performs functions for
the General Partners similar to those of: (A) chairman or member of the Board
of Directors; (B) executive management, including the President, Vice President
or Senior Vice President, Corporate Secretary and Treasurer; (C) senior
management, such as the Vice President of an operating division who reports
directly to executive management; or (D) those holding a 5% or more equity
interest in Wells Partners, L.P. or Wells Capital, Inc. or a Person having the
power to direct or cause the direction of the General Partners, whether through
the ownership of voting securities, by contract or otherwise. It is not
intended that every person who carries a title such as vice president, secretary
or treasurer be considered a controlling Person. The General Partners believe
that their employees and those of their Affiliates who will perform services for
the Partnership for which reimbursement is allowed pursuant to this Section
11.4(b) have the experience and educational background, in their respective
fields of expertise, appropriate for the performance of such services.
The annual report to investors shall include a breakdown of the costs
reimbursed to the General Partners pursuant to this subsection. Within the
scope of the annual audit of the General Partners' financial statements, the
independent certified public accountant must verify the allocation of such costs
to the Partnership. The method of verification shall at a minimum provide:
(I) A review of the time records of individual
employees, the cost of whose services were reimbursed; and
(II) A review of the specific nature of the work
performed by each such employee. The methods of verification shall be in
accordance with generally accepted auditing standards and shall, accordingly,
include such tests of the accounting records and such other auditing procedures
which the 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
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commissions related to the resale of Partnership Properties (provided, however,
that the foregoing shall in no way limit the payment or reimbursement of legal,
travel, employee-related expenses and other out-of-pocket expenses which are
directly related to a particular Partnership Property and not prohibited by
Section 11.4(b) above); and (iii) all other administrative expenses which are
unrelated to the business of the Partnership. The General Partners or their
Affiliates shall pay, at no additional cost to the Partnership, Partnership
Organization and Offering Expenses (other than commissions paid to broker-
dealers and other underwriting compensation) to the extent they exceed 3% of the
gross proceeds of the Offering of Units.
(d) Subject to the provisions of paragraphs (b) and (c) of this
Section 11.4, the Partnership shall pay the following expenses of the
Partnership:
(i) Partnership Organization and Offering Expenses (other than
commissions paid to broker-dealers and other underwriting compensation) which do
not exceed 3% of the gross proceeds of the Offering of Units;
(ii) underwriting compensation, including broker-dealer selling
commissions and the dealer manager fee, payable in an amount not to exceed 10%
of the gross proceeds of the Offering of Units, plus a maximum of .5% of the
gross proceeds of the Offering of Units for reimbursement of bona fide due
diligence expenses to be paid out of Organization and Offering Expenses subject
to the limitation of Section 11.4(d)(i) above.
(iii) All operational expenses of the Partnership, which may
include, but are not limited to: (A) all costs of personnel employed by the
Partnership or directly involved in the business of the Partnership, including
Persons who may also be employees of the General Partners or their Affiliates,
including but not limited to, salaries and other employee-related expenses,
travel and other out-of-pocket expenses of such personnel which are directly
related to a particular Partnership Property; (B) all costs of borrowed money,
taxes and assessments on Partnership Properties and other taxes applicable to
the Partnership; (C) legal, accounting, audit, brokerage and other fees; (D)
fees and expenses paid to independent contractors, brokers and servicers,
leasing agents, consultants, on-site managers, real estate brokers, mortgage
brokers, insurance brokers and other agents; and (E) expenses in connection with
the disposition, replacement, alteration, repair, remodeling, refurbishment,
leasing and operation of Partnership Properties (including the costs and
expenses of foreclosures, legal and accounting fees, insurance premiums, real
estate brokerage and leasing commissions and maintenance connected with such
Property); and
(iv) All accounting, documentation, professional and reporting
expenses of the Partnership, which may include, but are not limited to: (A)
preparation and documentation of Partnership bookkeeping, accounting and audits;
(B) preparation and documentation of budgets, economic surveys, Cash Flow
projections and Repurchase Reserve and working capital requirements; (C)
preparation and documentation of Partnership federal and state tax returns; (D)
printing, engraving and other expenses and documents evidencing ownership of an
interest in the Partnership or in connection with the business of the
Partnership; (E) expenses of insurance as required in connection with the
business of the Partnership, including, without limitation, life and disability
insurance with respect to any individual General Partner; (F) expenses in
connection with distributions made by the Partnership to, and communications,
bookkeeping and clerical work necessary in maintaining relations with, Limited
Partners, including the costs of printing and mailing to such Persons
certificates for the Units and reports of the Partnership, and of preparing
proxy statements and soliciting proxies in connection therewith; (G) expenses in
connection with preparing and mailing reports required to be furnished to
Limited Partners for investing, tax reporting or other purposes, including
reports required to be filed with the Securities and Exchange Commission and
other federal or state regulatory agencies, or expenses associated with
furnishing
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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 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
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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
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Indemnified Party shall have the right to bill the Partnership for, or otherwise
request the Partnership to pay, at any time and from time to time after such
Indemnified Party shall become obligated to make payment therefor, any and all
amounts for which such Indemnified Party believes in good faith that such
Indemnified Party is entitled to indemnification under Section 11.5(a) above.
The Partnership shall pay any and all such bills and honor any and all such
requests for payment within 60 days after such bill or request is received. In
the event that a final determination is made that the Partnership is not so
obligated for any amount paid by it to a particular Indemnified Party, such
Indemnified Party will refund such amount within 60 days of such final
determination, and in the event that a final determination is made that the
Partnership is so obligated for any amount not paid by the Partnership to a
particular Indemnified Party, the Partnership will pay such amount to such
Indemnified Party within 60 days of such final determination.
(c) Notwithstanding anything to the contrary contained in Section
11.5(a) above, neither the General Partners nor any of their Affiliates nor any
Person acting as a broker-dealer with respect to the Units shall be indemnified
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
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Contributions, provided that such amount does not exceed the limitations set
forth in Section 12.2 hereof. The Acquisition and Advisory Fee shall be accrued
as Units are sold by the Partnership and shall be payable upon receipt by the
Partnership of such Capital Contributions, whether such fees relate to
properties which are acquired which are income-producing properties or raw land
to be developed or to properties which are not acquired. The General Partners
shall refund to the Partnership any such fees which are received in advance of
the services to be rendered and for which services are not subsequently
rendered. In addition to such fees, the Partnership shall bear any expenses of
independent appraisers, market analysts or other such Persons not affiliated
with the General Partners who may be engaged to evaluate potential real estate
acquisitions and developments by or on behalf of the Partnership.
12.2 LIMITATIONS ON ACQUISITION FEES.
-------------------------------
(a) Acquisition and Advisory Fees paid in connection with the
organization of the Partnership and the purchase and development of Partnership
Properties and with respect to each particular Partnership Property shall be
paid only for services actually rendered, and in no event will the total of all
Acquisition Fees, including the Acquisition and Advisory Fees paid to the
General Partners or their Affiliates, exceed the 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 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
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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.
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
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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. Notwithstanding the
foregoing, the Partnership may not acquire from the General Partners or their
Affiliates any property which, on the effective date of the Prospectus, was
owned by such General Partner or Affiliate.
13.2 SALES AND LEASES TO THE GENERAL PARTNERS. The Partnership shall not
----------------------------------------
sell or lease any Partnership Property to the General Partners or their
Affiliates.
13.3 LOANS. No loans may be made by the Partnership to any of the General
-----
Partners or their Affiliates.
13.4 DEALINGS WITH RELATED PROGRAMS. Except as permitted by Sections
------------------------------
11.3(i) and 13.1 hereof, the Partnership shall not acquire property from or sell
property to any Person in whom any of the General Partners or any of their
Affiliates have an interest.
13.5 COMMISSIONS ON REINVESTMENT OR DISTRIBUTION. The Partnership shall
-------------------------------------------
not pay, directly or indirectly, a commission or fee (except as permitted under
Article XII hereof) to a General Partner in connection with the reinvestment or
distribution of the proceeds of the sale, exchange or financing of Partnership
Properties.
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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. Limited Partner suitability
records shall be maintained for at least six years. In addition, the General
Partners shall maintain an alphabetical list of the names, addresses and
business telephone numbers of the Limited Partners of the Partnership along with
the number of Units held by each of them (the "Participant List") as a part of
the books and records of the Partnership which shall be available for inspection
by any Limited Partner or his designated representative at the home office of
the Partnership upon the request of the Limited Partner. The Participant List
shall be updated at least quarterly to reflect changes in the information
contained therein. A copy of the Participant List shall be mailed to any
Limited Partner requesting the Participant List within ten (10) days of the
request. The copy of the Participant List to be mailed to a Limited Partner
shall be printed in alphabetical order, on white paper, and in readily readable
type size (in no event smaller than 10-point type). A reasonable charge for
copy work may be charged by the Partnership. The purposes for which a Limited
Partner may request a copy of the Participant 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
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<PAGE>
List to represent that the list is not requested for a commercial purpose
unrelated to such Limited Partner's interest in the Partnership. The remedies
provided hereunder to Limited Partners requesting copies of the Participant List
are in addition to, and shall not in any way limit, other remedies available to
Limited Partners under federal law or under the laws of any state.
15.2 REPORTS. The General Partners shall prepare or cause to be prepared
-------
the following reports:
(a) ACQUISITION REPORTS. At least quarterly within 60 days after the
-------------------
end of each quarter during which the Partnership has acquired real property, an
"Acquisition Report" of any real property acquisitions within the prior quarter
shall be sent to all Limited Partners. Such report shall describe the real
properties and all improvements contemplated to be developed thereon and include
a description of the geographic locale and of the market upon which the General
Partners are relying in projecting successful development and operation of the
properties. All facts which reasonably appear to the General Partners to
influence materially the value of the property shall be disclosed, including the
present or proposed use of the property and its suitability or adequacy for such
use and the terms of any material lease affecting the property. The Acquisition
Report shall also include, by way of illustration and not of limitation, a
statement of the date and amount of the appraised value, a statement of the
actual Purchase Price including terms of the purchase and an estimate of all
proposed subsequent expenditures for development or other improvement of the
property, a statement that title insurance and any required performance bonds or
other assurances in accordance with Section 11.3(k) hereof with respect to
builders have been or will be obtained on the property, a statement of the total
amount of cash expended by the Partnership to acquire each Partnership Property,
and a statement regarding the amount of proceeds of the Offering of Units (in
both dollar amount and as a percentage of the net proceeds of the Offering of
Units available for investment) which remain unexpended or uncommitted. In
addition, the Acquisition Report shall identify any real properties, by location
and a description of their general character, which the General Partners
presently intend to be acquired by or leased to the Partnership.
(b) ANNUAL REPORT. Within 120 days after the end of each fiscal year,
-------------
an annual report shall be sent to all the Limited Partners and Assignees which
shall include (i) a balance sheet as of the end of such fiscal year, together
with a profit and loss statement, a statement of cash flows and a statement of
Partners' capital for such year, which financial statements shall be prepared in
accordance with generally accepted accounting principles and shall be
accompanied by an auditor's report containing an opinion of the independent
certified public accountant for the Partnership; (ii) a Cash Flow statement
(which need not be audited); (iii) a report of the activities of the Partnership
for such year; (iv) a report on the distributions from (A) Cash Flow during such
period, (B) Cash Flow from prior periods, (C) proceeds from the disposition of
Partnership Property and investments, (D) reserves from the proceeds of the
Offering of Units, and (E) lease payments on net leases with builders and
sellers; and (v) a report setting forth the compensation paid to the General
Partners and their Affiliates during such year and a statement of the services
performed in consideration therefor. In addition, commencing eight years after
termination of the Offering, such annual report shall include a notification to
the Limited Partners of their right pursuant to Section 20.2 hereof to request
that the General Partners formally proxy the Limited Partners to determine
whether the assets of the Partnership should be liquidated. Such annual report
shall also include such other information as is deemed reasonably necessary by
the General Partners to advise the Limited Partners of the affairs of the
Partnership.
(c) QUARTERLY REPORTS. If and for as long as the Partnership is
-----------------
required to file quarterly reports on Form 10-Q with the Securities and Exchange
Commission, financial information substantially similar to the financial
information contained in each such report for a quarter shall be sent to the
Limited Partners within 60 days after the end of 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
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<PAGE>
an unaudited financial report for that quarter including a profit and loss
statement, a balance sheet and a cash flow statement. Such reports shall also
include such other information as is deemed reasonably necessary by the General
Partners to advise the Limited Partners of the affairs of the Partnership.
(d) REPORT OF FEES. The Partnership's annual and quarterly reports
--------------
on Form 10-K and 10-Q for any period during which the General Partners or any of
their Affiliates receive fees for services from the Partnership shall set forth
(i) a statement of the services rendered, and (ii) the amount of fees received.
(e) TAX INFORMATION. Within 75 days after the end of each fiscal
---------------
year (in the event that the fiscal year of the Partnership remains on a calendar
year basis, and within 120 days after the end of each fiscal year in the event
that the Partnership's fiscal year is changed to some annual period other than a
calendar year pursuant to Section 15.3 hereof), there shall be sent to all the
Limited Partners and Assignees all information necessary for the preparation of
each Limited Partner's federal income tax return and state income and other tax
returns in regard to jurisdictions where Partnership Properties are located.
(f) ERISA REPORT. The General Partners shall furnish each Limited
------------
Partner an annual statement of estimated Unit value. Such annual statement
shall report the value of each Unit based upon the General Partners' estimate of
the amount a holder thereof would receive if Partnership Properties were sold as
of the close of the Partnership's fiscal year and if the proceeds therefrom
(without reduction for selling expenses), together with any other funds of the
Partnership, were distributed in a liquidation of the Partnership (provided
that, with respect to the first three full fiscal years following termination of
the Offering the value of a Unit shall be deemed to be $10.00). In addition,
the General Partners shall obtain the opinion of an independent third party that
their estimate of Unit value is reasonable and was prepared in accordance with
appropriate methods for valuing real estate. The estimated Unit value shall be
reported to the Limited Partners in the next annual or quarterly report on Form
10-K or 10-Q sent to the Limited Partners following the completion of the
valuation process.
(g) PERFORMANCE REPORTING. The Partnership's annual and quarterly
---------------------
reports on Form 10-K and 10-Q shall set forth the year-to-date amount of cash
flow available for distribution, as such term is generally defined in existing
Guidelines for Partnership Agreement Provisions issued by the International
Association for Financial Planning, and shall contain a detailed reconciliation
of the Partnership's net income for financial reporting purposes to the
Partnership's cash flow available for distribution for the periods covered by
the report. In addition, the notes to the Partnership's financial statements
included in its annual reports on Form 10-K shall contain a detailed
reconciliation of the Partnership's net income for financial reporting purposes
to net income for tax purposes for the periods covered by the report.
(h) EXPENSE REPORTING. The notes to the Partnership's financial
-----------------
statements included in its annual reports on Form 10-K shall contain a category-
by-category breakdown of the general and administrative expenses incurred by the
Partnership for the periods covered by the report. This breakdown shall reflect
each type of general and administrative expense incurred by the Partnership
(e.g. investor relations, independent accountants, salaries, rent, utilities,
insurance, filing fees, legal fees, etc.) and the amount charged to the
Partnership for each category of expense incurred.
(i) OTHER REPORTS. The General Partners shall cause to be prepared
-------------
and timely filed with appropriate federal and state regulatory and
administrative bodies all reports to be filed with such entities under then
currently applicable laws, rules and regulations. Such reports shall be
prepared on the accounting or reporting basis required by such regulatory
bodies. Any Limited Partner shall be provided with a copy of any such report
upon request without expense to him.
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<PAGE>
(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.
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
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<PAGE>
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 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;
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<PAGE>
(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 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.
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ARTICLE XVII
WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS;
ASSIGNABILITY OF GENERAL PARTNERS'
AND LIMITED PARTNERS' INTERESTS
17.1 WITHDRAWAL OR REMOVAL OF GENERAL PARTNERS; ADMISSION OF SUCCESSOR OR
--------------------------------------------------------------------
ADDITIONAL GENERAL PARTNERS.
---------------------------
(a) Except as provided in this Article XVII, until the dissolution of
the Partnership, neither General Partner shall take any voluntary step to
dissolve itself or to withdraw from the Partnership. In addition, Leo F. Wells,
III hereby agrees with the Partnership and its Partners that he will not sell or
otherwise voluntarily transfer or convey a majority or controlling interest in
the outstanding stock of Wells Real Estate Funds, Inc. to any non-affiliated
person or entity without first obtaining a Majority Vote of the Limited Partners
consenting to any such sale, transfer or conveyance.
(b) With the consent of all the other General Partners and a Majority
Vote of the Limited Partners after being given 90 days written notice, any
General Partner may at any time designate one or more Persons to be additional
General Partners, with such participation in such General Partner's interest as
such General Partner and such successor or additional General Partners may agree
upon, provided that the interests of the Limited Partners shall not be affected
thereby.
(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.
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(e) Any voluntary withdrawal by any General Partner from the
Partnership or any sale, transfer or assignment by such General Partner of his
interest in the Partnership shall be effective only upon the admission in
accordance with paragraph (b) of this Section 17.1 of an additional General
Partner.
(f) A General Partner shall cease to be such upon the occurrence of
an Event of Withdrawal of such General Partner; provided, however, the last
remaining General Partner shall not cease to be a General Partner until 120 days
after the occurrence of an Event of Withdrawal.
17.2 LIMITED PARTNERS' INTEREST. Except as specifically provided in this
--------------------------
Article XVII, none of the Limited Partners shall sell, transfer, encumber or
otherwise dispose of, by operation of law or otherwise, all or any part of his
or its interest in the Partnership. No assignment shall be valid or effective
unless in compliance with the conditions contained in this Agreement, and any
unauthorized transfer or assignment shall be void ab initio.
17.3 RESTRICTIONS ON TRANSFERS.
-------------------------
(a) No Unit may be transferred, sold, assigned or exchanged if the
transfer or sale of such Unit, when added to the total of all other transfers or
sales of Units within the period of 12 consecutive months prior to the proposed
date of sale or exchange, would, in the opinion of counsel for the Partnership,
result in the termination of the Partnership under Section 708 of the Code
unless the Partnership and the transferring holder shall have received a ruling
from the IRS that the proposed sale or exchange will not cause such termination.
(b) No transfer or assignment may be made if, as a result of such
transfer, a Limited Partner (other than one transferring all of his Units) will
own fewer than the minimum number of Units required to be purchased under
Section 8.5(b) hereof, unless such transfer is made on behalf of a Retirement
Plan, or such transfer is made by gift, inheritance, intra-family transfer,
family dissolution or to an Affiliate.
(c) No transfer or assignment of any Unit may be made if counsel for
the Partnership is of the opinion that such transfer or assignment would be in
violation of any state securities or "Blue Sky" laws (including investment
suitability standards) applicable to the Partnership.
(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
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shall exercise any residual powers remaining in him as a Limited Partner in
favor of or in the interest or at the direction of the Assignee.
(f) With the exception of intra-family transfers or transfers made by
gift, inheritance or family dissolution, no transfer or assignment of any
interest in the Partnership shall be made unless the transferee has either (i) a
net worth of at least $45,000 and an annual gross income of at least $45,000 or
(ii) a net worth of at least $150,000 or (iii) satisfied any higher suitability
standards that may apply in the transferee's state of primary residence. For
purposes of the foregoing standards, net worth is computed exclusive of home,
furnishings and automobiles. Each transferee will be required to represent that
he complies with the applicable standards, that he is purchasing in a fiduciary
capacity for a Person meeting such standards, or that he is purchasing with
funds directly or indirectly supplied by a donor who meets such standards. No
transfer may be made to any Person who does not make such representation.
(g) No Limited Partner may transfer or assign any Units or beneficial
ownership interests therein (whether by sale, exchange, repurchase, redemption,
pledge, hypothecation or liquidation), and any such purported transfer shall be
void ab initio and shall not be recognized by the Partnership or be effective
for any purpose unless (i) the General Partners determine, in their sole
discretion, that the Partnership would be able to satisfy any of the secondary
market safe harbors contained in Treasury Regulations Section 1.7704-1 (or any
other applicable safe harbor from publicly traded partnership status which may
be adopted by the IRS) for the Partnership's taxable year in which such transfer
otherwise would be effective, or (ii) the Partnership has received an opinion of
counsel satisfactory to the General Partners or a favorable IRS ruling that any
such transfer will not result in the Partnership's being classified as a
publicly traded partnership for federal income tax purposes. The Limited
Partners agree to provide all information with respect to a proposed transfer
that the General Partners deem necessary or desirable in order to make such
determination, including but not limited to, information as to whether the
transfer occurred on a secondary market (or the substantial equivalent thereof).
(h) During the initial six years following the year of purchase of
their units (or longer if required to satisfy the commissions due with respect
to such Units), 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
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substituted Limited Partners as of the commencement of the first fiscal quarter
of the Partnership following the fiscal quarter which includes the effective
date of the assignment and in which the foregoing conditions are satisfied,
notwithstanding the time consumed in preparing the documents necessary to
effectuate the substitution.
17.5 ASSIGNMENT OF LIMITED PARTNERSHIP INTEREST WITHOUT SUBSTITUTION.
---------------------------------------------------------------
Subject to the transfer restrictions of Section 17.3, a Limited Partner shall
have the right to assign all or part of such Limited Partner's interest in Units
by a written instrument of assignment. The assigning Limited Partner shall
deliver to the General Partners a written instrument of assignment in form and
substance satisfactory to the General Partners, duly executed by the assigning
Limited Partner or his personal representative or authorized agent, including an
executed acceptance by the Assignee of all the terms and provisions of this
Agreement and the representations of the assignor and Assignee that the
assignment was made in accordance with all applicable laws and regulations
(including investment suitability requirements). Said assignment shall be
accompanied by such assurance of genuineness and effectiveness and by such
consents or authorizations of any governmental or other authorities as may be
reasonably required by the General Partners. The Partnership shall recognize
any such assignment not later than the last day of the calendar month following
receipt of notice of the assignment and all required documentation, and an
Assignee shall be entitled to receive distributions and allocations from the
Partnership attributable to the Partnership interest acquired by reason of any
such assignment from and after the first day of the fiscal quarter following the
fiscal quarter in which the assignment of such interest takes place. The
Partnership and the General Partners shall be entitled to treat the assignor of
such Partnership interest as the absolute owner thereof in all respects, and
shall incur no liability for distributions made in good faith to such assignor,
until such time as the written instrument of assignment has been received by the
Partnership and recorded on its books.
17.6 WITHDRAWAL OF LIMITED PARTNER. Except as otherwise specifically
-----------------------------
permitted by this Agreement, no Limited Partner shall be entitled to withdraw or
retire from the Partnership.
17.7 DEATH, LEGAL INCOMPETENCY OR DISSOLUTION OF LIMITED PARTNER. Upon the
-----------------------------------------------------------
death, legal incompetency or dissolution of a Limited Partner, the estate,
personal representative, guardian or other successor in interest of such Limited
Partner shall have all of the rights and be liable for all the obligations of
the Limited Partner in the Partnership to the extent of such Limited Partner's
interest therein, subject to the terms and conditions of this Agreement, and,
with the prior written consent of the General Partners, which may be withheld at
their sole discretion, may be substituted for such Limited Partner.
17.8 ELIMINATION OR MODIFICATION OF RESTRICTIONS. Notwithstanding any of
-------------------------------------------
the foregoing provisions of this Article XVII, the General Partners may amend
this Agreement to eliminate or modify any restriction on substitution or
assignment at such time as the restriction is no longer necessary.
ARTICLE XVIII
LOANS TO PARTNERSHIP
18.1 AUTHORITY TO BORROW. The General Partners shall cause the Partnership
-------------------
to purchase and own all Partnership Properties on an unleveraged basis, and the
Partnership shall not incur any indebtedness except for loans which are
authorized pursuant to Section 11.3(e) hereof.
18.2 LOANS FROM PARTNERS. If any Partner shall make any loan or loans to
-------------------
the Partnership or advance money on its behalf pursuant to Section 11.3(e)
hereof, the amount of any such loan or advance shall not be
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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.
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;
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(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;
(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.
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Each of such agreements, certificates, instruments and documents shall be
in such form as the General Partners and legal counsel for the Partnership shall
deem appropriate. Each Limited Partner hereby authorizes the General Partners to
take any further action which the General Partners shall consider necessary or
convenient in connection with any of the foregoing, hereby giving said attorney-
in-fact full power and authority to do and perform each and every act and thing
whatsoever requisite, necessary or convenient to be done in and about the
foregoing as fully as said Limited Partner might or could do if personally
present and hereby ratifies and confirms all that said attorney-in-fact shall
lawfully do or cause to be done by virtue hereof. The power hereby conferred
shall be deemed to be a power coupled with an interest, in recognition of the
fact that each of the Partners under this Agreement will be relying upon the
power of the General Partners to act as contemplated by this Agreement in any
filing and other action by them on behalf of the Partnership, and shall survive
the bankruptcy, death, adjudication of incompetence or insanity, or dissolution
of any Person hereby giving such power and the transfer or assignment of all or
any part of the Units of such Person; provided, however, that in the event of
the transfer by a Limited Partner of all of his Units, the foregoing power of
attorney of a transferor Limited Partner shall survive such transfer only until
such time as the transferee shall have been admitted to the Partnership as a
substituted Limited Partner and all required documents and instruments shall
have been duly executed, sworn to, filed and recorded to effect such
substitution.
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;
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(d) The retirement or withdrawal of a General Partner unless (i) the
remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, the Limited Partners, within 120 days from the date
of such event, elect by Majority Vote to continue the business of the
Partnership and elect a new General Partner pursuant to Section 20.3 below;
(e) The effective date of the removal of a General Partner unless (i)
the remaining General Partner, if any, elects to continue the business of the
Partnership within 90 days from the date of such event, or (ii) if there is no
remaining General Partner, Limited Partners, prior to the effective date of such
removal, elect by Majority Vote to continue the business of the Partnership and
elect a new General Partner pursuant to Section 20.3 below;
(f) The effective date of an Event of Withdrawal of a General Partner
unless (i) the remaining General Partner, if any, elects to continue the
business of the Partnership within 90 days from the date of such Event of
Withdrawal, or (ii) if there is no remaining General Partner, the Limited
Partners, within 120 days from the date of such Event of Withdrawal, elect by
Majority Vote to continue the business of the Partnership and elect a new
General Partner pursuant to Section 20.3 below;
(g) The sale or other disposition of all of the interests in real
estate (including, without limitation, purchase money security interests and
interests in joint ventures or other entities owning interests in real estate)
of the Partnership; or
(h) The election by the General Partners to terminate the
Partnership, without the consent of any Limited Partner, in the event that
either (i) the Partnership's assets constitute "plan assets," as such term is
defined for purposes of ERISA, or (ii) any of the transactions contemplated by
this Agreement constitute a "prohibited transaction" under 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
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appraised values, or such other information as the General Partners deem
appropriate and informative, provided in all such cases that the furnishing of
such information to Limited Partners shall not contravene applicable law or
applicable rules and regulations of the Securities and Exchange Commission
regarding the solicitation of proxies. The Proxy to Liquidate shall contain a 45
day voting deadline, and the actual voting results shall be tabulated by the
Partnership's independent accountants who will receive the votes directly from
the Limited Partners. The General Partners shall disclose the complete voting
results for the Proxy to Liquidate in the Partnership's next annual or quarterly
report on Form 10-K or 10-Q sent to the Limited Partners for the period
following the date on which voting was completed. If a Majority Vote of the
Limited Partners is cast in favor of a liquidation of the Partnership, the
assets of the Partnership shall be fully liquidated within 30 months from the
close of the voting deadline applicable to the Proxy to Liquidate. Under no
circumstances, however, shall the General Partners direct the Partnership to
make distributions "in kind" of any Partnership Properties to the Limited
Partners.
20.3 LIMITED PARTNERS' RIGHT TO CONTINUE THE BUSINESS OF THE PARTNERSHIP.
-------------------------------------------------------------------
Upon the occurrence of an event specified in paragraphs (d), (e) or (f) of
Section 20.1 above with respect to the last remaining General Partner, the
Limited Partners shall have a right prior to the effective date of the
occurrence of any such event to elect to continue the business of the
Partnership pursuant to the provisions of this Section 20.3. The effective date
of the events specified in paragraphs (d), (e) and (f) of Section 20.1 above
with respect to the last remaining General Partner shall be 120 days after the
date of any such event. In the case of the occurrence of an event specified in
paragraphs (d), (e) or (f) of Section 20.1 above, the Limited Partners may
elect, by Majority Vote within 120 days from the date of such event, to continue
the business of the Partnership and elect one or more new General Partners. The
new General Partner or General Partners so elected shall execute, deliver,
acknowledge and record an amendment to the Certificate and such other documents
and instruments as may be necessary or appropriate to effect such change.
20.4 PAYMENT TO WITHDRAWN OR REMOVED GENERAL PARTNER. Upon the retirement,
-----------------------------------------------
removal or Event of Withdrawal of a General Partner, the Partnership shall be
required to pay such General Partner any amounts then accrued and owing to such
General Partner under this Agreement. The method of payment to any such General
Partner must be fair and must protect the solvency and liquidity of the
Partnership. In addition, the Partnership shall have the right, but not the
obligation, to terminate any such General Partner's interest in Partnership
income, losses, distributions and capital upon payment to him of an amount equal
to the value of his interest in Partnership income, losses, distributions and
capital on the date of such retirement, removal or Event of Withdrawal. Such
interest shall be computed taking into account the General Partner's economic
interest in the Partnership under Articles IX and X hereof, and shall be based
upon the market 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
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General Partner's interest, upon the vote of a majority of the Limited Partners,
the Partnership may sell such interest to one or more Persons who may be
Affiliates of the remaining General Partner or General Partners and admit such
Person or Persons to the Partnership as substitute General Partner or Partners;
provided, however, that the purchase price to be paid to the Partnership for the
Partnership interest of the former General Partner shall not be less than its
fair market value as determined by the appraisal described above. Such
substitute General Partner or Partners may pay said purchase price in
installments in the manner set forth above. In the event that such General
Partner's interest is not terminated by the Partnership pursuant to the
provisions set forth above, such interest shall convert automatically to a
special limited partnership interest having the same interest in the
Partnership's income, losses, distributions and capital as was attributable to
such interest as a General Partner. In either event, any such General Partner
who has retired, has been removed or with respect to which an Event of
Withdrawal has occurred shall have no further right to participate in the
management of the Partnership.
20.5 TERMINATION OF EXECUTORY CONTRACTS. Upon the removal or occurrence of
----------------------------------
an Event of Withdrawal of a General Partner, all executory contracts between
the Partnership and such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may be terminated and canceled by the Partnership without prior notice
or penalty. Such General Partner or any Affiliate thereof (unless such
Affiliate is also an Affiliate of a remaining or new General Partner or General
Partners) may also terminate and cancel any such executory contract effective
upon 60 days prior written notice of such termination and cancellation to the
remaining or new General Partner or General Partners, if any, or to the
Partnership.
ARTICLE XXI
DISTRIBUTION ON TERMINATION OF PARTNERSHIP
21.1 LIQUIDATION DISTRIBUTION. Upon a dissolution and final termination of
------------------------
the Partnership, the General Partners (or in the event of a General Partner's
removal or termination and, if there is no remaining General Partner, any other
Person selected by the Limited Partners) shall take account of the Partnership
assets and liabilities, and the assets shall be liquidated as promptly as is
consistent with obtaining the fair market value thereof, and the proceeds
therefrom, to the extent sufficient therefor, shall be applied and distributed
in accordance with Section 9.4 hereof.
21.2 TIME OF LIQUIDATION. A reasonable time shall be allowed for the
-------------------
orderly liquidation of the assets of the Partnership and the discharge of
liabilities to creditors so as to enable the General Partners to minimize the
losses upon a liquidation.
21.3 LIQUIDATION STATEMENT. Each of the Partners shall be furnished with a
---------------------
statement prepared or caused to be prepared by the General Partners, which shall
set forth the assets and liabilities of the Partnership as of the date of
complete liquidation. Upon compliance with the foregoing distribution plan, the
Limited Partners shall cease to be such, 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-52
<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.
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.
A-53
<PAGE>
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-54
<PAGE>
IN WITNESS WHEREOF, the undersigned hereby execute this Amended and
Restated Agreement of Limited Partnership of Wells Real Estate Fund XII, L.P.
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-55
<PAGE>
EXHIBIT B
FORM OF SUBSCRIPTION AGREEMENT AND
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
<PAGE>
EXHIBIT "B"
SUBSCRIPTION AGREEMENT
To: WELLS REAL ESTATE FUND XII, 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, 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
March 22, 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;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
B-2
<PAGE>
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S
RULES."
[Last amended effective January 21, 1988.]
SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
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 Maine, Massachusetts, Minnesota, Missouri 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, L.P. SUBSCRIPTION AGREEMENT
<TABLE>
---------------------------------------------------------------------------------------------------------------------------------
INVESTOR PLEASE FOLLOW THESE INSTRUCTIONS CAREFULLY. FAILURE TO DO SO MAY RESULT IN THE
INSTRUCTIONS REJECTION OF YOUR SUBSCRIPTION. ALL INFORMATION ON THE SUBSCRIPTION
AGREEMENT SIGNATURE PAGE SHOULD BE COMPLETED AS FOLLOWS:
---------------------------------------------------------------------------------------------------------------------------------
<S> <C>
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 $9.40 per Unit
purchased upon subscription. For the next six years following the year of your purchase
(or longer if required to satisfy the commissions due with respect to your Units), you
will have a 1% sales commission ($.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 Please check the appropriate box to identify the status of units (Cash Preferred UNITS 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.
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</TABLE>
B-5
<PAGE>
<TABLE>
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<S> <C>
4. REGISTRATION NAME Please enter the exact name in which the units are to be held. For joint tenants with right
AND ADDRESS of survivorship or tenants in common, include the names of both investors. In the case of
partnerships or corporations, include the name of an individual to whom correspondence will be
addressed. Trusts should include the name of the trustee. All investors must complete the space
provided for taxpayer identification number or social security number. By signing in Section 6,
the investor is certifying that this number is correct. Enter the mailing address and telephone
numbers of the registered owner of this investment. In the case of a Qualified Plan or trust,
this will be the address of the trustee. Indicate the birthdate and occupation of the registered
owner unless the registered owner is a partnership, corporation or trust.
---------------------------------------------------------------------------------------------------------------------------------
5. INVESTOR NAME AND Complete this Section only if the investor's name and address is different from the
ADDRESS registration name and address provided in Section 4. If the units are registered in the name of a
trust, enter the name, address, telephone number, social security number, birthdate and
occupation of the beneficial owner of the trust.
6. SUBSCRIBER Please separately initial each representation made by the investor where indicated.
SIGNATURES Except in the case of fiduciary accounts, the investor may not grant any person a power of
attorney to make such representations on his or her behalf. Each investor must sign and date this
Section. If title is to be held jointly, all parties must sign. If the registered owner is a
partnership, corporation or trust, a general partner, officer or trustee of the entity must sign.
PLEASE NOTE THAT THESE SIGNATURES DO NOT HAVE TO BE NOTARIZED.
---------------------------------------------------------------------------------------------------------------------------------
7. ADDITIONAL Please check if you plan to make one or more additional investments in the
INVESTMENTS Partnership. All additional investments must be in increments of at least $25 and, unless
otherwise indicated on a new Subscription Agreement Signature Page, you will be deemed to have
elected the same status of units (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.
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</TABLE>
B-6
<PAGE>
<TABLE>
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<S> <C>
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.
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</TABLE>
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Partnership.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
B-7
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C>
----------------------------------------------
SEE PRECEDING PAGE Special Instructions:
FOR INSTRUCTIONS
-----------------------------------------------
WELLS REAL ESTATE FUND XII, L.P.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
(1)========INVESTMENT==========================================================================================================
-----------------------------------------
MAKE INVESTMENT CHECK PAYABLE TO:
-------------- ---------------- NATIONSBANK, N.A.,
# of Units Total $ Invested 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 (Allocated certain tax deductions but no
of cash flow from operations) distributions 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____________ under
For the Benefit of _____________________ 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) ========= 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 least $45,000 and
had during the last tax year or estimate that I will have during the current tax
year a minimum of $45,000 annual gross income, or that I meet the higher suitability
requirements imposed by my state of primary residence as set forth in the Prospectus
under "Suitability Standards." ---------- ----------
Initials Initials
(d) If I am a California resident or if the Person to whom I subsequently propose to
assign or transfer any units is a California resident, I may not consummate a sale or
transfer of my units, or any interest therein, or receive any consideration therefor,
without the prior written consent of the Commissioner of the Department of
Corporations of the State of California, except as permitted in the Commissioner's
Rules, and I understand that my units, or any document evidencing my units, will bear
a legend reflecting the substance of the foregoing understanding. ---------- ----------
Initials Initials
(e) ARKANSAS AND TEXAS RESIDENTS ONLY: I am purchasing the units for my own account and
acknowledge that the investment is not liquid. ---------- ----------
Initials Initials
I declare that the information supplied above is true and correct and may be relied upon by the General Partners in connection
with my investment as a limited partner in the Partnership. Under penalties of perjury, by signing this Signature Page, I
hereby certify that (a) I have provided herein my correct Taxpayer Identification Number, and (b) I am not subject to back-up
withholding as a result of a failure to report all interest or dividends, or the Internal Revenue Service has notified me that
I am no longer subject to back-up withholding.
--------------------------------------- --------------------------------------- ------------------------------------
--------------------------------------- --------------------------------------- ------------------------------------
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
(7)========= ADDITIONAL INVESTMENTS ================================================================================================
Please check if you plan to make additional investments in the Partnership: [_]
[If additional investments are made, please include social security number or other taxpayer identification number on your
check.]
[All additional investments must be made in increments of at least $25.]
(8)========= DISTRIBUTIONS =========================================================================================================
8a. Check the following box to participate in the distribution reinvestment plan: [_]
8b. Complete the following section only to direct distributions to a party other than registered owner:
-------------------------------------------------------------------------------------------------
Name
-------------------------------------------------------------------------------------------------
Account Number
-------------------------------------------------------------------------------------------------
Street Address or P.O. Box
-------------------------------------------------------------------------------------------------
City State Zip Code
---------------------------------------- ---------- -----------------------
(9)========= BROKER-DEALER =========================================================================================================
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete order. Broker-Dealer warrants that it is a duly
licensed Broker-Dealer and may lawfully offer Units in the state designated as the investor's address or the state in which the
sale was made, if different. The Broker-Dealer or authorized representative warrants that he has reasonable grounds to believe
this investment is suitable for the subscriber as defined in Section 3(b) of Appendix F and that he has informed subscriber of
all aspects of liquidity and marketability of this investment as required by Section 4 of Appendix F (Attachment No. 1 to
Dealer Agreement).
--------------------------------------------------------- -----------------
Broker-Dealer Name Telephone No. ( )
--------------------------------------------------------- -----------------
Broker-Dealer Street
Address or P.O. Box
------------------------------------------------------------------------------------------------------
City State Zip Code
------------------------ ------------------------ -----------------
--------------------------------------------------------- -----------------
Registered
Representative Name Telephone No. ( )
------------------------------------------------------------------------------------------------------
Reg. Rep. Street
Address or P.O. Box
------------------------------------------------------------------------------------------------------
City State Zip Code
--------------------------------------------------- ---------------------------------------------------------------------
--------------------------------------------------- ---------------------------------------------------------------------
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s) made payable to
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 XII, L.P.
____________________________ ________________________________________________________________________ ___________________
Broker-Dealer # Registered Representative # Account #
------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
ALPHABETICAL INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
Additional Information................................................ 124
Compensation of the General Partners and Affiliates................... 47
Conflicts of Interest................................................. 50
Description of the Units.............................................. 67
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.................................................. 126
Glossary.............................................................. 125
Investment by Tax-Exempt Entities and ERISA
Considerations................................................... 88
Investment Objectives and Criteria.................................... 30
Legal Opinions........................................................ 124
Management............................................................ 40
Management's Discussion and Analysis of Financial
Condition and Results of Operations.............................. 76
Plan of Distribution.................................................. 117
Prior Performance Summary............................................. 57
Prior Performance Tables.............................................. 150
Real Property Investments............................................. 76
Reports to Investors.................................................. 116
Risk Factors.......................................................... 9
Suitability Standards................................................. 26
Summary of the Offering............................................... 1
Summary of Partnership Agreement...................................... 78
Supplemental Sales Material........................................... 123
</TABLE>
UNTIL JUNE 20, 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.
Minimum Offering of $1,250,000
------------------------------
PROSPECTUS
------------------------------
WELLS INVESTMENT
SECURITIES, INC.
March 22, 1999
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
SUPPLEMENT NO. 1 DATED SEPTEMBER 1, 1999 TO THE PROSPECTUS
DATED MARCH 22, 1999
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Fund XII, L.P. dated March 22, 1999. Unless
otherwise defined in this supplement, capitalized terms used in this supplement
shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(i) The status of the offering of units of limited partnership interest
in the partnership;
(ii) Revisions to the "Management" section of the Prospectus;
(iii) The Joint Venture Partnership Agreement entered into among the
partnership, Wells Operating Partnership, L.P. (Wells OP) and Wells Real Estate
Fund XI, L.P. (Wells Fund XI);
(iv) The acquisition of an interest in a manufacturing and office
building in Greenville County, South Carolina (the EYBL CarTex Building);
(v) The acquisition of an interest in an office building in Johnson
County, Kansas (the Sprint Building);
(vi) The acquisition of an interest in an industrial building in Chester
County, Pennsylvania (the Johnson Matthey Building);
(vii) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus; and
(viii) Audited financial statements relating to the EYBL CarTex Building,
the Sprint Building, the Johnson Matthey Building and unaudited pro forma
financial statements of the partnership.
Status of the Offering
Pursuant to the prospectus, the offering of units in the partnership
commenced on March 22, 1999. The partnership commenced operations on June 1,
1999, upon the acceptance of subscriptions for the minimum offering of
$1,250,000 (125,000 units). As of August 20, 1999, the partnership had raised a
total of $5,442,407 in offering proceeds (544,240 units).
1
<PAGE>
Management
Brian M. Conlon is no longer acting as an executive officer of Wells
Capital, Inc. Although the express terms of his severance package have not been
agreed to as of the date of this supplement and he has not actually resigned
from office, the Board of Directors of Wells Capital, Inc. has elected Douglas
P. Williams and Stephen G. Franklin as successor Senior Vice Presidents of Wells
Capital, Inc. effective as of July 30, 1999. In addition, Mr. Williams was
elected as successor Assistant Secretary.
Stephen G. Franklin, Ph.D. most recently served as President of Global
Access Learning, an international executive education and management development
firm. From 1997 to 1999, Dr. Franklin served as President, Chief Academic
Officer and Director of EduTrek International, a publicly traded provider of
international post-secondary education that owns the American InterContinental
University, with campuses in Atlanta, Ft. Lauderdale, Los Angeles, Washington,
D.C., London and Dubai. While at EduTrek, he was instrumental in developing the
Masters and Bachelors of Information Technology, International MBA and Adult
Evening BBA programs. Prior to joining EduTrek, Dr. Franklin was Associate Dean
of the Goizueta Business School at Emory University and a former tenured
Associate Professor of Business Administration. He served on the founding
Executive MBA faculty, and has taught graduate, undergraduate and executive
courses in Management and Organizational Behavior, Human Resources Management
and Entrepreneurship. He is also co-founder and Director of the Center for
Healthcare Leadership in the Emory University School of Medicine. Dr. Franklin
was a frequent guest lecturer at universities throughout North America, Europe
and South Africa.
In 1984, Dr. Franklin took a sabbatical from Emory University and became
Executive Vice President and a principal shareholder of Financial Service
Corporation (FSC), an independent financial planning broker-dealer. Dr. Franklin
and the other shareholders of FSC later sold their interests in FSC to Mutual of
New York Life Insurance Company.
Douglas P. Williams served as Vice President and Controller of OneSource,
Inc., a leading supplier of janitorial and landscape services, from 1996 to 1999
where he was responsible for corporate-wide accounting activities and financial
analysis. Mr. Williams was employed by ECC International Inc. (ECC), a supplier
to the paper industry and to the paint, rubber and plastic industries, from 1982
to 1995. While at ECC, Mr. Williams served in a number of key accounting
positions, including Corporate Accounting Manager for U.S. Operations, Division
Controller for the Americas Region and Corporate Controller for the America/
Pacific Division. Prior to joining ECC and for one year after leaving ECC, Mr.
Williams was employed by Lithonia Lighting, a manufacturer of lighting fixtures,
as a Cost and General Accounting Manager and Director of Planning and Control.
Mr. Williams started his professional career as an auditor for KPMG Peat Marwick
LLP.
Mr. Williams is a member of the American Institute of Certified Public
Accountants and the Georgia Society of Certified Public Accountants. Mr.
Williams received a bachelor of arts degree from Dartmouth College and a Masters
of Business Administration degree from the Amos Tuck School of Graduate Business
Administration at Dartmouth College.
2
<PAGE>
The Wells Fund XI - Fund XII - REIT Joint Venture
On May 1, 1999, Wells OP and Wells Fund XI entered into a joint venture
partnership agreement for the purpose of acquiring, owning, leasing, operating
and managing real properties. On June 21, 1999, the joint venture partnership
agreement was amended to admit the partnership as a joint venture partner. The
joint venture partnership is known as The Wells Fund XI - Fund XII - REIT Joint
Venture (the XI-XII-REIT Joint Venture). As of August 20, 1999, the partnership
had contributed $2,500,000 and held an equity percentage interest in the joint
venture of 11.01%; Wells OP had contributed $12,193,732 and held an equity
percentage interest in the joint venture of 53.67%; and Wells Fund XI had
contributed $8,024,797 and held an equity percentage interest in the joint
venture of 35.32%. All income, loss, profit, net cash flow, resale gain and sale
proceeds of the XI-XII-REIT Joint Venture are allocated and distributed between
the partnership, Wells OP and Wells Fund XI based upon their respective capital
contributions to the joint venture.
Wells OP is acting as the initial Administrative Venturer of the XI-XII-
REIT Joint Venture and, as such, is responsible for establishing policies and
operating procedures with respect to the business and affairs of the joint
venture. However, approval of the partnership and Wells Fund XI will be required
for any major decision or any action which materially affects such joint venture
or its real properties.
The EYBL CarTex Building
Purchase of the EYBL CarTex Building. On May 18, 1999, Wells Real Estate, LLC -
-------------------------------------
SC I (Wells LLC), a limited liability company which is a wholly owned subsidiary
of the XI-XII- REIT Joint Venture, acquired the EYBL CarTex Building from
Liberty Property Limited Partnership, a Pennsylvania limited partnership
(Liberty), pursuant to an Agreement of Sale and Purchase between Liberty and
Wells Capital, Inc. Liberty is not in any way affiliated with the partnership or
the general partners.
Wells Capital, Inc., as original purchaser under the agreement, assigned
its rights under the agreement to Wells LLC at closing. The purchase price paid
for the EYBL CarTex Building was $5,085,000. Wells LLC also incurred additional
acquisition expenses in connection with the purchase of the EYBL CarTex
Building, including attorneys' fees, recording fees and other closing costs, of
approximately $37,000.
Wells OP contributed $3,592,000 and Wells Fund XI contributed $1,530,000 to
the XI-XII-REIT Joint Venture for their respective share of the acquisition
costs of the EYBL CarTex Building.
Description of the Building and the Site. The EYBL CarTex Building is an
-----------------------------------------
industrial building consisting of a total of 169,510 square feet comprised of
approximately 140,850 square feet of manufacturing space, 25,300 square feet of
two-story office space and 3,360 square feet of cafeteria/training space. The
building is constructed of concrete tilt-up panels and has an interior height of
28 feet. The construction of each portion of the building is very similar,
utilizing slabs-on-grade, CMU foundation walls at the truck docks, structural
tilt-up insulated concrete panels and structural steel columns on concrete
footings. Four dock-high doors with hydraulic dock levelers are provided along
the south side of the building. The exterior of the office area is made
primarily of a brick veneer.
3
<PAGE>
All roof and mezzanine floor structures are constructed of steel trusses,
beams and girders, with metal decking. Each portion of the building is protected
by a single-ply mechanically-fastened membrane roof system, which was
manufactured by J.P. Stevens. The manufacturer of the roof recently reviewed the
application and issued a ten-year warranty.
The property was developed in the early 1980s on a site of approximately 12
acres. The site is located at 111 SouthChase Boulevard in the SouthChase
Industrial Park, which is located adjacent to I-385 in southwest Greenville,
South Carolina. The site has easy access to I-85. The current configuration of
the parking lot allows for approximately 252 spaces for vehicles, which has
proven adequate for the current tenant. The landscaping at the facility is in
good condition and is consistent with the quality level of the other properties
in the complex.
An independent appraisal of the EYBL CarTex Building was prepared by CB
Richard Ellis, real estate appraisers, as of April 27, 1999. The appraisers
estimated the market value of the land and the leased fee interest subject to
the EYBL CarTex lease (described below) to be $5,250,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the EYBL CarTex Building will continue operating at a stabilized
level with EYBL CarTex, Inc. (EYBL CarTex) occupying 100% of the rentable area.
The value estimate set forth in the appraisal is not necessarily an accurate
reflection of the fair market value of the property.
Prior to closing, Wells LLC also obtained an environmental report prepared
by Law Engineering and Environmental Testing, Inc. evidencing that the
environmental condition of the land and the EYBL CarTex Building was
satisfactory.
Greenville County is the hub of the metropolitan statistical area (MSA)
which also includes Spartanburg, Anderson, Pickens and Cherokee Counties. During
the period from 1990 to 1998, Greenville County's labor force has grown by
approximately 12%. During that same time period, the unemployment rate in
Greenville County and the surrounding MSA has decreased significantly.
Within the last two decades, the economic base has diversified from the
once dominant textile industry toward other types of industries. During that
time period, several corporations, including Michelin, BMW Manufacturing
Corporation, Umbra Apparel and Boldwater Paper Products, have moved their North
American or national headquarters into the area. The largest and most
significant of these was the decision in 1992 by BMW Manufacturing Corporation
to construct a $600 million facility near Spartanburg. As of April 27, 1999,
this facility employed over 2,000 people. BMW's announcement led to the
relocation of several auto parts manufacturers into the region, as well as other
supportive industries. The result of the recent corporate relocations and the
marketing efforts of local authorities has been a substantial flow of capital
into the area, elevating metropolitan Greenville to the second highest MSA in
the nation in terms of capital investment.
The EYBL CarTex Lease. The entire 169,510 rentable square feet of the EYBL
---------------------
CarTex Building is currently leased to EYBL CarTex. The EYBL CarTex lease was
assigned to Wells LLC at the closing with the result that Wells LLC is now the
landlord under the lease.
4
<PAGE>
EYBL CarTex produces automotive textiles for BMW, as well as for Mercedes,
GM Bali, VW Mexico and Golf A4, and is 100% owned by EYBL International, AG,
Krems/Austria. This company, which was founded in 1868, had 2,000 employees at
the end of 1998 and sales in 1998 of $260 million. EYBL International is the
world's largest producer of circular knit textile products and loop pile plushes
for the automotive industry. It has plants in Austria, Germany, Hungary,
Slovakia, Brazil and the U.S. (the EYBL CarTex Building). Recent financial
information for EYBL International is as follows:
<TABLE>
<CAPTION>
($ U.S. millions*) 1998 1997 1996
------ ------ ------
<S> <C> <C> <C>
Sales $264.4 $200.4 $168.3
Net Income $ 9.4 $ 5.4 $ 2.1
Net Worth $ 49.7 $ 17.2 $ 12.3
---------------
</TABLE>
* Based upon the 4/8/99 conversion rate of 12.7 schillings to $1.0 U.S.
In North America, EYBL CarTex supplies customers in the U.S. and Mexico.
The capacity of this plant was raised in 1998 as a result of the contract with
VW Mexico and will consist of 16 circular knitting machines as of March 1999.
EYBL CarTex does not produce separate financial statements.
The initial term of the EYBL CarTex lease is ten years, which commenced on
March 1, 1998, and expires in February 2008. EYBL CarTex has the right to extend
the lease for two additional five year periods of time. Each extension option
must be exercised by giving notice to the landlord at least 12 months prior to
the expiration date of the then-current lease term.
The base rent payable under the EYBL CarTex lease for the remainder of the
lease term is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------- ------------ ------------
<S> <C> <C>
2 $508,530.00 $42,377.50
3 $508,530.00 $42,377.50
4 $508,530.00 $42,377.50
5 $550,907.50 $45,908.95
6 $550,907.50 $45,908.95
7 $593,285.00 $49,440.42
8 $593,285.00 $49,440.42
9 $610,236.00 $50,853.00
10 $610,236.00 $50,853.00
--------------------------------------------------------------------------------
</TABLE>
The monthly base rent payable for each extended term of the EYBL CarTex
lease will be equal to the fair market rent as submitted by the landlord. If the
tenant does not agree to the proposed rent by the landlord for the extension
term, the tenant may require that the fair market rent be determined by three
appraisers, one of which will be selected by the tenant, one selected by the
landlord and one selected by the first two appraisers.
5
<PAGE>
Under the lease, EYBL CarTex is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the EYBL CarTex Building during the term of the
lease. In addition, EYBL CarTex is responsible for all routine maintenance and
repairs to the EYBL CarTex Building. Wells LLC, as landlord, is responsible for
maintenance of the footings and foundations and the structural steel columns and
girders associated with the building.
Under the lease, EYBL CarTex has an option to purchase the EYBL CarTex
Building at the expiration of the initial lease term by giving notice to Wells
LLC by March 1, 2007. Within 30 days after the landlord receives notice of the
tenant's intent to exercise its purchase option, the landlord is required to
submit a proposed purchase price for the EYBL CarTex Building based upon its
good faith estimate of the fair market value of the building. If the tenant does
not agree to the proposed purchase price, the tenant may require that the
purchase price be established by three appraisers, one selected by the tenant,
one selected by the landlord and one selected by the first two appraisers. In no
event, however, will the purchase price under the purchase option be less than
$5,500,000.
Pursuant to a Lease Commission Agreement dated February 12, 1998, between
Liberty and The McNamara Company, Inc., Wells LLC is required to pay annual
brokerage commissions of $13,787 to The McNamara Company, Inc., an unaffiliated
real estate broker which procured the EYBL CarTex lease.
Property Management Fees. Wells Management Company, Inc. (Wells Management), an
------------------------
affiliate of the partnership, has been retained to manage and lease the EYBL
CarTex Building. Wells LLC will pay management and leasing fees to Wells
Management in the amount of 4.5% of gross revenues from the EYBL CarTex Building
on a monthly basis.
The Sprint Building
Purchase of the Sprint Building. On July 2, 1999, the XI-XII-REIT Joint
-------------------------------
Venture acquired the Sprint Building, which is a three-story office building
containing approximately 68,900 rentable square feet located in Leawood, Johnson
County, Kansas, from Bridge Information Systems America, Inc. (Bridge), pursuant
to that certain Agreement for the Purchase and Sale of Property between Bridge
and Wells Capital, Inc. Bridge is not in any way affiliated with the partnership
or its general partners.
The rights under the agreement were assigned by Wells Capital, Inc, the
original purchaser under the contract, to the XI-XII-REIT Joint Venture at
closing. The purchase price paid for the Sprint Building was $9,500,000. The
joint venture also incurred additional acquisition expenses in connection with
the purchase of the Sprint Building, including attorneys' fees, recording fees
and other closing costs, of approximately $46,210.
The partnership contributed $1,000,000, Wells OP contributed $5,546,210 and
Wells Fund XI contributed $3,000,000 to the XI-XII-REIT Joint Venture for their
respective share of the acquisition costs for the Sprint Building.
Description of the Building and the Site. The Sprint Building is a three-story
----------------------------------------
office building containing approximately 68,900 rentable square feet. The
Sprint Building, which was completed in 1992, is a steel frame structure with a
pre-cast concrete panel exterior.
6
<PAGE>
An independent appraisal of the Sprint Building was prepared by CB Richard
Ellis, Inc., real estate appraisers, as of June 14, 1999, pursuant to which the
market value of the land and the leased fee interest subject to the Sprint lease
(described below) was estimated to be $10,100,000, in cash or terms equivalent
to cash. This value estimate was based upon a number of assumptions, including
that the Sprint Building will continue operating at a stabilized level with
Sprint Communications Company L.P. (Sprint) occupying 100% of the rentable area,
and is not necessarily an accurate reflection of the fair market value of the
property. The XI-XII-REIT Joint Venture also obtained an environmental report
prior to closing evidencing that the environmental condition of the land and the
Sprint Building were satisfactory.
Location of the Sprint Building. The Sprint Building is located approximately
-------------------------------
three miles south of the Kansas City Central Business District within the city
limits of Leawood and is adjacent to the Leawood Country Club near the affluent
Overland Park suburb of Kansas City. The location is within walking distance to
Ward Parkway Mall and offers convenient access to downtown Kansas City and I-
435, the interstate loop around Kansas City. Hewlett Packard and John Deere are
among the corporations located within the immediate vicinity of the Sprint
Building.
The site is a 7.12 acre tract of land located in Leawood, Johnson County,
Kansas. The majority of the neighborhood consists of older single and multiple
family residential properties built in the late 1930s and 1940s. There are hotel
and office buildings sparsely located throughout the area. Commercial
development is located east, south and west of the site with park land to the
north.
Kansas City is situated within 250 miles of both the geographic and
population centers of the United States. The ten county Kansas City metropolitan
area covers more than 5,000 square miles and includes more than 100
municipalities located in two states.
The metropolitan Kansas City area is a production and service center for
the midwest. With a General Motors and a Ford assembly plant located within the
area, Kansas City is the nation's third largest producer of automobiles. The
area is also home to U.S. Sprint, Hallmark Cards, Marion Laboratories, Farmland
Industries, Interstate Bakeries and United Telecommunications. It is also one of
12 regional centers for the federal government, serving as a focus for many
Missouri and Kansas state agencies, public and private health and educational
services, and midwestern financial, insurance, and real estate interests.
The Lease. The entire 68,900 rentable square feet of the Sprint Building is
---------
currently under a net Lease Agreement with Sprint dated February 14, 1997. The
landlord's interest in the Sprint lease was assigned to the XI-XII-REIT Joint
Venture at the closing.
The initial term of the Sprint lease is ten years which commenced on May
19, 1997 and expires on May 18, 2007. Sprint has the right to extend the lease
for two additional five year periods of time. Each extension option must be
exercised by giving notice to the landlord at least 270 days, but no earlier
than 365 days, prior to the expiration date of the then current lease term.
The monthly base rent payable under the Sprint lease will be $83,254.17
($14.50 per square foot) through May 18, 2002 and $91,866.67 ($16.00 per square
foot) for the remainder of the lease term. The monthly base rent payable for
each extended term of the lease will be
7
<PAGE>
equal to 95% of the then current market rate which is calculated as a full-
service rental rate less anticipated annual operating expenses on a rentable
square foot basis charged for space of comparable location, size and conditions
in comparable office buildings in the suburban south Kansas City, Missouri and
south Johnson County, Kansas areas. If the parties are unable to agree upon the
"current market rate" within 30 days of the date negotiations begin, the current
market rate shall be determined by three licensed real estate brokers, one of
which will be selected by Sprint, one of which will be selected by the joint
venture and the final appraiser shall be selected by the two appraisers
previously selected.
Under the Sprint lease, Sprint is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Sprint Building during the term of the
lease. In addition, Sprint is responsible for all routine maintenance and
repairs including the interior mechanical and electrical systems, the HVAC
system, the parking lot and the landscaping to the Sprint Building. The XI-XII-
REIT Joint Venture, as landlord, is responsible for repair and replacement of
the exterior, roof, foundation and structure.
The Sprint lease contains a termination option which may be exercised by
Sprint effective as of May 18, 2004 provided that Sprint has not exercised
either of the expansion options described below. Sprint must provide notice to
the XI-XII-REIT Joint Venture of its intent to exercise its termination option
on or before August 21, 2003. If Sprint exercises its termination option, it
will be required to pay the joint venture a termination payment equal to $6.53
per square foot.
Sprint also has an expansion option for an additional 20,000 square feet of
office space which may be exercised in two expansion phases. Sprint's expansion
rights involve building on unfinished ground level space that is currently used
as covered parking within the existing building footprint and shell. At each
exercise of an expansion option, the remaining lease term will be extended to be
a minimum of an additional five years from the date of the completion of such
expansion.
Sprint must give written notice to the XI-XII-REIT Joint Venture of its
election to exercise each expansion option at least 270 days prior to the date
Sprint will require delivery of the expansion space.
If Sprint exercises either expansion option, the XI-XII-REIT Joint Venture
will be required to construct the expansion improvements in accordance with the
specific drawings and plans attached as an exhibit to the Sprint lease. The
joint venture will be required to fund the expansion improvements and to fund to
Sprint a tenant finish allowance of $10 per square foot for the expansion space.
The base rental per square foot for the expansion space shall be determined
by the XI-XII-REIT Joint Venture taking into consideration the value of the
joint venture's work related to such expansion space and the base rental rate
increase per square foot applicable at the end of year five of the lease term.
The expansion space base rental rate shall be presented to Sprint no later than
45 days after delivery to the joint venture of each expansion notice. In no
event shall such rental rate be greater than the base rental rate for the Sprint
Building as of the date of the expansion space commencement date.
8
<PAGE>
Property Management Fees. Wells Management has been retained to manage and
------------------------
lease the Sprint Building. The joint venture shall pay management and leasing
fees to Wells Management in the amount of 4.5% of gross revenues from the Sprint
Building.
The Johnson Matthey Building
Purchase of the Johnson Matthey Building. On August 17, 1999, the XI-XII-REIT
-----------------------------------------
Joint Venture acquired the Johnson Matthey Building from Alliance Commercial
Properties Ltd. ("Alliance") pursuant to an Agreement of Sale and Purchase
between Alliance and Wells Capital, Inc. Alliance is not in any way affiliated
with the partnership or its general partners.
Wells Capital, Inc., as original purchaser under the agreement, assigned
its rights under the agreement to the XI-XII-REIT Joint Venture at closing. The
purchase price paid for the Johnson Matthey Building was $8,000,000. The XI-XII-
REIT Joint Venture also incurred additional acquisition expenses in connection
with the purchase of the Johnson Matthey Building, including attorneys' fees,
recording fees and other closing costs, of approximately $50,000.
The partnership contributed $1,500,000.00, Wells OP contributed
$3,055,694.41 and Wells Fund XI contributed $3,494,797.27 to the XI-XII-REIT
Joint Venture for their respective shares of the acquisition costs for the
Johnson Matthey Building.
Description of the Building and the Site. The Johnson Matthey Building is a
-----------------------------------------
130,000 square foot research and development, office and warehouse building that
was first constructed in 1973 as a multi-tenant facility. It was subsequently
converted into a single-tenant facility in 1998. The building is constructed of
a structural steel frame and is rectangular in shape with two rectangular cut-
outs at the front corners. The exterior is cinderblock, with brick on the lower
ten feet of the north, east and west walls. The south wall is all cinderblock.
The interior contains office space that comprises approximately 23% of the
rentable square feet of the Johnson Matthey Building.
The site consists of a 10.0 acre tract of land located at 434-436 Devon
Park Drive in Tredyffrin Township, Chester County, Pennsylvania. The site is
located along the Route 202 "high tech" corridor close to King of Prussia and is
considered a suburb of Philadelphia. The site is within five minutes of Route
422, the Pennsylvania Turnpike and Interstate 76.
An independent appraisal of the Johnson Matthey Building was prepared by CB
Richard Ellis, real estate appraisers, as of June 24, 1999. The appraisers
estimated the market value of the land and the leased fee interest subject to
the Johnson Matthey lease (described below) to be $8,000,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Johnson Matthey Building will continue operating at a
stabilized level with Johnson Matthey, Inc. (Johnson Matthey) occupying 100% of
the rentable area. The value estimate set forth in the appraisal is not
necessarily an accurate reflection of the fair market value of the property.
The XI-XII-REIT Joint Venture also obtained an environmental report
prepared by Dames & Moore evidencing that the environmental condition of the
land and the Johnson Matthey Building was satisfactory. Although the soil does
contain some traces of environmental groundwater contaminants approximately 60
feet below the surface, Dames & Moore, in a letter addressed to Wells Capital,
Inc. dated August 13, 1999, did not recommend
9
<PAGE>
any further environmental investigation for the site. At the closing, the seller
assigned its rights to a $2,000,000 insurance policy to the XI-XII-REIT Joint
Venture relating to potential losses from environmental contamination. The
general partners of the partnership are satisfied that the environmental
condition of the site is satisfactory and believe that the rights assigned under
this insurance policy protect the partnership from potential liability exposure
resulting from environmental contamination.
The Johnson Matthey Lease. The entire 130,000 rentable square feet of the
-------------------------
Johnson Matthey Building is currently leased to Johnson Matthey. The Johnson
Matthey lease was assigned to the XI-XII-REIT Joint Venture at the closing with
the result that the joint venture is now the landlord under the lease.
Johnson Matthey is a wholly owned subsidiary of Johnson Matthey, PLC of the
United Kingdom, a world leader in advanced materials technology. Johnson
Matthey, PLC applies the latest technology to add value to precious metals and
other specialized materials. Johnson Matthey, PLC is a publicly traded company
that is over 175 years old, has operations in 38 countries and employs 12,000
people.
Johnson Matthey is one of the parent company's primary operating companies
in the U.S. and includes the Catalytic Systems Division (the "CSD"). The CSD is
the world's leading supplier of catalytic converters for automotive exhaust
emission and air pollution control. In addition, Johnson Matthey is the largest
U.S. supplier of diesel catalytic converters, which enable customers to meet
constantly tightening regulatory requirements.
While Johnson Matthey does not publish financial statements, the following
financial information was verbally disclosed by Johnson Matthey relating to its
1998 performance in U.S. Dollars:
Sales: $ 1.1 Billion
Assets: $ 750 Million
Net Worth $ 120 Million
In addition, Johnson Matthey, PLC, the parent company of the tenant,
published the following financial data for 1998 converted to U.S. Dollars:
Sales: $ 5.0 Billion
Assets: $ 1.9 Billion
Net Worth: $ 857 Million
The current lease term expires in June 2007. Johnson Matthey has the right
to extend the lease for two additional three year periods of time. Each
extension option must be exercised by giving notice to the landlord at least 12
months prior to the expiration date of the then-current lease term.
10
<PAGE>
The base rent payable under the Johnson Matthey lease for the remainder of
the lease term is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------- ----------- ------------
<S> <C> <C>
3 $789,750 $65,812.50
4 $809,250 $67,437.50
5 $828,750 $69,062.50
6 $854,750 $71,229.17
7 $874,250 $72,854.17
8 $897,000 $74,750.00
9 $916,500 $76,375.00
10 $939,250 $78,270.84
--------------------------------------------------------------------------------
</TABLE>
The monthly base rent payable for each extension term will be equal to the
fair market rent taking into consideration rental rates for comparable
industrial and research and development properties in the local market area. If
the parties cannot agree upon the fair market rent, the matter shall be
submitted to arbitration.
Under the lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Johnson Matthey Building during the term of
the lease. In addition, Johnson Matthey is responsible for all routine
maintenance and repairs to the Johnson Matthey Building. The XI-XII-REIT Joint
Venture, as landlord, is responsible for maintenance of the footings and
foundations and the structural steel columns and girders associated with the
building.
Johnson Matthey has a right of first refusal to purchase the Johnson
Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell
the building to an unrelated third-party. The XI-XII-REIT Joint Venture must
give Johnson Matthey written notice of its intent to sell the Johnson Matthey
Building, and Johnson Matthey will have ten days from the date of such notice to
provide written notice of its intent to purchase the building. If Johnson
Matthey exercises its right of first refusal, it must purchase the Johnson
Matthey Building on the same terms contained in the offer.
Property Management Fees. Wells Management has been retained to manage and
------------------------
lease the Johnson Matthey Building. The XI-XII-REIT Joint Venture will pay
management and leasing fees to Wells Management in the amount of 4.5% of gross
revenues from the Johnson Matthey Building on a monthly basis.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 76 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of the
prospectus is revised as of the date of this supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraph in
lieu thereof:
11
<PAGE>
The partnership commenced operations on June 1, 1999, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
units). As of August 20, 1999, the partnership had raised a total of
$5,442,407 in offering proceeds (544,240 units), and had paid $190,484 in
acquisition and advisory fees and acquisition expenses and $680,301 in
selling commissions and organizational and offering expenses. As of August
20, 1999, the partnership had invested $2,500,000 in properties as its
capital contribution to the joint venture and was holding net offering
proceeds of $2,071,622 available for investment in additional properties.
Financial Statements and Exhibits.
The Statements of Revenues over Certain Operating Expenses of the EYBL
CarTex Building, the Sprint Building and the Johnson Matthey Building for the
year ended December 31, 1998, included in this supplement as Appendix F, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included in reliance
upon the authority of said firm as experts in giving said reports. The
Statements of Revenues over Certain Operating Expenses of the EYBL CarTex
Building and the Sprint Building for the three months ended March 31, 1999, the
Johnson Matthey Building for the six months ended June 30, 1999, and the pro
forma financial information for Wells Real Estate Fund XII, L.P., as of December
31, 1998 and for the six months ended June 30, 1999, have not been audited.
12
<PAGE>
APPENDIX F
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
EYBL CarTex Building
Audited Financial Statements
Report of Independent Public Accountants F-1
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and F-2
for the three months ended March 31, 1999 (Unaudited)
Notes to Statements of Revenues Over Certain Operating F-3
Expenses for the year ended December 31, 1998 (Audited)
and for the three months ended March 31, 1999 (Unaudited)
Sprint Building
Audited Financial Statements
Report of Independent Public Accountants F-5
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and
for the three months ended March 31, 1999 (Unaudited) F-6
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the three months ended March 31, 1999 (Unaudited) F-7
Johnson Matthey Building
Audited Financial Statements
Report of Independent Public Accountants F-9
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and
for the six months ended June 30, 1999 (Unaudited) F-10
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the six months ended June 30, 1999 (Unaudited) F-11
Wells Real Estate Fund XII, L.P.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements F-13
Pro Forma Balance Sheet as of June 30, 1999 F-14
Pro Forma Income Statement for the year ended
December 31, 1998 F-15
Pro Forma Income Statement for the six month period
ended June 30, 1999 F-16
</TABLE>
13
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the EYBL CARTEX BUILDING for the year ended December 31, 1998.
This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the EYBL
CarTex Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint
Venture (a joint venture between the Wells Operating Partnership, L.P. [on
behalf of Wells Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI,
L.P., and Wells Real Estate Fund XII, L.P.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the EYBL CarTex
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the EYBL CarTex Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Atlanta, Georgia
May 21, 1999
F-1
<PAGE>
EYBL CARTEX BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
1998 1999
----------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $213,330 $63,990
operating expenses, net of reimbursements 14,343 0
----------- -----------
revenues over certain operating expenses $198,987 $63,990
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
EYBL CARTEX BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
The EYBL CarTex Building is an industrial building consisting of a total of
169,510 square feet. On May 18, 1999, Wells Real Estate, LLC - SC I ("Wells
LLC"), a Georgia limited liability company wholly owned by the Wells Fund XI-
REIT Joint Venture (the "Joint Venture"), acquired an industrial building
located in Fountain Inn, unincorporated Greenville County, South Carolina
(the "EYBL CarTex Building"). Wells LLC purchased the EYBL CarTex Building
from Liberty Property Trust, a Pennsylvania limited partnership.
The Joint Venture is a Georgia joint venture between Wells Real Estate Fund
XI, L.P. ("Wells Fund XI"), a Georgia limited partnership, and Wells
Operating Partnership, L.P. ("Wells OP"), a Delaware limited partnership
formed to acquire, own, lease, operate, and manage real properties on behalf
of Wells Real Estate Investment Trust, Inc. The Joint Venture was formed on
May 1, 1999 for the purpose of the acquisition, ownership, development,
leasing, operations, sale, and management of real properties. On June 21,
1999, Wells Real Estate Fund XII, L.P., a Georgia limited partnership, was
admitted to the Joint Venture, and the Joint Venture was renamed the Wells
Fund XI-Fund XII-REIT Joint Venture.
The purchase price for the EYBL CarTex Building was $5,085,000. Wells LLC
also incurred additional acquisition expenses in connection with the purchase
of the EYBL CarTex Building, including attorneys' fees, recording fees, and
other closing costs of $36,828. Wells Fund XI contributed $1,530,000 to the
Joint Venture and Wells OP contributed $3,591,828 to the Joint Venture.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
F-3
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation and
management fees, not comparable to the operations of the EYBL CarTex Building
after acquisition by the Joint Venture.
F-4
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the SPRINT BUILDING for the year ended December 31, 1998. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Sprint
Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint Venture (a
joint venture between the Wells Operating Partnership, L.P. [on behalf of Wells
Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI, L.P., and Wells
Real Estate Fund XII, L.P.). The accompanying statement of revenues over certain
operating expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and is not intended to be
a complete presentation of the Sprint Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Sprint Building for the year ended December 31, 1998, in
conformity with generally accepted accounting principles.
/s/ARTHUR ANDERSEN LLP
Atlanta, Georgia
July 12, 1999
F-5
<PAGE>
SPRINT BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
<TABLE>
<CAPTION>
1998 1999
---------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $1,050,725 $262,681
OPERATING EXPENSES, net of reimbursements 19,410 2,250
---------- -----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,031,315 $260,431
========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
SPRINT BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE THREE MONTHS ENDED MARCH 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On July 2, 1999, the Wells Fund XI-XII-REIT Joint Venture (the "Joint
Venture") acquired a three-story office building with approximately 68,900
rentable square feet located in Leawood, Johnson County, Kansas (the "Sprint
Building"). The Joint Venture is a joint venture partnership between Wells
Real Estate Fund XI, L.P. ("Wells Fund XI"), Wells Real Estate Fund XII,
L.P. ("Wells Fund XII"), and Wells Operating Partnership, L.P. ("Wells OP"),
a Delaware limited partnership formed to acquire, own, lease, operate and
manage real properties on behalf of Wells Real Estate Investment Trust, Inc.
(the "Wells REIT"). Wells Fund XI contributed $3,000,000, Wells Fund XII
contributed $1,000,000 and Wells OP contributed $5,546,210 to the Joint
Venture for their respective share of the purchase of the Sprint Building.
The entire 68,900 rentable square feet of the Sprint Building is currently
under a net lease agreement dated February 14, 1997 (the "Lease") with
Sprint. The Lease was assigned to the Joint Venture at the closing. The
initial term of the Lease is ten years which commenced on May 19, 1997 and
expires on May 18, 2007. Sprint has the right to extend the Lease for 2
additional five-year periods. Each extension option must be exercised by
giving notice to the landlord at least 270 days, but no earlier than 365
days, prior to the expiration date of the then current lease term. The
monthly base rent payable under the Lease will be $83,254.17 through May 18,
2002 and $91,866.67 for the remainder of the Lease term. The monthly base
rent payable for each extended term of the Lease will be equal to 95% of the
then current market rate which is calculated as a full-service rental rate
less anticipated annual operating expenses on a rentable square foot basis
charged for space of comparable location, size, and conditions in comparable
office buildings in the suburban south Kansas City, Missouri and south
Johnson County, Kansas areas.
Under the Lease, Sprint is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance, and other
operating costs with respect to the Sprint Building during the term of the
Lease. In addition, Sprint is responsible for all routine maintenance and
repairs including interior mechanical and electrical, HVAC, parking lot, and
landscaping to the Sprint Building. The
F-7
<PAGE>
Joint Venture, as landlord, is responsible for repair and replacement of the
exterior, roof, foundation, and structure.
The Lease contains a termination option which may be exercised by Sprint
effective as of May 18, 2004 provided Sprint has not exercised its expansion
option, as described below. The early termination requires nine months'
notice and a termination payment to the Joint Venture equal to $6.53 per
square foot, or $450,199. Sprint also has an expansion option for an
additional 20,000 square feet of office space which may be exercised in two
phases, which involves building on unfinished ground level space that is
currently used as covered parking within the existing building footprint and
shell. At each exercise of an expansion option, the remaining lease term
will be extended to be a minimum of an additional five years from the date
of the completion of such expansion.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation and
management fees, not comparable to the operations of the Sprint Building
after acquisition by the Joint Venture.
F-8
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.,
Wells Real Estate Fund XI, LP.,
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the JOHNSON MATTHEY BUILDING for the year ended December 31, 1998.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Johnson
Matthey Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint
Venture (a joint venture between the Wells Operating Partnership, L.P. [on
behalf of Wells Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI,
L.P., and Wells Real Estate Fund XII, L.P.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Johnson
Matthey Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Johnson Matthey Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN
Atlanta, Georgia
August 30, 1999
F-9
<PAGE>
JOHNSON MATTHEY BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
1998 1999
-------- --------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $745,935 $424,724
OPERATING EXPENSES, net of reimbursements 100,314 59,398
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $645,621 $365,326
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
JOHNSON MATTHEY BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On August 17, 1999, the Wells Fund XI-Fund XII-REIT Joint Venture (the "Joint
Venture") acquired an office building with approximately 130,000 rentable
square feet located in Tredyffrin Township, Chester County, Pennsylvania (the
"Johnson Matthey Building"). The Joint Venture is a joint venture partnership
between Wells Real Estate Fund XI, L.P. ("Wells Fund XI"), Wells Real Estate
Fund XII, L.P. ("Wells Fund XII"), and Wells Operating Partnership, L.P.
("Wells OP"), a Delaware limited partnership formed to acquire, own, lease,
operate, and manage real properties on behalf of Wells Real Estate Investment
Trust, Inc. (the "Wells REIT"). Wells Fund XI contributed $3,494,797, Wells
Fund XII contributed $1,500,000, and Wells OP contributed $3,055,694 to the
Joint Venture for their respective share of the purchase of the Johnson
Matthey Building.
The entire 133,000 rentable square feet of the Johnson Matthey Building is
currently under a net lease agreement (the "Lease") with Johnson Matthey. The
Lease was assigned to the Joint Venture at the closing. The initial term of
the Lease is ten years, which commenced on July 1, 1997 and expires on June
30, 2007. Johnson Matthey has the right to extend the Lease for two
additional three-year periods. Each extension option must be exercised by
giving notice to the landlord at least 12 months prior to the expiration date
of the then current lease term. The monthly base rent payable for each
extended term of the Lease will be equal to the fair market rent taking into
consideration rental rates for comparable industrial and research and
development properties in the local market area.
Under the Lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance, and
other operating costs with respect to the Johnson Matthey Building during the
term of the Lease. In addition, Johnson Matthey is responsible for all
routine maintenance and repairs including interior mechanical and electrical,
HVAC, parking lot, and landscaping to the Johnson Matthey Building. The Joint
Venture, as landlord, is responsible for repair and replacement of the
exterior, roof, foundation, and structure.
F-11
<PAGE>
The Lease contains a purchase option, which may be exercised by Johnson
Matthey in the event that the Joint Venture desires to sell the building to
an unrelated third party. The Joint Venture must give Johnson Matthey written
notice of its intent to sell the Johnson Matthey Building, and Johnson
Matthey will have ten days from the date of such notice to provide written
notice of its intent to purchase the building. If Johnson Matthey exercises
the purchase option, it must purchase the Johnson Matthey Building on the
same terms contained in the offer.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation, not
comparable to the operations of the Johnson Matthey Building after
acquisition by the Joint Venture.
F-12
<PAGE>
WELLS REAL ESTATE FUND XII L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of June 30, 1999 and the pro
forma statements of income (loss) for the period from inception (September 15,
1998) to December 31, 1998 and the six-month period ending June 30, 1999 have
been prepared to give effect to the following transactions: (i) Wells Real
Estate Fund XII, L.P.'s ("Wells Fund XII") initial capital contribution in the
Wells Fund XI-Fund XII-REIT Joint Venture (a joint venture between the Wells
Operating Partnership, L.P., Wells Real Estate Fund XI, L.P., and Wells Fund
XII) related to the acquisition of the Sprint Building by the Wells Fund XI-Fund
XII-REIT Joint Venture and (ii) the acquisition of the Johnson Matthey Building
by the Wells Fund XI-Fund XII-REIT Joint Venture as if each transaction had
occurred as of June 30, 1999 with respect to the balance sheet and on September
15, 1998 with respect to the statements of income (loss).
The Wells Fund XI-REIT Joint Venture purchased the EYBL CarTex Building on May
18, 1999. Wells Fund XII was admitted into the Wells Fund XI-REIT Joint Venture
on June 21, 1999 and the Joint Venture was renamed the Wells Fund XI-Fund XII-
REIT Joint Venture. The Wells Fund XI-Fund XII-REIT Joint Venture purchased the
Sprint Building on July 2, 1999 and the Johnson Matthey Building on August 17,
1999. The following unaudited pro forma statements of income (loss) have been
prepared to give effect to the acquisition of the EYBL CarTex Building, Sprint
Building, and Johnson Matthey Building, as if each acquisition occurred on
September 15, 1998.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition been consummated at
the beginning of the period presented.
F-13
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA BALANCE SHEET
JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Wells Real Pro Format Adjustments Pro
----------------------------------
Estate Sprint Johnson Matthey Forma
Fund XII, L.P. Building Building Total
-------------- -------- --------------- -----
<S> <C> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,457,166 $ (1,000,000)(a) $ (1,457,166)(a) $ 0
INVESTMENT IN JOINT VENTURE 0 1,041,670 (b) 1,562,505 (b) 2,604,175
DEFERRED PROJECT COSTS 94,370 (41,670)(c) (52,700)(c) 0
DEFERRED OFFERING COSTS 117,543 0 0 117,543
----------- ------------ ------------ ------------
Total assets $ 2,669,079 $ 0 $ 52,639 $ 2,721,718
=========== ============ ============ ============
LIABILITIES AND PARTNERS' CAPITAL
SALE COMMISSIONS PAYABLE $ 147,259 $ 0 $ 0 $ 147,259
DUE TO AFFILIATES 164,579 0 42,834 (a) 217,218
9,805 (c)
----------- ------------ ------------ ------------
Total liabilities 311,838 0 52,639 364,477
----------- ------------ ------------ ------------
PARTNERS' CAPITAL:
General partners 474 0 0 474
Original limited partner 100 0 0 100
Limited partners:
Class A--164,341 units outstanding 1,437,987 0 0 1,437,987
Class B--105,288 units outstanding 918,680 0 0 918,680
----------- ------------ ------------ ------------
Total partners' capital 2,357,241 0 0 2,357,241
----------- ------------ ------------ ------------
Total liabilities and partners' capital $ 2,669,079 $ 0 $ 52,639 $ 2,721,718
=========== ============ ============ ============
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s portion of the
purchase price.
(b) Reflects Wells Real Estate Fund XII, L.P.'s contribution to
the Wells Fund XI-Fund XII-REIT Joint Venture.
(c) Reflects deferred project costs contributed to the Wells
Fund XI-Fund XII-REIT Joint Venture.
F-14
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 15, 1998) TO DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------
Wells Real EYBL Johnson Pro
Estate CarTex Sprint Matthey Forma
Fund XII, L.P. Building Building Building Total
------------- ---------- --------- ---------- ---------
<S> <C> <C> <C> <C> <C>
REVENUES:
Equity in income (loss) of joint venture $ 0 $ (973)(a) $ 20,454(a) $ 12,290(a) $ 31,771
EXPENSES 0 0 0 0 0
------------- --------- --------- --------- ---------
NET INCOME (LOSS) $ 0 $ (973) $ 20,454 $ 12,290 $ 31,771
============= ========= ========= ========= =========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ 0 $ (218) $ (111) $ (81) $ (410)
============= ========= ========= ========= =========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 0 $ 20,801 $ 31,571 $ 21,411 $ 72,783
============= ========= ========= ========= =========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ (21,556) $ (11,006) $ (8,040) $ (40,602)
============= ========= ========= ========= =========
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s equity in (loss)
income of the Wells Fund XI-Fund XII-REIT Joint Venture related to
the EYBL CarTex Building, Sprint Building, and Johnson Matthey
Building. The pro forma adjustments result from rental revenues
less operating expenses, management fees, and depreciation.
F-15
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE SIX-MONTH PERIOD ENDING JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Pro Forma Adjustments
------------------------------------
Wells Real EYBL Johnson Pro
Estate CarTex Sprint Matthey Forma
Fund XII, L.P. Building Building Building Total
------------- --------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
REVENUES:
Equity in income of joint venture $ 0 $ 2,383(a) $ 35,636(a) $ 25,566(a) $ 63,585
EXPENSES 2,615 0 0 2,615
------------- --------- ---------- ---------- --------
NET (LOSS) INCOME $ (2,615) $ 2,383 $ 35,636 $ 25,566 $ 60,970
============= ========= ========== ========== ========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ (26) $ (38) $ 0 $ 0 $ (64)
============= ========= ========== ========== ========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 0 $ 13,270 $ 54,694 $ 39,488 $107,452
============= ========= ========== ========== ========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (2,589) $ (10,849) $ (19,058) $ (13,922) $(46,418)
============= ========= ========== ========== ========
NET INCOME PER CLASS A WEIGHTED AVERAGE LIMITED
PARTNER UNIT $ 0.00 $ 0.17 $ 0.70 $ 0.51 $ 1.38
============= ========= ========== ========== ========
NET LOSS PER CLASS B WEIGHTED AVERAGE LIMITED
PARTNER UNIT $ (0.02) $ (0.15) $ (0.26) $ (0.19) $ (0.62)
============= ========= ========== ========== ========
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s equity in income of
the Wells Fund XI-Fund XII-REIT Joint Venture related to the
EYBL CarTex Building, Sprint Building, and Johnson Matthey
Building. The pro forma adjustments result from rental revenues
less operating expenses, management fees, and depreciation.
F-16
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
SUPPLEMENT NO. 2 DATED OCTOBER 10, 1999 TO THE PROSPECTUS
DATED MARCH 22, 1999
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Fund XII, L.P. dated March 22, 1999, as
supplemented and amended by Supplement No. 1 dated September 1, 1999. If we
refer to the "prospectus" in this supplement, we are also referring to any and
all supplements to the prospectus. Unless otherwise defined in this supplement,
capitalized terms used in this supplement shall have the same meanings as set
forth in the prospectus.
The purpose of this supplement is to describe the following:
(i) The status of the offering of units of limited partnership interest
in the partnership;
(ii) The acquisition of an interest in an office building in Fort Meyers,
Florida (Gartner Building);
(iii) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus; and
(iv) Financial statements relating to the Gartner Building and unaudited
pro forma financial statements of the partnership.
Status of the Offering
Pursuant to the prospectus, the offering of units in the partnership
commenced on March 22, 1999. The partnership commenced operations on June 1,
1999, upon the acceptance of subscriptions for the minimum offering of
$1,250,000 (125,000 units). As of October 4, 1999, the partnership had raised a
total of $7,069,956 in offering proceeds (706,996 units).
The Gartner Building
Purchase of the Gartner Building. On September 20, 1999, The Wells Fund XI -
--------------------------------
Fund XII - REIT Joint Venture (XI-XII-REIT Joint Venture), a joint venture among
the partnership, Wells Real Estate Fund XI, L.P. (Wells Fund XI) and Wells
Operating Partnership, L.P. (Wells OP), acquired a two story office building
with approximately 62,400 rentable square feet located in Fort Myers, Lee
County, Florida (Gartner Building) from Hogan Triad Ft. Myers I, Ltd. (Hogan)
pursuant to that certain Agreement of Purchase and Sale of Property between
Hogan and Wells Capital, Inc. Hogan is not in any way affiliated with the
partnership or its general partners.
The rights under the agreement were assigned by Wells Capital, Inc, the
original purchaser under the agreement, to the XI-XII-REIT Joint Venture at
closing. The purchase price paid for the Gartner Building was $8,320,000. The
joint venture also incurred additional acquisition expenses in connection with
the purchase of the Gartner Building, including attorneys' fees, recording fees
and other closing costs, of approximately $27,600.
1
<PAGE>
The partnership contributed $2,800,000, Wells Fund XI contributed $106,550
and Wells OP contributed $5,441,050 to the XI-XII-REIT Joint Venture for their
respective shares of the acquisition costs for the Gartner Building.
As of October 1, 1999, the partnership had made total capital contributions
to the XI-XII-REIT Joint Venture of $5,300,000 and held an equity percentage
interest in the joint venture of approximately 17.06%; Wells Fund XI had made
total capital contributions to the XI-XII-REIT Joint Venture of $8,131,351 and
held an equity percentage interest in the joint venture of approximately 26.17%;
and Wells OP had made total capital contributions to the XI-XII-REIT Joint
Venture of $17,634,796 and held an equity percentage interest in the joint
venture of approximately 56.77%.
Description of the Building and the Site. The Gartner Building is a two story
----------------------------------------
office building containing approximately 62,400 rentable square feet. The
Gartner Building, which was completed in 1998, is a reinforced concrete
structure with curtained glass.
An independent appraisal of the Gartner Building was prepared by CB Richard
Ellis, Inc., real estate appraisers, as of September 1, 1999, pursuant to which
the market value of the land and the leased fee interest subject to the Gartner
lease (described below) was estimated to be $8,350,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Gartner Building will continue operating at a stabilized
level with Gartner Group, Inc. (Gartner) occupying 100% of the rentable area,
and is not necessarily an accurate reflection of the fair market value of the
property or the net proceeds which would result from an immediate sale of this
property. The XI-XII-REIT Joint Venture also obtained an environmental report
prior to closing evidencing that the environmental condition of the land and the
Gartner Building were satisfactory.
The Gartner Building is located on a 4.9 acre tract of land located at
12600 Gateway Boulevard within the Gateway development in Fort Myers, Florida.
Gateway, which is about ten miles southeast of the Fort Meyers central business
district, is a mixed use development with over 3,000 acres planned for
residential purposes and over 800 acres planned for commercial purposes. Sony
Electronics and Ford Motor Credit Company are two of the commercial tenants in
this development.
The recent growth of the Fort Meyers area is primarily due to the opening
of Interstate 75 in the eastern portion of the metro area and the relatively new
Southwest Florida Regional Airport, which is located just south of Gateway and
is easily accessible by a two lane road. Another major expansion to the local
economy is the new Florida Gulf Coast University, which is part of the State of
Florida University system. The enrollment at this university is expected to
increase to between 10,000 and 15,000 in the next few years.
The Lease. The entire 62,400 rentable square feet of the Gartner Building is
---------
currently under a net lease agreement with Gartner dated July 30, 1997. The
landlord's interest in the Gartner lease was assigned to the XI-XII-REIT Joint
Venture at the closing.
The Gartner Building will be occupied by Gartner's Financial Services
Division. Gartner, which was founded in 1979, is the world's leading independent
provider of research and analysis related to information and technology
solutions. Gartner serves as a consultant to
2
<PAGE>
business clients for their information technology purchasing decisions. Gartner
has over 80 locations worldwide and over 12,000 clients. Gartner, which is
headquartered in Stamford, Connecticut, had net income of over $98 million and a
net worth of over $530 million for its fiscal year ended September 30, 1998.
The initial term of the Gartner lease is ten years which commenced on
February 1, 1998 and expires on January 31, 2008. Gartner has the right to
extend the lease for two additional five year periods of time. Each extension
option must be exercised by giving at least one year's notice to the landlord
prior to the expiration date of the then current lease term.
The base rent payable for the remainder of the lease term is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------
Lease Year Yearly Base Rent Monthly Base Rent
--------------------------------------------------------------------------------------
<S> <C> <C>
2/1999-1/2000 $642,798 $53,566.50
--------------------------------------------------------------------------------------
2/2000-1/2001 $790,642 $65,886.83
--------------------------------------------------------------------------------------
2/2001-1/2002 $810,408 $67,534.00
--------------------------------------------------------------------------------------
2/2002-1/2003 $830,668 $69,222.35
--------------------------------------------------------------------------------------
2/2003-1/2004 $851,435 $70,952.89
--------------------------------------------------------------------------------------
2/2004-1/2005 $872,721 $72,726.74
--------------------------------------------------------------------------------------
2/2005-1/2006 $894,539 $74,544.92
--------------------------------------------------------------------------------------
2/2006-1/2007 $916,902 $76,408.54
--------------------------------------------------------------------------------------
2/2007-1/2008 $939,825 $78,318.71
--------------------------------------------------------------------------------------
</TABLE>
The monthly base rent payable for each extended term of the Gartner lease will
be equal to the lesser of (i) the prior rate increased by 2.5%, or (ii) 95% of
the then current market rate which is calculated as a full-service rental rate
less anticipated annual operating expenses on a rentable square foot basis
charged for space of comparable location, size and conditions in comparable
office buildings in the Fort Myers area.
Under the Gartner lease, Gartner is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Gartner Building during the term of the
lease. In addition, Gartner is responsible for all routine maintenance and
repairs to the Gartner Building. The XI-XII-REIT Joint Venture, as landlord, is
responsible for repair and replacement of the roof, structure and paved parking
areas.
Gartner also has two expansion options for additional buildings under the
Gartner lease. The two option plans are described in the lease as the "Small
Option Building" and the "Large Option Building".
The "Small Option Building" expansion option allows Gartner the ability to
expand into a separate, free standing facility on the property containing
between 30,000 and 32,000 rentable square feet to be constructed by the XI-XII-
REIT Joint Venture. Gartner may exercise its expansion right for the Small
Option Building by providing notice in writing to the joint venture on or before
February 15, 2002. In the event that Gartner exercises its expansion option, the
parties shall enter into a separate lease within 30 days of such notice by
Gartner with a guaranteed ten year lease term and yearly base rent to be
determined by mutual agreement of the parties.
3
<PAGE>
The "Large Option Building" expansion option allows Gartner the ability to
expand into a separate, free standing facility on the property containing
between 60,000 and 75,000 rentable square feet to be constructed by the XI-XII-
REIT Joint Venture. Gartner may exercise its expansion right for the Small
Option Building by providing notice in writing to the joint venture on or before
February 15, 2002. In the event that Gartner exercises its expansion option, the
parties shall enter into a separate lease within 30 days of such notice by
Gartner with a guaranteed ten year lease term and yearly base rent to be
determined by mutual agreement of the parties.
Property Management Fees. Wells Management Company, Inc. (Wells Management), an
------------------------
affiliate of the general partners, has been retained to manage and lease the
Gartner Building. The XI-XII-REIT Joint Venture will pay management and leasing
fees to Wells Management in the amount of 4.5% of gross revenues from the
Gartner Building.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 76 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of the
prospectus is revised as of the date of this supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraph in
lieu thereof:
The partnership commenced operations on June 1, 1999, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
units). As of October 4, 1999, the partnership had raised a total of
$7,069,956 in offering proceeds (706,996 units), and had paid $247,448 in
acquisition and advisory fees and acquisition expenses and $883,745 in
selling commissions and organizational and offering expenses. As of October
4, 1999, the partnership had invested $5,300,000 in properties as its
capital contribution to the XI-XII-REIT Joint Venture and was holding net
offering proceeds of $638,763 available for investment in additional
properties.
Financial Statements and Exhibits.
The Statements of Revenues over Certain Operating Expenses of the Gartner
Building for the year ended December 31, 1998, included in this supplement, have
been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included in reliance
upon the authority of said firm as experts in giving said report. The Statements
of Revenues over Certain Operating Expenses of the Gartner Building for the six
months ended June 30, 1999, and the pro forma financial information for Wells
Real Estate Fund XII,L.P. as of June 30, 1999, for the period from inception
(September 15, 1998) to December 31, 1998 and for the six months ended June 30,
1999, have not been audited.
4
<PAGE>
INDEX TO FINANCIAL STATEMENTS
Page
----
Gartner Building
Audited Financial Statements
Report of Independent Public Accountants 6
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and for the
six months ended June 30, 1999 (Unaudited) 7
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the six months ended June 30, 1999 (Unaudited) 8
Wells Real Estate Fund XII, L.P.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements 10
Pro Forma Balance Sheet as of June 30, 1999 11
Pro Forma Income Statement for the period from Inception
(September 15, 1998) to December 31, 1998 12
Pro Forma Income Statement for the six month period
ended June 30, 1999 13
5
<PAGE>
[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.,
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the GARTNER BUILDING for the year ended December 31, 1998. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Gartner
Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint Venture (a
joint venture between the Wells Operating Partnership, L.P. [on behalf of Wells
Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI, L.P., and Wells
Real Estate Fund XII, L.P.). The accompanying statement of revenues over certain
operating expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and is not intended to be
a complete presentation of the Gartner Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Gartner Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 24, 1999
6
<PAGE>
GARTNER BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
1998 1999
--------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $738,074 $402,590
OPERATING EXPENSES, net of reimbursements 8,505 75
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $729,569 $402,515
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
GARTNER BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On September 20, 1999, the Wells Fund XI-Fund XII-REIT Joint Venture (the
"Joint Venture") acquired a two story office building with approximately
62,400 rentable square feet located in Fort Myers, Lee County, Florida (the
"Gartner Building").
The Joint Venture is a partnership between Wells Real Estate Fund XII, L.P.
("Wells Fund XII"), Wells Real Estate Fund XI, L.P. ("Wells Fund XI"), and
Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership formed to acquire, own, lease, operate, and manage real
properties on behalf of Wells Real Estate Investment Trust, Inc.
The purchase price for the Gartner Building was $8,320,000. The Joint
Venture also incurred additional acquisition expenses in connection with
the purchase of the Gartner Building, including attorneys' fees, recording
fees and other closing costs, of $27,600.
The Wells Fund XII contributed $2,800,000, Wells Fund XI contributed
$106,550, and Wells OP contributed $5,441,050 to the Joint Venture for
their respective share of the acquisition costs for the Gartner Building.
The entire 62,400 rentable square feet of the Gartner Building is currently
under a net lease agreement with Gartner dated July 30, 1997 (the "Lease").
The Lease was assigned to the Joint Venture at the closing.
The initial term of the Lease is ten years which commenced on February 1,
1998 and expires on January 31, 2008. Gartner has the right to extend the
Lease for two additional five year periods of time. Each extension option
must be exercised by giving at least one year's notice to the landlord
prior to the expiration date of the then current lease term.
Under the Lease, Gartner is required to pay as additional rent all real
estate taxes, special assessments, utilities, taxes, insurance, and other
operating costs with respect to the Gartner Building during the term of the
Lease. In addition, Gartner
8
<PAGE>
is responsible for all routine maintenance and repairs to the Gartner
Building. The Joint Venture, as landlord, is responsible for repair and
replacement of the roof, structure, and paved parking areas.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over
the life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation and
management and leasing fees, not comparable to the operations of the
Gartner Building after acquisition by the Joint Venture.
9
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of June 30, 1999 and the pro
forma statements of income (loss) for the period from inception (September 15,
1998) to December 31, 1998 and the six-month period ending June 30, 1999 have
been prepared to give effect to the acquisition of the Gartner Building by the
Wells Fund XI-Fund XII-REIT Joint Venture (a joint venture between the Wells
Operating Partnership, L.P., Wells Real Estate Fund XI, L.P., and Wells Real
Estate Fund XII, L.P.) as if the acquisition had occurred as of June 30, 1999
with respect to the balance sheet and on September 15, 1998 with respect to the
statements of income (loss).
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition been consummated at
the beginning of the period presented.
10
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA BALANCE SHEET
JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Wells Real
Estate Pro Forma Pro Forma
Fund XII, L.P. Adjustments Total
-------------- --------------- ----------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 2,457,166 $(2,457,166)(a) $ 0
INVESTMENT IN JOINT VENTURE 0 2,916,676 (b) 2,916,676
DEFERRED PROJECT COSTS 94,370 (94,370)(c) 0
DEFERRED OFFERING COSTS 117,543 0 117,543
-------------- --------------- ----------
Total assets $ 2,669,079 $ 365,140 $3,034,219
============== =============== ==========
LIABILITIES AND PARTNERS' CAPITAL
SALE COMMISSIONS PAYABLE $ 147,259 $ 0 $ 147,259
DUE TO AFFILIATES 164,579 342,834 (a) 507,413
22,306 (c) 22,306
-------------- --------------- ----------
Total liabilities 311,838 365,140 676,978
-------------- --------------- ----------
PARTNERS' CAPITAL:
General partners 474 0 474
Original limited partner 100 0 100
Limited partners:
Class A--164,341 units outstanding 1,437,987 0 1,437,987
Class B--105,288 units outstanding 918,680 0 918,680
-------------- --------------- ----------
Total partners' capital 2,357,241 0 2,357,241
-------------- --------------- ----------
Total liabilities and partners' capital $ 2,669,079 $365,140 $3,034,219
============== =============== ==========
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s
portion of the purchase price.
(b) Reflects Wells Real Estate Fund XII, L.P.'s
contribution to the Wells Fund XI-Fund XII-REIT
Joint Venture.
(c) Reflects deferred project costs contributed to
the Wells Fund XI-Fund XII-REIT Joint Venture.
11
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION
(SEPTEMBER 15, 1998) TO DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Wells Real Pro
Estate Pro Forma Forma
Fund XII, L.P. Adjustment Total
-------------- ------------ ---------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint venture $ 0 $ 19,759(a) $ 19,759
EXPENSES 0 0 0
-------------- ------------ ---------
NET INCOME $ 0 $ 19,759 $ 19,759
-------------- ------------ ---------
NET LOSS ALLOCATED TO GENERAL PARTNERS $ 0 $ (154) $ (154)
-------------- ------------ ---------
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 0 $ 35,200 $ 35,200
-------------- ------------ ---------
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $(15,287) $(15,287)
-------------- ------------ ---------
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s equity
in income of the Wells Fund XI-Fund XII-REIT Joint
Venture related to the Gartner Building. The pro
forma adjustment results from rental revenues less
operating expenses, management and leasing fees,
and depreciation.
12
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE SIX-MONTH PERIOD ENDING JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Wells Real Pro
Estate Pro Forma Forma
Fund XII, L.P. Adjustment Total
-------------- ----------- --------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint venture $ 0 $ 40,139(a) $ 40,139
EXPENSES 2,615 0 2,615
-------------- ----------- --------
NET (LOSS) INCOME $ (2,615) $ 40,139 $ 37,524
-------------- ----------- --------
NET LOSS ALLOCATED TO GENERAL PARTNERS $ (26) $ (265) $ (291)
-------------- ----------- --------
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 0 $ 66,609 $ 66,609
-------------- ----------- --------
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (2,589) $(26,205) $(28,794)
-------------- ----------- --------
NET INCOME PER CLASS A WEIGHTED AVERAGE LIMITED PARTNER UNIT $ 0.00 $ 0.86 $ 0.86
-------------- ----------- --------
NET LOSS PER CLASS B WEIGHTED AVERAGE LIMITED PARTNER UNIT $ (0.02) $ (0.35) $ (0.37)
-------------- ----------- --------
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s
equity in income of the Wells Fund XI-Fund XII-
REIT Joint Venture related to the Gartner
Building. The pro forma adjustment results
from rental revenues less operating expenses,
management and leasing fees, and depreciation.
13
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
SUPPLEMENT NO. 3 DATED APRIL 25, 2000 TO THE PROSPECTUS
DATED MARCH 22, 1999
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Fund XII, L.P. dated March 22, 1999, as
supplemented and amended by Supplement No. 1 dated September 1, 1999 and
Supplement No. 2 dated October 10, 1999. If we refer to the "prospectus" in this
supplement, we are also referring to any and all supplements to the prospectus.
Unless otherwise defined in this supplement, capitalized terms used in this
supplement shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of units of limited partnership interest in
Wells Real Estate Fund XII, L.P. (Wells Fund XII);
(2) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus;
(3) Updated audited financial statements of Wells Fund XII, Wells
Partners, L.P. and Wells Capital, Inc., which are included in this supplement;
and
(4) Updated unaudited prior performance tables, which are included in this
supplement.
Status of the Offering
Pursuant to the prospectus, the offering of units in Wells Fund XII
commenced on March 22, 1999. Wells Fund XII commenced operations on June 1,
1999, upon the acceptance of subscriptions for the minimum offering of
$1,250,000 (125,000 units). As of April 20, 2000, Wells Fund XII had raised a
total of $13,415,777 in offering proceeds (1,341,578 units), comprised of
$10,788,366 raised from the sale of cash preferred units (1,078,837 cash
preferred units) and $2,627,411 raised from the sale of tax preferred units
(262,741 tax preferred units).
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 76 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of the
prospectus is revised as of the date of this supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraphs in
lieu thereof:
Wells Fund XII commenced operations on June 1, 1999, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
units). As of April 20, 2000, Wells Fund XII had raised a total of
$13,415,777 in offering proceeds (1,341,578 units).
1
<PAGE>
As of April 20, 2000, Wells Fund XII had paid $469,552 in acquisition
and advisory fees and acquisition expenses, had paid $1,676,972 in selling
commissions and organizational and offering expenses, had invested
$5,300,000 in properties by virtue of its capital contributions to The Fund
XI - Fund XII - REIT Joint Venture and was holding net offering proceeds of
$5,969,253 available for investment in additional properties.
Financial Statements and Prior Performance Tables
The financial statements of Wells Real Estate Fund XII, L.P., Wells
Partners, L.P. and Wells Capital, Inc. as of December 31, 1999 and 1998, and for
each of the years in the two year period ended December 31, 1999, included in
this supplement 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 in this supplement in reliance
upon the authority of said firm as experts in giving said report.
The prior performance tables dated as of December 31, 1999, which are
included in this supplement, have not been audited.
2
<PAGE>
INDEX TO FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
<TABLE>
<CAPTION>
Page
----
<S> <C>
Wells Real Estate Fund XII, L.P.
Audited Financial Statements
Report of Independent Public Accountants 4
Balance Sheets as of December 31, 1999 and 1998 5
Statement of Income for the year ended December 31, 1999 6
Statements of Partners' Capital for the years ended
December 31, 1999 and 1998 7
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 8
Notes to Financial Statements 9
Wells Partners, L.P.
Audited Financial Statements
Report of Independent Public Accountants 19
Balance Sheets as of December 31, 1999 and 1998 20
Statements of (Loss) Income for the years ended
December 31, 1999 and 1998 21
Statements of Partners' Capital for the years ended
December 31, 1999 and 1998 22
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 23
Notes to Financial Statements 24
Schedule I - Market Value of Investment in Limited Partnerships
as of December 31, 1999 (Unaudited) 26
Wells Capital, Inc.
Audited Financial Statements
Report of Independent Public Accountants 27
Balance Sheets as of December 31, 1999 and 1998 28
Statements of Income for the years ended
December 31, 1999 and 1998 29
Statements of Stockholder's Equity for the years ended
December 31, 1999 and 1998 30
Statements of Cash Flows for the years ended
December 31, 1999 and 1998 31
Notes to Financial Statements 32
Prior Performance Tables 37
</TABLE>
3
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XII, L.P.:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND XII,
L.P. (a Georgia public limited partnership) as of December 31, 1999 and 1998,
the related statement of income for the year ended December 31, 1999, and the
related statements of partners' capital and cash flows for each of the two years
in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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 Real Estate Fund XII,
L.P. as of December 31, 1999 and 1998, the results of its operations for the
year ended December 31, 1999, and the results of its cash flows for each of the
two years in the period ended December 31, 1999, in conformity with accounting
principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
January 20, 2000
4
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
INVESTMENT IN JOINT VENTURE $5,467,634 $ 0
CASH 2,584,734 600
DEFERRED PROJECT COSTS 107,051 0
DEFERRED OFFERING COSTS 331,953 109,139
DUE FROM AFFILIATE 116,258 0
------------ -----------
Total assets $8,607,630 $109,739
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable $ 5,507 $ 0
Due to affiliate 344,578 109,139
Partnership distributions payable 113,084 0
------------ -----------
463,169 109,139
COMMITMENTS AND CONTINGENCIES ------------ -----------
PARTNERS' CAPITAL:
General partners 0 500
Limited partners:
Cash preferred--752,426 units as of December 31, 1999 6,602,953 0
Tax preferred--184,393 units as of December 31, 1999 1,541,508 0
Original limited partner 0 100
------------ -----------
Total partners' capital 8,144,461 600
------------ -----------
Total liabilities and partners' capital $8,607,630 $109,739
============ ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
5
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A Georgia Public Limited Partnership)
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUES:
Equity in income of joint venture $124,542
Interest income 35,837
-----------
160,379
-----------
EXPENSES:
Partnership administration 12,517
Legal and accounting 11,439
Operating costs, net of reimbursements 8,431
Computer costs 5,175
37,562
-----------
NET INCOME $122,817
===========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ (500)
===========
NET INCOME ALLOCATED TO CASH PREFERRED LIMITED PARTNERS $195,244
===========
NET LOSS ALLOCATED TO TAX PREFERRED LIMITED PARTNERS $(71,927)
===========
NET INCOME PER WEIGHTED AVERAGE CASH PREFERRED LIMITED PARTNER UNIT $ 0.50
===========
NET LOSS PER WEIGHTED AVERAGE TAX PREFERRED LIMITED PARTNER UNIT $ (0.56)
===========
CASH DISTRIBUTION PER WEIGHTED AVERAGE CASH PREFERRED LIMITED PARTNER UNIT $ 0.55
===========
</TABLE>
The accompanying notes are an integral part of this statement.
6
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Limited Partners Total
----------------------------------------------------------
Cash Preferred Tax Preferred General Partners'
---------------------- ----------------------
Original Units Amount Units Amount Partners Capital
-------- --------- ---------- --------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT, December 31, 1997 $ 0 0 $ 0 0 $ 0 $ 0 $ 0
Original partner contribution 100 0 0 0 0 0 100
General partners' contributions 0 0 0 0 0 500 500
-------- --------- ---------- --------- ---------- -------- ----------
BALANCE AT, December 31, 1998 100 0 0 0 0 500 600
Net income (loss) 0 0 195,244 0 (71,927) (500) 122,817
Partnership distributions 0 0 (176,018) 0 0 0 (176,018)
Limited partner contributions 0 752,426 7,524,260 184,393 1,843,926 0 9,368,186
Sales commissions and discounts 0 0 (714,805) 0 (175,173) 0 (889,978)
Other offering expenses 0 0 (225,728) 0 (55,318) 0 (281,046)
Return of capital (100) 0 0 0 0 0 (100)
-------- --------- ---------- --------- ---------- -------- ----------
BALANCE AT, December 31, 1999 $ 0 752,426 $6,602,953 184,393 $1,541,508 $ 0 $8,144,461
======== ========= ========== ========= ========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
7
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 122,817 $ 0
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in income of joint venture (124,542) 0
Changes in assets and liabilities:
Accounts payable 5,507 0
Deferred offering costs 0 0
Due to affiliates 0 0
----------- -----------
Total adjustments (119,035) 0
----------- -----------
Net cash provided by operating activities 3,782 0
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from joint venture 61,485 0
Investment in joint venture (5,300,000) 0
Deferred project costs paid (315,261) 0
----------- -----------
Net cash used in investing activities (5,553,776) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
General partner's contribution 0 100
Limited partners' contributions 9,368,186 500
Sales commissions and discounts paid (889,978) 0
Offering costs paid (281,046) 0
Distributions to partners from accumulated earnings (62,934) 0
Return of capital (100) 0
----------- -----------
Net cash provided by financing activities 8,134,128 600
----------- -----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 2,584,134 600
CASH AND CASH EQUIVALENTS, beginning of year 600 0
----------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 2,584,734 $ 600
=========== ===========
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Deferred project costs contributed to joint venture $ 220,835 $ 0
=========== ===========
Deferred project costs due to affiliate $ 12,625 $ 0
=========== ===========
Deferred offering costs due to affiliate $ 222,814 $ 109,139
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
8
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
(A Georgia Public Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 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. 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 cash preferred units or tax preferred units.
Thereafter, limited partners shall have the right to change their prior
elections to have some or all of their units treated as cash preferred
units or tax preferred 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. The majority vote on any of the described matters will bind
the Partnership, without the concurrence of the general partners. Each
limited partnership unit has equal voting rights, regardless of which class
of unit is selected. The Partnership commenced operations as of June 1,
1999.
The Partnership was formed to acquire and operate commercial real estate
properties, including properties which are either to be developed,
currently under construction, newly constructed, or have operating
histories. The Partnership owns an interest in several properties through a
joint venture between Wells Real Estate Fund XI, L.P. ("Wells Fund XI"),
the Partnership, and Wells Operating Partnership, L.P. (the "Operating
Partnership"), a Delaware limited partnership having Wells Real Estate
Investment Trust, Inc. ("Wells REIT"), a Maryland corporation, as its
general partner, which is referred to as Wells Funds XI, XII, and REIT
Joint Venture.
Through its investment in Wells Fund XI, XII, and REIT Joint Venture, the
Partnership owns interests in the following properties: (i) a two-story
manufacturing and office building in Greenville County, South Carolina (the
"EYBL CareTex Building"), (ii) a three-story office building in Leawood,
Kansas (the "Sprint Building"), (iii) an office and warehouse building in
Chester County, Pennsylvania (the "Johnson Matthay Building"), and (iv) a
two-story office building in Fort Myers, Florida (the "Gartner Building").
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.
9
<PAGE>
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize
the investment in its assets will be dependent on the Partnership's ability
to maintain an appropriate level of rental rates, occupancy, and operating
expenses in future years. Management believes that the steps it is taking
will enable the Partnership to realize its investment in its assets.
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 shares of
profits and losses in their individual income tax returns.
Distributions of Net Cash From Operations
Cash available for distribution, as defined by the partnership agreement,
will be distributed to the limited partners on a quarterly basis. In
accordance with the partnership agreement, distributions are paid first to
limited partners holding cash preferred 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
cash preferred units and 10% to the general partners. No such distributions
will be made to the limited partners holding tax preferred units.
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 tax preferred units until they receive an amount
necessary to equal the net cash available for distribution
received by the limited partners holding cash preferred 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 cash preferred units and a 15% per annum cumulative
return on net capital contributions for all periods during which
the units were treated as tax preferred 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;
10
<PAGE>
. Thereafter, 80% to the limited partners on a per unit basis and
20% to the general partners.
Allocation of Net Income, Net Loss, and Gain on Sale
Net income is defined as net income recognized by the Partnership,
excluding deductions for depreciation, amortization, and cost recovery. Net
income, as defined, of the Partnership will be allocated each year in the
same proportion that net cash from operations is distributed to the
partners. To the extent the Partnership's net income in any year exceeds
net cash from operations, it will be allocated 99% to the limited partners
holding cash preferred 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 tax preferred units and 1% to the general partners until their
capital accounts are reduced to zero; (b) then to any partner having a
positive balance in his capital account in an amount not to exceed such
positive balance; and (c) thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to the qualified income offset
provisions of the partnership agreement; (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero; and (c) allocations to limited partners holding 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 sold, but not in excess of the amount
of gain on sale recognized by the Partnership with respect to the sale of
such property.
Investment in Joint Venture
Basis of Presentation. The Partnership does not have control over the
operations of the joint venture; however, it does exercise significant
influence. Accordingly, the Partnership's investment in joint venture is
recorded using the equity method of accounting.
Real Estate Assets. Real estate assets held by the joint venture are stated
at cost less accumulated depreciation. Major improvements and betterments
are capitalized when they extend the useful life of the related asset. All
ordinary repairs and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present that
indicate the carrying amounts of real estate assets may not be recoverable,
management assesses the recoverability of real estate assets by determining
whether the carrying value of such real estate assets will be recovered
through the future cash flows expected from the use of the asset and its
eventual disposition. Management has determined that there has been no
impairment in the carrying value of real estate assets held by the joint
venture as of December 31, 1999.
Depreciation for buildings and improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized over
the life of the related lease or the life of the asset, whichever is
shorter.
11
<PAGE>
Revenue Recognition. All leases on real estate assets held by the joint
venture are classified as operating leases, and the related rental income
is recognized on a straight-line basis over the terms of the respective
leases.
Partner's Distributions and Allocations of Profit and Loss. Cash available
for distribution and allocations of profit and loss to the Partnership by
the joint venture are made in accordance with the terms of the joint
venture agreement. Generally, these items are allocated in proportion to
the partners' respective ownership interests. Cash is paid from the joint
venture to the Partnership quarterly.
Deferred Lease Acquisition Costs. Costs incurred to procure operating
leases are capitalized and amortized on a straight-line basis over the
terms of the related leases.
2. DEFERRED PROJECT COSTS
The Partnership paid a percentage of limited partner contributions to Wells
Capital, Inc. (the "Company"), the general partner of Wells Partners, for
acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 5% of the limited partner
contributions, subject to certain overall limitations contained in the
partnership agreement. Aggregate fees paid through December 31, 1999 were
$327,886 and amounted to 3.5% of the limited partners' contributions
received. These fees are allocated to specific properties as they are
purchased or developed and are included in capitalized assets of the joint
venture. Deferred project costs at December 31, 1999 represent fees not yet
applied to properties. As of December 31, 1999 $12,625 of fees had not yet
been paid and were included in due to affiliate in the accompanying balance
sheet.
3. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
offering proceeds, will be paid by the Company and not by the Partnership.
Organization and offering expenses do not include sales or underwriting
commissions but do include such costs as legal and accounting fees,
printing costs, and other offering expenses.
As of December 31, 1999, the Company paid organization and offering
expenses on behalf of the Partnership in the aggregate amount of $612,999,
of which the Company was reimbursed $281,046, which did not exceed the 5%
limitation. The unpaid portion of deferred offering costs is $331,953 and
is included in due to affiliate in the accompanying balance sheet.
4. RELATED-PARTY TRANSACTIONS
Due from affiliate at December 31, 1999 represents the portion of 1999
fourth-quarter distributions to be paid to the Partnership by Fund XI, XII,
and REIT Joint Venture.
The Partnership entered 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
12
<PAGE>
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 Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $8,268 and $0 for the years ended
December 31, 1999 and 1998, respectively, which were paid to Wells
Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership 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. In the opinion of management, such allocation is reasonable
estimation of such expenses.
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 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.
5. INVESTMENT IN JOINT VENTURE
The Partnership's investment and percentage ownership in Fund XI, XII and
REIT at December 31, 1999 are summarized as follows:
<TABLE>
<CAPTION>
Amount Percent
---------- --------
<S> <C> <C>
Fund XI, XII, and REIT $5,467,634 17%
</TABLE>
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1999:
<TABLE>
<S> <C>
Investment in joint venture, beginning of year $ 0
Equity in income of joint venture 124,542
Contributions to joint venture 5,520,835
Distributions from joint venture (177,743)
----------
Investment in joint venture, end of year $5,467,634
==========
</TABLE>
Fund XI, XII, and REIT Joint Venture
On May 1, 1999, the Partnership entered into a joint venture with Wells
Fund XI and the Operating Partnership. On May 18, 1999, the joint venture
purchased a 169,510-square-foot, two-story manufacturing and office
building, known as EYBL CarTex, in Fountain Inn, South Carolina. On July
21, 1999, the joint venture purchased a 68,900 square-foot, three-story-
office building, known as the Sprint Building, in Leawood, Kansas. On
August 17, 1999, the joint venture purchased a 130,000 square-foot office
and warehouse building, known as the Johnson Matthey Building, in Chester
County, Pennsylvania. On September 20, 1999, the joint venture purchased a
62,400 square-foot, two-story office building, known as the Gartner
Building, in Fort Myers, Florida.
13
<PAGE>
Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 1999
<TABLE>
Assets
<S> <C>
Real estate assets, at cost:
Land $ 5,048,797
Building and improvements, less accumulated depreciation of $506,582 26,811,869
-----------
Total real estate assets 31,860,666
Cash and cash equivalents 766,278
Accounts receivable 133,777
Prepaid assets and other expenses 26,486
-----------
Total assets $32,787,207
===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 112,457
Partnership distributions payable 680,294
-----------
Total liabilities 792,751
-----------
Partners' capital:
Wells Real Estate Fund XI 8,365,852
Wells Real Estate Fund XII 5,467,634
Wells Operating Partnership, L.P. 18,160,970
-----------
Total partners' capital 31,994,456
-----------
Total liabilities and partners' capital $32,787,207
===========
</TABLE>
14
<PAGE>
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Year Ended December 31, 1999
<TABLE>
<S> <C>
Revenues:
Rental income $1,443,446
Other income 57
----------
1,443,503
----------
Expenses:
Depreciation 506,582
Management and leasing fees 59,230
Operating costs, net of reimbursements 6,433
Property administration 14,185
Legal and accounting 4,000
----------
590,430
----------
Net income $ 853,073
==========
Net income allocated to Wells Real Estate Fund XI $ 240,031
==========
Net income allocated to Wells Real Estate Fund XII $ 124,542
==========
Net income allocated to Wells Operating Partnership, L.P. $ 488,500
==========
</TABLE>
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
---------- ---------- ------------ -----------
Balance, December 31, 1999 $8,365,852 $5,467,634 $18,160,970 $31,994,456
========== ========== ============ ===========
</TABLE>
15
<PAGE>
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
<S> <C>
Cash flows from operating activities:
Net income $ 853,073
--------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 506,582
Changes in assets and liabilities:
Accounts receivable (133,777)
Prepaid expenses and other assets (26,486)
Accounts payable 112,457
--------------
Total adjustments 458,776
--------------
Net cash provided by operating activities 1,311,849
--------------
Cash flows from financing activities:
Distributions to joint venture partners (545,571)
--------------
Net increase in cash and cash equivalents 766,278
Cash and cash equivalents, beginning of year 0
--------------
Cash and cash equivalents, end of year $ 766,278
==============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 1,294,686
==============
Contribution of real estate assets to joint venture $31,072,562
==============
</TABLE>
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the year ended December
31, 1999 is recalculated as follows:
<TABLE>
<S> <C>
Financial statement net income $122,817
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess of amounts for
income tax purposes 27,541
Rental income accrued for financial reporting purposes in excess of amounts
for income tax purposes (20,250)
--------
Income tax basis net income $130,108
--------
</TABLE>
16
<PAGE>
The Partnership's income tax basis partners' capital at December 31, 1999
is computed as follows:
<TABLE>
<S> <C>
Financial statement partners' capital $8,144,461
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of amounts
for income tax purposes 27,541
Capitalization of syndication costs for income tax purposes, which are
accounted for as cost of capital for financial reporting purposes 1,171,024
Accumulated rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes (20,250)
Partnership's distributions payable 113,084
---------------
Income tax basis partners' capital $9,435,860
===============
</TABLE>
7. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interest in the joint venture under noncancelable operating
leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 527,288
2001 535,855
2002 559,495
2003 575,460
2004 587,940
Thereafter 1,659,250
----------
$4,445,288
==========
Four tenants contributed 40%, 26%, 26%, and 15% of rental income. In
addition, four tenants will contribute 30%, 27%, 22%, and 18% of future
minimum rental income.
The future minimum rental income due Fund XI, XII and REIT under
noncancellable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 3,085,362
2001 3,135,490
2002 3,273,814
2003 3,367,231
2004 3,440,259
Thereafter 9,708,895
-----------
$26,011,051
===========
Four tenants contributed approximately 34%, 22%, 22%, and 12% of rental
income for the year ended December 31, 1999. In addition, four tenants will
contribute approximately 30%, 27%, 22%, and 18% of future minimum rental
income.
17
<PAGE>
8. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the year ended December 31, 1999:
<TABLE>
<CAPTION>
1999 Quarters Ended
--------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ --------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues $ 0 $ 0 $ 61,667 $ 98,712
Net (loss) income 0 (2,615) 45,786 79,646
Net loss allocated to general partners 0 (26) (231) (243)
Net income allocated to cash preferred limited
partners 0 0 68,910 126,334
Net loss allocated to tax preferred limited
partners 0 (2,589) (22,893) (46,445)
Net income per weighted average cash preferred
limited partner unit outstanding (a) $0.00 $ 0.00 $ 0.28 $ 0.20
Net loss per weighted average tax preferred
limited partner unit outstanding (a) 0.00 (0.02) (0.21) (0.36)
Cash distribution per weighted average cash
preferred limited partner unit outstanding 0.00 0.00 0.26 0.29
</TABLE>
(a) The totals of the four quarterly amounts for the year ended
December 31, 1999 do not equal the totals for the year. This
difference results from the use of a weighted average to
compute the number of units outstanding for each quarter and
the year.
9. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In the
normal course of business, the Partnership or the Company may become subject to
such litigation or claims.
18
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Partners, L.P.:
We have audited the accompanying balance sheets of WELLS PARTNERS, L.P. (a
Georgia limited partnership) as of December 31, 1999 and 1998 and the related
statements of (loss) income, 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
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
limited 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 20, 2000
19
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
-------- --------
CASH $ 70 $ 70
INVESTMENT IN LIMITED PARTNERSHIPS 664,342 667,863
-------- --------
Total assets $664,412 $667,933
======== ========
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' CAPITAL
GENERAL PARTNER $ 12,921 $ 12,956
LIMITED PARTNERS 651,491 654,977
-------- --------
Total partners' capital $664,412 $667,933
======== ========
The accompanying notes are an integral part of these balance sheets.
20
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
-------- --------
EQUITY IN (LOSS) INCOME OF LIMITED PARTNERSHIPS $ (3,521) $539,398
======== ========
The accompanying notes are an integral part of these statements.
21
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
General Limited
Partner Partners Total
-------- -------- --------
BALANCE AT DECEMBER 31, 1997 $ 6,761 $120,974 $127,735
Capital contribution 800 0 800
Net income 5,395 534,003 539,398
-------- -------- --------
BALANCE AT DECEMBER 31, 1998 12,956 654,977 667,933
Net loss (35) (3,486) (3,521)
-------- -------- --------
BALANCE AT DECEMBER 31, 1999 $ 12,921 $651,491 $664,412
======== ======== ========
The accompanying notes are an integral part of these statements.
22
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $ (3,521) $ 539,398
Adjustment to reconcile net (loss) income to
net cash provided by operating activities:
Equity in loss (income) of limited partnerships 3,521 (539,398)
---------- ----------
Net cash provided by operating activities 0 0
CASH FLOWS USED IN INVESTING ACTIVITIES:
Investment in limited partnerships 0 (800)
CASH FLOWS PROVIDED BY FINANCING ACTIVITIES:
General partner contribution 0 800
---------- ----------
NET CHANGE IN CASH 0 0
CASH AT BEGINNING OF YEAR 70 70
---------- ----------
CASH AT END OF YEAR $ 70 $ 70
========== ==========
The accompanying notes are an integral part of these statements.
23
<PAGE>
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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., Wells Real Estate Fund X, L.P., Wells Real Estate Fund XI,
L.P., and Wells Real Estate Fund XII, L.P. ("Fund XII"), 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 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.
2. INVESTMENT IN LIMITED PARTNERSHIPS
The Partnership does not control the Funds, Beaver Ruin, or Carter
Boulevard; however, it does exercise significant influence. Accordingly,
investment in limited partnerships is recorded using the equity method of
accounting. Each of the partnerships in which the Partnership invests,
except for Beaver Ruin and Carter Boulevard, has been formed with the
purpose to acquire and operate commercial real properties, including both
properties which are to be developed or are under development and
properties which are newly constructed or have operating histories. Beaver
Ruin and Carter Boulevard were formed to acquire and eventually sell the
Beaver Ruin and Carter Boulevard properties. The Partnership's investment
in limited partnerships at December 31, 1999 and 1998 includes the
following:
24
<PAGE>
1999 1998
-------- --------
19.2% ownership interest in Beaver Ruin $500,172 $502,230
51.26% ownership interest in Carter Boulevard 163,770 164,833
Fund XII 400 400
Fund XIII 0 400
-------- --------
$664,342 $667,863
======== ========
In 1997, the assets of Beaver Ruin and Carter Boulevard were comprised
primarily of an investment in a parcel of undeveloped land. 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. The
Partnership's share of net proceeds of $502,230 through its 19.2% interest
in Beaver Ruin and $164,833 through its 51.27% interest in Carter Boulevard
was forwarded to an escrow agent to implement a Section 1031 exchange. The
Partnership recognized a gain for accounting purposes of approximately
$540,000. In October 1998, $818,141 of the $3,112,875 in sale proceeds were
invested in another parcel of undeveloped land located in Knoxville,
Tennessee (the "Knoxville Property"). Development of the Knoxville Property
was completed in 1999. The Knoxville Property is a 71,400 square foot
building, of which 50,000 was leased to the Associates Housing Finance, LLC
effective September 1, 1999.
Fund XII own properties through investments in joint ventures which, as of
December 31, 1999, owned interests in one manufacturing building, two
office buildings, and one office and warehouse building.
Wells Real Estate Fund XIII, L.P. ("Fund XIII") is a Georgia public limited
partnership having Leo F. Wells, III and the Partnership as general
partners. Fund XIII was formed on September 15, 1998 for the purpose of
acquiring, developing, constructing, owning, operating, improving, leasing,
and otherwise managing for investment purposes income-producing commercial
or industrial properties. As of December 31, 1999, Fund XIII had not begun
offering limited partnership units to the public.
The Partnership is entitled to share in the allocation of cash
distributions and net (loss) income of the Funds based on the ownership
percentages outlined in the partnership agreements.
3. INCOME TAXES
The Partnership has not requested 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
partner contends that the Partnership is not subject to federal or state
income taxes, and therefore, none have been provided for in the
accompanying balance sheets. The partners are required to include their
respective share of profits and losses in their individual income tax
returns.
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.
25
<PAGE>
SCHEDULE I
WELLS PARTNERS, L.P.
(A Georgia Limited Partnership)
MARKET VALUE OF INVESTMENT IN LIMITED PARTNERSHIPS
AS OF DECEMBER 31, 1999
(Unaudited)
* 19.2% OWNERSHIP INTEREST IN BEAVER RUIN--ARC WAY, LTD. $549,000
* 51.26% OWNERSHIP INTEREST IN CARTER BOULEVARD, LTD. 180,000
OWNERSHIP INTEREST IN WELLS REAL ESTATE FUND XIII, L.P. 400
--------
$729,400
========
*The market value of the limited partnership investment is
based on the carrying value of the Knoxville Property, which
is partially owned by Beaver Ruin and Carter Boulevard; the
Knoxville Property was the only asset owned by Beaver Ruin and
Carter Boulevard.
The accompanying notes are an integral part of this schedule.
26
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Capital, Inc.:
We have audited the accompanying balance sheets of WELLS CAPITAL, INC. (a
Georgia corporation) as of December 31, 1999 and 1998 and the related statements
of income, stockholder's equity, and cash flows for the years then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Capital, Inc. as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for the years then ended in conformity with accounting principles generally
accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
January 20, 2000
27
<PAGE>
WELLS CAPITAL, INC.
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---------- ----------
CURRENT ASSETS:
Cash $ 147,964 $ 41,571
Due from affiliates 150,031 105,428
Other receivables and prepaid expenses 55,971 7,547
---------- ----------
Total current assets 353,966 154,546
SECURITIES AVAILABLE FOR SALE 80,464 100,000
INVESTMENT IN AFFILIATED COMPANIES 223,776 224,093
DEFERRED OFFERING COSTS 1,296,894 1,107,044
---------- ----------
Total assets $1,955,100 $1,585,683
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Accounts payable $ 0 $ 7,514
Due to affiliates 324,664 1,060,143
---------- ----------
Total liabilities 324,664 1,067,657
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 6)
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
Accumulated other comprehensive income (24,636) 0
Retained earnings 1,347,931 210,885
---------- ----------
Total stockholder's equity 1,630,436 518,026
---------- ----------
Total liabilities and stockholder's equity $1,955,100 $1,585,683
========== ==========
The accompanying notes are an integral part of these balance sheets.
28
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
---------- ----------
REVENUES:
Acquisition and advisory fees $3,922,296 $1,682,555
Equity in (loss) income of affiliated companies (35) 5,672
Interest income 12,830 0
Investment income 5,100 0
Miscellaneous income 430 0
---------- ----------
3,940,621 1,688,227
---------- ----------
EXPENSES:
Salaries and wages 2,871,853 1,517,818
General and administrative, net of reimbursements (68,278) 56,471
---------- ----------
2,803,575 1,574,289
---------- ----------
NET INCOME $1,137,046 $ 113,938
========== ==========
The accompanying notes are an integral part of these statements.
29
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF STOCKHOLDER'S EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
Accumulated
Other Total
Common Stock Contributed Comprehensive Retained Stockholder's
----------------------------
Shares Amount Capital Income Earnings Equity
------------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 600 $ 600 $306,541 $ 0 $ 96,947 $ 404,088
Net income 0 0 0 0 113,938 113,938
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1998 600 600 306,541 0 210,885 518,026
Changes in unrealized loss on
investment securities 0 0 0 (24,636) 0 (24,636)
Net income 0 0 0 0 1,137,046 1,137,046
------------- ------------- ------------- ------------- ------------- -------------
BALANCE, December 31, 1999 600 $ 600 $306,541 $ (24,636) $1,347,931 $1,630,436
============= ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
30
<PAGE>
WELLS CAPITAL, INC.
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,137,046 $ 113,938
----------- -----------
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in loss (income) of affiliated companies 35 (5,672)
Investment income reinvested (5,100) 0
Changes in assets and liabilities:
Due from affiliates (44,603) 254,595
Deferred offering costs (189,850) (778,711)
Other receivables and prepaid expenses (48,424) (7,547)
Accounts payable (7,514) (27,107)
Due to affiliates (735,479) 480,505
----------- -----------
Total adjustments (1,030,935) (83,937)
----------- -----------
Net cash provided by operating activities 106,111 30,001
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions from affiliated companies 282 277
Additional investment in affiliated companies 0 (301,800)
----------- -----------
Net cash provided by (used in) investing activities 282 (301,523)
----------- -----------
NET INCREASE (DECREASE) IN CASH 106,393 (271,522)
CASH AT BEGINNING OF YEAR 41,571 313,093
----------- -----------
CASH AT END OF YEAR $ 147,964 $ 41,571
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
31
<PAGE>
WELLS CAPITAL, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Wells Capital, Inc. (the "Company") was organized on April 18, 1984 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 Company is a wholly owned
subsidiary of Wells Real Estate Funds, Inc., and the sole stockholder of
Wells Real Estate Funds, Inc. 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 future 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"), Wells Real Estate Fund XI, L.P.
("Fund XI"), and Wells Real Estate Fund XII, L.P. ("Fund XII"). Funds IV,
V, VI, VII, VIII, IX, X, XI, and XII have the same investment objectives as
Funds I, II, II-OW, and III.
In 1997, the Company purchased 100 shares of common stock of Wells Real
Estate Investment Trust, Inc. ("Wells REIT"), a Maryland corporation that
qualifies as a real estate investment trust at the proposed initial public
offering price of $10 per share. The registration statement pertaining to
the Wells REIT became effective on January 30, 1998 and will remain
effective through December 19, 2001 or until the sale of 40,000,000 shares
of common stock. Substantially all of the Wells REIT's business is
conducted through Wells Operating Partnership, L.P. (the "Operating
Partnership"), a Delaware limited partnership. In 1997, the Operating
Partnership issued 20,000 limited partnership units to the Company in
exchange for $200,000.
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
32
<PAGE>
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 amounts have been reclassified to conform with the
current year financial statement presentation.
2. SECURITIES AVAILABLE FOR SALE
At December 31, 1999 and 1998, the Company owned 11,803 and 10,372 shares,
respectively, of the Wells S&P REIT Index Fund (the "Mutual Fund"). The
investment objective of the Mutual Fund is to provide results that
correspond with the performance of the S&P Real Estate Investment Trust
Composite Price Index (the "Index"). The Mutual Fund attempts to duplicate
the investment results of the Index. The Index is made up of approximately
100 stocks, which constitute a representative sample of all publicly traded
real estate investment trusts. Under normal market conditions, at least 90%
of the Mutual Fund's total assets will be invested in the stocks included
in the Index, with the remaining 10% invested in money market instruments
and U.S. government securities. The proportion of the Mutual Fund's assets
invested in each stock held in the Mutual Fund's portfolio is substantially
similar to the proportion of the Index represented by the stock. The Mutual
Fund will normally be invested in all of the stock which comprise the
Index. Wells Investment Securities, Inc. serves as the investment manager
for the Mutual Fund and is owned 100% by Leo F. Wells, III. The Company's
investment in the Mutual Fund is classified as available for sale and is
reported at fair value with net unrealized gains or losses reported within
shareholder's equity. The cost of the Company's investment in the Mutual
Fund is $105,100 at December 31, 1999, which includes $5,100 in investment
income which has been reinvested in the Mutual Fund.
3. 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 organizational 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 for 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, Fund XI, and
Fund XII. Pursuant to the partnership agreements of Fund IV, Fund V, and
Fund XI, these partnerships can only pay up to 3% of total limited
partners' contributions for organization and offering expenses. The
remaining partnerships can reimburse the Company up to 5% of total limited
partners' contributions for organization and offering costs pursuant to the
partnership agreements. The Wells REIT can reimburse the Company up to 3%
of total shareholder contributions for organization and offering expenses.
The Mutual Fund pays to Wells Asset Management, Inc., an affiliate of the
Company, a management fee equal to 0.5% of the daily average value of net
assets. Wells Asset
33
<PAGE>
Management, Inc. uses these funds to reimburse the Company for organization
and offering expenses. During 1999 and 1998, the Company paid organization
and offering costs related to the Mutual Fund of $284,069 and $409,916,
respectively. In 1999, the Company expensed all of the incurred and
deferred organizational and offering costs of $733,245.
During the years ended December 31, 1999 and 1998, the Company paid
organization and offering costs related to Fund X of $0 and $21,423,
respectively. During 1998, the Company expensed $21,423 of organization and
offering costs related to Fund X, which exceeded the 5% reimbursement
limitation.
During the years ended December 31, 1999 and 1998, the Company paid
organization and offering costs related to Fund XI of $49,141 and $692,610,
respectively. During 1999 and 1998, the Company expensed $49,141 and
$390,651, respectively, of organization and offering costs related to Fund
XI which exceeded the 5% reimbursement limitation.
During the years ended December 31, 1999 and 1998, the Company paid
organization and offering costs related to Fund XII of $503,860 and
$109,139, respectively. As of December 31, 1999 and 1998, deferred offering
costs represented unreimbursed organization and offering costs of $331,953
and $109,139, respectively. Fund XII will reimburse the Company for
organizational and offering costs paid on its behalf as Fund XII raises
additional capital.
During the years ended December 31, 1999 and 1998, the Company paid
organization and offering costs related to Wells REIT of $3,510,322 and
$1,205,867, respectively. As of December 31, 1999 and 1998, deferred
offering costs represented unreimbursed organizational and offering costs
of $964,941 and $548,729, respectively. Wells REIT will reimburse the
Company for organizational and offering costs paid on its behalf as Wells
REIT raises additional capital.
Due from affiliates at December 31, 1999 and 1998 represents primarily
acquisition and advisory fees paid by the Company on behalf of Fund XI,
Fund XII, and Wells REIT. The remaining due from affiliates represents
operating expenses paid by the Company on behalf of other affiliates and a
receivable from the Company's sole shareholder. The following is a detail
of due from affiliates at December 31:
1999 1998
-------- --------
Fund X $ 0 $ 2,539
Fund XI 785 89,930
Fund XII 11,982 0
Wells REIT 68,643 6,746
Shareholder 58,412 0
Other affiliates 10,209 6,213
-------- --------
$150,031 $105,428
======== ========
Due to affiliates includes the liability for advances from Wells Management
Company, Inc. ("Wells Management"), an affiliate of the Company. These
advances were used to fund the general operations of the Company. The
Company anticipates repaying this obligation to Wells Management during
2000.
34
<PAGE>
4. INVESTMENT IN AFFILIATED COMPANIES
The following is a rollforward of the Company's investment in affiliated
companies for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Investment in affiliated companies, beginning of year $224,093 $ 16,898
Contribution to affiliated companies 0 201,800
Equity in (loss) income of affiliated companies (35) 5,672
Distributions from affiliated companies (282) (277)
-------- --------
Investment in affiliated companies, end of year $223,776 $224,093
======== ========
</TABLE>
The Company's investment in each affiliated company at December 31, 1999
and 1998 is as follows:
<TABLE>
<CAPTION>
1999 1998
-------- --------
<S> <C> <C>
Fund I $ 11,027 $ 11,027
Fund II 2,439 2,721
Wells Partners 9,310 9,345
Wells REIT 201,000 201,000
-------- --------
$223,776 $224,093
======== ========
</TABLE>
As of December 31, 1999 and 1998, 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, 1999 and 1998, 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.
Wells REIT owns all of its properties either directly or through three
joint ventures, which, as of December 31, 1999, included interests in nine
office buildings, one warehouse building, three warehouse and office
facilities, and one manufacturing and office facility.
5. ACQUISITION AND ADVISORY FEES
Acquisition and advisory fees of $327,887 and $3,594,409, respectively,
were earned from Fund XII and Wells REIT, respectively, during 1999.
Acquisition and advisory fees of $578,645 and $1,103,910, respectively,
were also earned from Fund XI and Wells REIT, respectively, during 1998.
Pursuant to the partnership agreements, total fees earned may not exceed 5%
of limited partners' contributions for Fund X, and 3.5% for Fund XI, Fund
XII, and Wells REIT. As of December 31, 1999, $785 of fees due from Fund
XI, $11,982 of fees due from Fund XII, and $68,643 of fees due from Wells
REIT remained uncollected and are included in due from affiliates.
35
<PAGE>
6. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal 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.
36
<PAGE>
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information
relating to real estate investment programs sponsored by the General Partners or
their affiliates (Prior Programs) which have investment objectives similar to
Wells Real Estate Fund XII, L.P. (Wells Fund XII).
Prospective investors should read these Tables carefully together with the
summary information concerning the Prior Programs as set forth in "PRIOR
PERFORMANCE SUMMARY" elsewhere in this Prospectus.
Investors in Wells Fund XII will not own any interest in the Prior Programs
and should not assume that they will experience returns, if any, comparable to
those experienced by investors in the Prior Programs.
These Tables present actual results of Prior Programs that have investment
objectives similar to those of Wells Fund XII. Wells Fund XII's investment
objectives are to maximize net cash from operations; to preserve original
capital contributions; and to realize capital appreciation over a period of
time. All of the General Partners' Prior Programs have used a substantial amount
of capital and not acquisition indebtedness to acquire their properties.
The General Partners are responsible for the acquisition, operation,
maintenance and resale of the partnership properties. The financial results of
the Prior Programs thus provide an indication of the General Partners'
performance of their obligations during the periods covered. However, general
economic conditions affecting the real estate industry and other factors
contribute significantly to financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Prior Programs
Table IV (Results of completed programs) and Table V (sales or disposals of
property) have been omitted since none of the Prior Programs have sold any of
their properties to date.
Additional information relating to the acquisition of properties by the
Prior Programs is contained in Table VI, which is included in the Registration
Statement which the Partnership has filed with the Securities and Exchange
Commission. As described above, no Prior Program has sold or disposed of any
property held by it. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"Acquisition Fees" shall mean fees and commissions paid by a partnership in
connection with its purchase or development of a property, except development
fees paid to a person not affiliated with the partnership or with a general
partner of the partnership in connection with the actual development of a
project after acquisition of the land by the partnership.
"Organization Expenses" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
general partners or their affiliates in connection with the planning and
formation of the partnership.
"Underwriting Fees" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
37
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the general partners and
their affiliates in Prior Programs for which offerings have been completed since
December 31, 1996. 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. All figures are as of
December 31, 1999.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Estate
Estate Fund Estate Fund Estate Fund Investment
IX, L.P. X, L.P. XI, L.P. Trust, Inc.
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Dollar Amount Raised $35,000,000/(3)/ $27,128,912/(4)/ $16,532,802/(5) $132,181,919/(6)/
=========== =========== =========== ============
Percentage Amount Raised 100.0%/(3)/ 100%/(4)/ 100%/(5)/ 100%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 9.5% 9.5%
Organizational Expenses 5.0% 5.0% 3.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- ------------
Percent Available for Investment 85.0% 85.0% 87.5% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property 2.0% 5.4% 0.0% 1.1%
Cash Down Payment 67.1% 60.5% 84.0% 82.0%
Acquisition Fees/(2)/ 4.0% 4.0% 3.5% 3.5%
Development and Construction Costs 11.9% 14.1% 0.0% 0.3%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- ------------
Total Acquisition and Development Cost 85.0% 84.0% 87.5% 86.9%
Percent Leveraged 0.0% 0.0% 0.0% 17.6%
=========== =========== =========== ============
Date Offering Began 01/05/96 12/31/96 12/31/97 01/30/98
Length of Offering 12 mo. 12 mo. 12 mo. 23 mo.
Months to Invest 90% of Amount Available for
Investment (Measured from Beginning of Offering) 14 mo. 19 mo. 20 mo. 21 mo.
Number of Investors as of 12/31/99 2,120 1,812 1,345 3,839
</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 $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.
(4) 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.
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
(6) Total dollar amount registered and available to be offered was
$165,000,000. Wells Real Estate Investment Trust, Inc. closed its initial
offering on December 20, 1999, and the total dollar amount raised in its
initial offering was $132,181,919.
38
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by the general partners
or affiliates of the general partners, including compensation paid out of
offering proceeds and compensation paid in connection with the ongoing
operations of Prior Programs having similar or identical investment objectives
the offerings of which have been completed since December 31, 1996. These
partnerships have not sold or refinanced any of their properties to date. All
figures are as of December 31, 1999.
<TABLE>
<CAPTION>
Wells Real
Wells Real Wells Real Wells Real Estate Other
Estate Fund Estate Fund Estate Fund Investment Public
IX, L.P. X, L.P. XI, L.P. Trust, Inc. Programs/(1)/
----------- ----------- ----------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 01/05/96 12/31/96 12/31/97 01/30/98 --
Dollar Amount Raised $35,000,000 $27,128,912 $16,532,802 $132,181,919 $206,241,095
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 309,556 $ 260,748 $ 151,911 $ 1,530,882 $ 924,156
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 1,400,000 $ 1,085,157 $ 578,648 $ 4,626,367 $ 10,159,399
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 7,064,631 $ 4,262,319 $ 2,133,705 $ 8,002,132 $ 38,076,886
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 169,661 $ 105,410 $ 22,200 $ 129,208 $ 1,434,957
Partnership Management Fee -- -- -- -- --
Reimbursements $ 133,784 $ 105,132 $ 61,058 $ 101,605 $ 1,613,725
Leasing Commissions $ 260,082 $ 176,108 $ 33,492 $ 129,208 $ 1,580,482
General Partner Distributions -- -- -- -- --
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 the 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., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII,
L.P., and Wells Real Estate Fund VIII, 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, 1999, the
amount of such deferred fees due the general partners totaled $2,397,266.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offering which was not
reallowed to participating broker-dealers.
(3) Fees paid to the general partners or their affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(4) Includes $487,134 in net cash provided by operating activities, $6,013,970
in distributions to limited partners and $563,527 in payments to sponsor
for Wells Real Estate Fund IX, L.P.; $400,825 in net cash provided by
operating activities, $3,474,844 in distributions to limited partners and
$386,650 in payments to sponsor for Wells Real Estate Fund X, L.P.;
$(150,720) in net cash used by operating activities, $2,167,675 in
distributions to limited partners and $116,750 in payments to sponsor for
Wells Real Estate Fund XI, L.P.; $3,732,726 in net cash provided by
operating activities, $3,909,385 in dividends and $360,021 in payments to
sponsor for Wells Real Estate Investment Trust, Inc.; and $2,167,163 in net
cash provided by operating activities, $31,280,559 in distributions to
limited partners and $4,629,164 in payments to sponsor for other public
programs.
39
<PAGE>
TABLE III
(UNAUDITED)
The following six tables set forth operating results of Prior Programs
sponsored by the general partners the offerings of which have been completed
since December 31, 1994. 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.
40
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 982,630 $ 846,306 $ 816,237 $ 543,291 $ 925,246
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 85,273 85,722 76,838 84,265 114,953
Depreciation and Amortization/(3)/ 1,562 6,250 6,250 6,250 6,250
----------- ----------- ----------- ----------- ------------
Net Income GAAP Basis/(4)/ $ 895,795 $ 754,334 $ 733,149 $ 452,776 $ 804,043
=========== =========== =========== =========== ============
Taxable Income: Operations $ 1,255,666 $ 1,109,096 $ 1,008,368 $ 657,443 $ 812,402
=========== =========== =========== =========== ============
Cash Generated (Used By):
Operations (82,763) (72,194) (43,250) 20,883 431,728
Joint Ventures 1,777,010 1,770,742 1,420,126 760,628 424,304
----------- ----------- ----------- ----------- ------------
$ 1,694,247 $ 1,698,548 $ 1,376,876 $ 781,511 $ 856,032
Less Cash Distributions to Investors:
Operating Cash Flow 1,688,290 1,636,158 1,376,876 781,511 856,032
Return of Capital -- -- 2,709 10,805 22,064
Undistributed Cash Flow from Prior Year Operations -- -- -- -- 9,643
----------- ----------- ----------- ----------- ------------
Cash Generated (Deficiency) after Cash Distributions $ 5,957 $ 62,390 $ (2,709) $ (10,805) $ (31,707)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions $ -- $ -- $ -- $ -- $ 805,212
----------- ----------- ----------- ----------- ------------
$ 5,957 $ 62,390 $ (2,709) $ (10,805) $ 773,505
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- $ 244,207
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs 0 181,070 169,172 736,960 14,971,002
----------- ----------- ----------- ----------- ------------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 5,957 $ (118,680) $ (171,881) $ (747,765) $(14,441,804)
=========== =========== =========== =========== ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 93 85 86 62 57
- Operations Class B Units (248) (224) (168) (98) (20)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 89 82 78 55 55
- Operations Class B Units (144) (134) (111) (58) (16)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 83 81 70 43 52
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 83 81 70 42 51
- Return of Capital Class A Units -- -- -- -- --
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment income Class A Units 67 65 54 29 30
- Return of Capital Class A Units 16 16 16 14 22
- 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>
41
<PAGE>
(1) Includes $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,
$785,398 in equity in earnings of joint ventures and $30,839 from
investment of reserve funds in 1997, $839,037 in equity in earnings of
joint ventures and $7,269 from investment of reserve funds in 1998, and
$981,104 in equity in earnings of joint ventures and $1,526 from investment
of reserve funds in 1999. At December 31, 1999, the leasing status was 97%
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,
$877,869 for 1997, $955,245 for 1998, and $982,052 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $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;
$1,615,965 to class A Limited Partners, $(882,816) to Class B Limited
Partners and $0 to the General Partners for 1997; $1,704,213 to Class A
Limited Partners, $(949,879) to Class B Limited Partners and $0 to the
General Partners for 1998; and $1,879,410 to Class A Limited Partners,
$(983,615) to Class B Limited Partners and $0 to the General Partners for
1999.
(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, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,680,730.
42
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,360,497 $ 1,362,513 $ 1,204,018 $ 1,057,694 $ 402,428
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 87,301 87,092 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 6,250
------------ ------------ ------------ ------------ ------------
Net Income GAAP Basis/(4)/ $ 1,266,946 $ 1,269,171 $ 1,102,567 $ 936,590 273,914
============ ============ ============ ============ ============
Taxable Income: Operations $ 1,672,844 $ 1,683,192 $ 1,213,524 $ 1,001,974 404,348
============ ============ ============ ============ ============
Cash Generated (Used By):
Operations (87,298) (63,946) 7,909 623,268 204,790
Joint Ventures 2,558,623 2,293,504 1,229,282 279,984 20,287
------------ ------------ ------------ ------------ ------------
$ 2,471,325 $ 2,229,558 $ 1,237,191 $ 903,252 $ 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 2,379,215 2,218,400 1,237,191 903,252 --
Return of Capital -- -- 183,315 2,443 --
Undistributed Cash Flow from Prior Year Operations -- -- -- 225,077 --
------------ ------------ ------------ ------------ ------------
Cash Generated (Deficiency) after Cash Distributions $ 92,110 $ 11,158 $ (183,315) $ (227,520) $ 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions(5) -- -- -- 1,898,147 30,144,542
------------ ------------ ------------ ------------ ------------
$ 92,110 $ 11,158 $ (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 0 1,850,859 10,675,811 7,931,566 6,618,273
------------ ------------ ------------ ------------ ------------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 92,110 $ (1,839,701) $(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 91 91 73 46 28
- Operations Class B Units (247) (212) (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 88 89 65 46 17
- Operations Class B Units 154 (131) (95) (33) (3)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 87 83 54 43 --
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 87 83 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 70 69 42 33 --
- Return of Capital Class A Units 17 16 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>
43
<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,
$1,034,907 in equity in earnings of joint ventures and $169,111 from
investment of reserve funds in 1997, $1,346,367 in equity in earnings of
joint ventures and $16,146 from investment of reserve funds in 1998, and
$1,360,494 in equity in earnings of joint ventures and $3 from investment
of reserve funds in 1999. At December 31, 1999, the leasing status was 98%
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, $841,666 for 1997,
$1,157,355 for 1998, and $1,209,171 for 1999.
(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;
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997; $2,431,246 to Class A
Limited Partners, $(1,162,075) to Class B Limited Partners and $0 to the
General Partners for 1998; and $2,481,559 to Class A Limited Partners,
$(1,214,613) to Class B Limited Partners and $0 to the General Partners for
1999.
(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, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,464,810.
44
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ----------- ------------ ----------- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $1,593,734 $ 1,561,456 $ 1,199,300 $ 406,891 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 90,903 105,251 101,284 101,885
Depreciation and Amortization/(3)/ 12,500 6,250 6,250 6,250
---------- ----------- ------------ -----------
Net Income GAAP Basis/(4)/ $1,490,331 $ 1,449,955 $ 1,091,766 $ 298,756
========== =========== ============ ===========
Taxable Income: Operations $1,924,542 $ 1,906,011 $ 1,083,824 $ 304,552
========== =========== ============ ===========
Cash Generated (Used By):
Operations $ (94,403) $ 80,147 $ 501,390 $ 151,150
Joint Ventures 2,814,870 2,125,489 527,390 --
---------- ----------- ------------ -----------
$2,720,467 $ 2,205,636 $ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 2,720,467 2,188,189 1,028,780 149,425
Return of Capital 15,528 -- 41,834 --
Undistributed Cash Flow From Prior Year Operations 17,447 -- 1,725 --
---------- ----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (32,975) $ 17,447 $ (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
---------- ----------- ------------ -----------
$ (32,975) $ 17,447 $ (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 190,853 9,455,554 13,427,158 6,544,019
---------- ----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (223,828) $(9,438,107) $(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 89 88 53 28
- Operations Class B Units (272) (218) (77) (11)
Capital Gain (Loss) -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 86 85 46 26
- Operations Class B Units (164) (123) (47) (48)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 88 73 36 13
- Return of Capital Class A Units 2 -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 89 73 35 13
- Return of Capital Class A Units 1 -- 1 --
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)(5)
- Investment Income Class A Units 77 61 29 10
- Return of Capital Class A Units 13 12 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>
45
<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,
$1,481,869 in equity in earnings of joint ventures and $79,587 from
investment of reserve funds in 1998, and $1,593,734 in equity in earnings
of joint ventures and $0 from investment of reserve funds in 1999. At
December 31, 1999, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996, $469,126 for 1997, $1,143,407 for 1998,
and $1,210,939 for 1999.
(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; $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997;
$2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited
Partners and $0 to the General Partners for 1998; and $2,713,636 to Class A
Limited Partners, $(1,223,305) to Class B Limited Partners and $0 to the
General Partners for 1999.
(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, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$993,010.
46
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ------------ ----------- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $1,309,281 $ 1,204,597 $ 372,507 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2/) 98,213 99,034 88,232
Depreciation and Amortization/(3)/ 18,750 55,234 6,250
---------- ------------ -----------
Net Income GAAP Basis/(4)/ $1,192,318 $ 1,050,329 $ 278,025
========== ============ ===========
Taxable Income: Operations $1,449,771 $ 1,277,016 $ 382,543
========== ============ ===========
Cash Generated (Used By):
Operations (99,862) 300,019 200,668
Joint Ventures 2,175,915 886,846 --
---------- ------------ -----------
$2,076,053 $ 1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 2,067,801 1,186,865 --
Return of Capital -- 19,510 --
Undistributed Cash Flow From Prior Year Operations -- 200,668 --
---------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ 8,252 $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- -- 27,128,912
---------- ------------ -----------
$ 8,252 $ (220,178) $27,329,580
Use of Funds:
Sales Commissions and Offering Expenses -- 300,725 3,737,363
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 0 17,613,067 5,188,485
---------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 8,252 $(18,133,970) $18,403,632
========== ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 97 85 28
- Operations Class B Units (160) (123) (9)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 92 78 35
- Operations Class B Units (100) (64) 0
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 95 66 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 95 56 --
- Return of Capital Class A Units -- 10 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 71 48 --
- Return of Capital Class A Units 24 18 --
- 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>
47
<PAGE>
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542
from investment of reserve funds in 1997, and $869,555 in equity in
earnings of joint ventures and $215,042 from investment of reserve funds in
1998, and $1,309,281 in equity in earnings of joint ventures and $0 from
investment of reserve funds in 1999. At December 31, 1999, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997, $674,986 for 1998, and $891,911 for 1999.
(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; $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998; and
$2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited
Partners and $0 to the General Partners for 1999.
(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, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$909,527.
48
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
----------- ----------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ 766,586 262,729 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 111,058 113,184
Depreciation and Amortization/(3)/ 25,000 6,250
----------- -----------
Net Income GAAP Basis/(4)/ $ 630,528 $ 143,295
=========== ===========
Taxable Income: Operations $ 704,108 $ 177,692
=========== ===========
Cash Generated (Used By):
Operations 40,906 (50,858)
Joint Ventures 705,394 102,662
----------- -----------
$ 746,300 $ 51,804
Less Cash Distributions to Investors:
Operating Cash Flow 746,300 51,804
Return of Capital 49,761 48,070
Undistributed Cash Flow From Prior Year Operations -- --
----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (49,761) $ (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 16,532,801
----------- -----------
$ (49,761) $16,484,731
Use of Funds:
Sales Commissions and Offering Expenses 214,609 1,779,661
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 9,005,979 5,412,870
----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(9,270,449) $ 9,292,200
=========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 77 20
- Operations Class B Units (112) (32)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 71 18
- Operations Class B Units (73) (17)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 60 8
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 56 4
- Return of Capital Class A Units 4 4
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 46 6
- Return of Capital Class A Units 14 2
- 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>
49
<PAGE>
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998, and $607,579 in equity in earnings of
joint ventures and $159,007 from investment of reserve funds in 1999. At
December 31, 1999, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $105,458 for 1998, and $353,840 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998; and $1,009,368 to Class A Limited Partners, $(378,840)
to Class B Limited Partners and $0 to the General Partners for 1999.
(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, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$213,006.
50
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
SUPPLEMENT NO. 5 DATED JULY 25, 2000 TO THE PROSPECTUS
DATED MARCH 22, 1999
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Fund XII, L.P. dated March 22, 1999, as
supplemented and amended by Supplement No. 1 dated September 1, 1999, Supplement
No. 2 dated October 10, 1999 and Supplement No. 3 dated April 25, 2000. This
supplement includes the information in and supercedes Supplement No. 4 dated May
24, 2000. When we refer to the "prospectus" in this supplement, we are also
referring to any and all supplements to the prospectus. Unless otherwise
defined in this supplement, capitalized terms used in this supplement shall have
the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of units of limited partnership interest in
Wells Real Estate Fund XII, L.P. (Wells Fund XII);
(2) The Joint Venture Partnership Agreement entered into between Wells
Fund XII and Wells Operating Partnership, L.P. (Wells OP);
(3) The acquisition of an interest in an office building in Troy, Michigan
leased to Siemens Automotive Corporation (Siemens Building);
(4) Revisions to the "Compensation of the General Partners and Affiliates"
section of the prospectus;
(5) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus;
(6) Revisions to the "Plan of Distribution" section of the prospectus; and
(7) Unaudited Pro Forma Balance Sheet of Wells Fund XII.
Status of the Offering
Pursuant to the prospectus, the offering of units in Wells Fund XII
commenced on March 22, 1999. Wells Fund XII began operations on June 1, 1999,
upon the acceptance of subscriptions for the minimum offering of $1,250,000
(125,000 units). As of July 20, 2000, Wells Fund XII had raised a total of
$17,317,085 in offering proceeds (1,731,709 units), comprised of $13,458,598
raised from the sale of cash preferred units (1,345,860 cash preferred units)
and $3,858,487 raised from the sale of tax preferred units (385,849 tax
preferred units).
Fund XII-REIT Joint Venture
On April 10, 2000, Wells Fund XII and Wells OP, the operating partnership
for Wells Real Estate Investment Trust, Inc., an affiliate of the general
partners, entered into a Joint Venture Partnership Agreement for the purpose of
acquiring, owning, leasing, operating and managing real properties. The joint
venture partnership is known as the Wells Fund XII-REIT Joint Venture
Partnership (Fund XII-REIT Joint Venture). As of July 15, 2000, Wells Fund XII
had made total capital contributions to the
1
<PAGE>
Fund XII-REIT Joint Venture of $6,782,935 and held an equity percentage interest
in the joint venture of 50%, and Wells OP had made total capital contributions
to the Fund XII-REIT Joint Venture of $6,782,935 and held an equity percentage
interest in the joint venture of 50%. All income, loss, profit, net cash flow,
resale gain and sale proceeds of the Fund XII-REIT Joint Venture are to be
allocated and distributed between the parties based upon their respective
capital contributions to the joint venture.
Wells OP is acting as the initial Administrative Venturer of the Fund XII-
REIT Joint Venture and, as such, is responsible for establishing policies and
operating procedures with respect to the business and affairs of the joint
venture. However, approval of Wells Fund XII will be required for all major
decisions or actions which will materially affect the joint venture or its real
properties.
The Siemens Building
Purchase of the Siemens Building. On May 10, 2000, the Fund XII-REIT Joint
--------------------------------
Venture acquired the Siemens Building, a three story office building with
approximately 77,054 rentable square feet located at 4685 Investment Drive, in
Troy, Oakland County, Michigan. The Fund XII-REIT Joint Venture purchased the
Siemens Building from Troy Development #1, LLC, a Colorado limited liability
company (Troy), pursuant to that certain Agreement for the Purchase and Sale of
Property between Troy and Wells Capital, Inc. (Wells Capital), an affiliate of
the general partners. Troy is not in any way affiliated with the general
partners, or their affiliates.
Wells Capital, the original purchaser under the agreement, assigned its
rights under the agreement to the Fund XII-REIT Joint Venture at closing. The
Fund XII-REIT Joint Venture paid a purchase price of $14,265,000 for the Siemens
Building and incurred additional acquisition expenses in connection with the
purchase of the Siemens Building, including attorneys' fees, recording fees and
other closing costs, of approximately $27,489. The Fund XII-REIT Joint Venture
received a credit at the closing in the amount of $1,954,516 to be used to pay
the remainder of the tenant improvement allowance required under the terms of
the Siemens lease, which became an obligation of the Fund XII-REIT Joint
Venture, as landlord, upon the assignment of the Siemens lease at closing.
Wells Fund XII contributed $6,168,986 and Wells OP contributed $6,168,986
to the Fund XII-REIT Joint Venture for their respective shares of the
acquisition costs for the Siemens Building. As of July 15, 2000, Wells Fund XII
and Wells OP have contributed on an equal basis and aggregate amount of
$1,227,898 to the Fund XII-REIT Joint Venture in order to fund the tenant
improvement allowance as such costs were incurred by the tenant. It is currently
anticipated that the remaining $726,618 of the tenant improvement allowance will
be contributed on an equal basis to the Fund XII-REIT Joint Venture as such
costs are incurred by the tenant.
Description of the Building and the Site. As set forth above, the Siemens
----------------------------------------
Building, which was completed in May 2000, is a three story office building
containing approximately 77,054 rentable square feet on a 5.3 acre tract of
land. The building is constructed using a fireproof steel frame with steel
beams and steel deck on a concrete slab with concrete footings. The exterior
walls are a combination of brick and tinted glass panels. The common areas
consist of granite tile flooring in the lobby and commercial grade carpeting in
the corridors. There are 322 paved surface parking spaces at the site.
An independent appraisal of the Siemens Building was prepared by CB Richard
Ellis, Inc., real estate appraisers, as of May 1, 2000, pursuant to which the
market value of the land and the leased fee interest subject to the Siemens
lease (described below) was estimated to be $14,550,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Siemens Building will continue operating at a stabilized
level with Siemens Automotive Corporation (Siemens) occupying 100% of the
rentable area, and is not necessarily an accurate reflection of the fair market
value of the property or the net proceeds which would result from an immediate
sale of this
2
<PAGE>
property. The Fund XII-REIT Joint Venture also obtained an environmental report
and an engineering inspection report prior to the closing evidencing that the
condition of the land and the Siemens Building were satisfactory.
The Siemens Building is located in Troy, Michigan, which is part of the
Detroit Metropolitan Statistical Area (MSA). This six-county region, consisting
of Lapeer, Macomb, Monroe, Oakland, St. Clair and Wayne Counties, covers
approximately 3,900 square miles in southeastern Michigan along the shores of
Lake Erie, Lake St. Clair and the Detroit River which connects the two lakes.
The Detroit MSA is well known for its manufacturing market with heavy emphasis
on the automobile industry. As the headquarters for General Motors,
DaimlerChrysler and Ford, Detroit's economy has historically been dependent on
the condition of this specific industry. Oakland County has a strong reputation
for its commercial and industrial base and supportive governmental services,
good public school systems and well maintained recreational parks and
facilities.
The Lease. The entire 77,054 rentable square feet of the Siemens Building is
---------
currently under a net lease agreement with Siemens. The landlord's interest in
the Siemens lease was assigned to the Fund XII-REIT Joint Venture at the
closing. The Siemens lease commenced on March 3, 2000, and the initial term
expires on August 31, 2010. Siemens has the right to extend the Siemens lease
for two additional five year periods of time at 95% of the then current fair
market rental rate.
Siemens is a subsidiary of Siemens Corporation USA, a domestic corporation
which conducts the American operations of Siemens AG, the world's second largest
manufacturer of electronic capital goods. Siemens, part of the worldwide
Automotive Systems Group of Siemens AG, is a supplier of advanced electronic and
electrical products and systems to automobile manufacturers. Siemens' products
include powertrains, safety and chassis systems, body electronic systems and
electric motor drives. During the fiscal year 1999, Siemens had net income of
$17.3 million on revenues of over $813 million and a net worth of over $66.7
million.
The monthly rent payable for the initial lease year of the Siemens lease is
$109,160. During the first six months of that initial lease year, however,
Siemens will only occupy the first two floors of the Siemens Building and will
be paying monthly base rent of $72,971. During that period of time, Troy, the
seller of the Siemens Building, is obligated to pay the remaining $36,189 of
monthly base rent as a rental guaranty. Troy has placed $172,000 in an escrow
account to partially satisfy this rental guaranty, out of which the $36,189
difference will automatically be paid to the Fund XII-REIT Joint Venture on a
monthly basis. After the first six months of the initial lease year, Siemens
will occupy the entire building and pay the full base rent.
The base rent payable for the initial lease term is as follows:
<TABLE>
<CAPTION>
Lease Year Annual Rent Monthly Rent
----------------------------------------------------------------------
<S> <C> <C>
Year 1 $1,309,918 $109,160
----------------------------------------------------------------------
Year 2 $1,342,281 $111,857
----------------------------------------------------------------------
Year 3 $1,374,643 $114,554
----------------------------------------------------------------------
Year 4 $1,407,006 $117,251
----------------------------------------------------------------------
Year 5 $1,439,369 $119,947
----------------------------------------------------------------------
Year 6 $1,471,731 $122,644
----------------------------------------------------------------------
Year 7 $1,504,094 $125,341
----------------------------------------------------------------------
Year 8 $1,536,457 $128,038
----------------------------------------------------------------------
Year 9 $1,568,819 $130,735
----------------------------------------------------------------------
Year 10 and first $1,601,182 $133,432
6 months of Year 11
----------------------------------------------------------------------
</TABLE>
3
<PAGE>
Under the Siemens lease, Siemens is required to pay as additional monthly
rent its gas, water and electricity costs and all operating expenses, including,
but not limited to, garbage and waste disposal, telephone, sprinkler service,
janitorial service, security, insurance premiums, all taxes, assessments and
other governmental levies and such other operating expenses with respect to the
Siemens Building. In addition, Siemens is responsible for all routine
maintenance and repairs to its portion of the Siemens Building. Siemens is
responsible for maintaining the common and service areas and the central
heating, ventilation and air conditioning systems of the Siemens Building. The
Fund XII-REIT Joint Venture, as landlord, is responsible for the repair and
replacement of the roof, foundation, load bearing items, exterior surface walls,
plumbing, pipes, conduits and electrical, mechanical and plumbing systems of the
Siemens Building. Siemens must obtain written consent from the Fund XII-REIT
Joint Venture before making any alterations to the premises in excess of
$100,000 in the aggregate within any 12 month period.
Under the terms of the Siemens lease, the Fund XII-REIT Joint Venture is
required to reimburse Siemens for tenant improvement costs in the amount of
$1,954,516. As described above, the Fund XII-REIT Joint Venture received a
credit at closing in an amount equal to this tenant improvement allowance.
Siemens has a one-time right to cancel the Siemens lease effective after
the 90th month of the lease term if Siemens (a) provides written notice of such
cancellation on or before the last day of the 78th month, and (b) pays a
cancellation fee to the Fund XII-REIT Joint Venture currently calculated to be
approximately $1,234,160.
Property Management Fees. Wells Management Company, Inc. (Wells Management), an
------------------------
affiliate of the general partners, has been retained to manage and lease the
Seimens Building. The Fund XII-REIT Joint Venture will pay management and
leasing fees to Wells Management in the amount of 4.5% of gross revenues from
the Siemens Building.
Compensation of the General Partners and Affiliates
The information set forth in the "Compensation of the General Partners and
Affiliates" section contained on pages 48 and 49 of the prospectus is revised as
of the date of this supplement by the insertion of the following sentence at the
end of the description of the property management and leasing fees paragraph:
In addition, we may pay to either non-affiliated third party leasing
agents or to Wells Management, an affiliate of the general partners,
leasing fees currently ranging from $.50 to $1.50 per square foot for
procuring tenants and negotiating the terms of tenant leases. These leasing
fees shall be paid for only leasing services actually rendered and, if paid
to Wells Management, will not exceed the fees which would customarily be
charged in arm's length transactions by others rendering similar services
in the same geographic area for similar properties. In no event may the
aggregate of all property management and leasing fees paid to affiliates of
the general partners exceed 6% of gross revenues.
4
<PAGE>
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 76 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations" section of the
prospectus is revised as of the date of this supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraphs in
lieu thereof:
Wells Fund XII commenced operations on June 1, 1999, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
units). As of July 20, 2000, Wells Fund XII had raised a total of
$17,317,085 in offering proceeds (1,731,709 units).
As of July 20, 2000, Wells Fund XII had paid $606,098 in acquisition
and advisory fees and acquisition expenses, had paid $2,164,636 in selling
commissions and organizational and offering expenses, had invested
$12,082,935 in properties by virtue of capital contributions to joint
ventures and was holding net offering proceeds of $2,463,416 available for
investment in additional properties.
Plan of Distribution
The information contained on page 120 in the "Plan of Distribution" section
of the prospectus is revised as of the date of this supplement by the deletion
of the fourth and fifth full paragraphs on that page and the insertion of the
following paragraphs in lieu thereof:
In connection with sales of 25,000 or more units ($250,000) to a
"purchaser" as defined below, a participating broker-dealer may agree in
his sole discretion to reduce the amount of his selling commissions. 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 available:
<TABLE>
<CAPTION>
Dealer
Sales Commissions Purchase Manager Net
Dollar Volume ------------------ Price Fee Per Proceeds
Units Purchased Percent Per Unit Per Unit Unit Per Unit
-------------------------- -------- -------- -------- ------- ------------
<S> <C> <C> <C> <C> <C>
Under $250,000 7.0% $0.7000 $10.0000 $0.25 $9.05
$250,000-$999,999 5.0% $0.4895 $ 9.7895 $0.25 $9.05
$1,000,000 and Over 3.0% $0.2876 $ 9.5876 $0.25 $9.05
</TABLE>
For example, if an investor purchases 100,000 units in the
partnership, he could pay as little as $958,760 rather than $1,000,000 for
the units, in which event the commission on the sale of such units would be
$28,760 ($0.2876 per unit), and, after payment of the dealer manager fee,
we would receive net proceeds of $905,000 ($9.05 per unit). The net
proceeds to the partnership will not be affected by volume discounts.
The information contained on pages 122 and 123 in the "Plan of
Distribution" section of the prospectus is revised as of the date of this
supplement by the deletion of the last three paragraphs in that section and
the insertion of the following paragraphs in lieu thereof:
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 six year period pursuant
to a deferred commission option. Investors electing the deferred commission
option will be required to pay a total of $9.40 per unit purchased upon
subscription,
5
<PAGE>
rather than $10.00 per unit, with respect to which $0.10 per unit will be
payable as commissions due upon subscription. For the period of six years
following subscription, or longer if required to satisfy the outstanding
commission obligation, $0.10 per unit will be paid on an annual basis 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, or longer if required to satisfy the
outstanding commission obligation, 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 the 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 or their affiliates 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, as determined 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 subscription, or longer if required, 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 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. (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.")
Financial Statements
The pro forma balance sheet of Wells Fund XII, as of March 31, 2000, which
is included in this supplement, has not been audited.
6
<PAGE>
INDEX TO PRO FORMA BALANCE SHEET
Pro Forma Balance Sheet Page
----------------------- ----
Summary of Unaudited Pro Forma Balance Sheet 8
Pro Forma Balance Sheet as of March 31, 2000 9
7
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
UNAUDITED PRO FORMA BALANCE SHEET
The following unaudited pro forma balance sheet as of March 31, 2000 has been
prepared to give effect to the acquisition of the Siemens Building by the Wells
Fund XII-REIT Joint Venture (a joint venture between the Wells Operating
Partnership, L.P. and Wells Real Estate Fund XII, L.P.) as if the acquisition
occurred as of March 31, 2000.
Wells Operating Partnership, L.P. is a Delaware limited partnership that was
organized to own and operate properties on behalf of the Wells Real Estate
Investment Trust, Inc. Wells Real Estate Investment Trust, Inc. is the general
partner of the Wells Operating Partnership, L.P.
This unaudited pro forma balance sheet is prepared for informational purposes
only and is not necessarily indicative of future results or of actual results
that would have been achieved had the acquisition been consummated at the
beginning of the period presented.
As of March 31, 2000, the date of the accompanying pro forma balance sheet,
Wells Real Estate Fund XII, L.P. held cash of $4,682,895. The additional cash
used to purchase the Siemens Building, including deferred project costs paid to
Wells Capital, Inc. (an affiliate of Wells Real Estate Fund XII, L.P.), was
raised by selling additional limited partner units subsequent to March 31, 2000,
but prior to the acquisition date of May 10, 2000. This balance is reflected in
due to affiliates in the accompanying pro forma balance sheet.
8
<PAGE>
WELLS REAL ESTATE FUND XII, L.P.
PRO FORMA BALANCE SHEET
March 31, 2000
(Unaudited)
assets
<TABLE>
<CAPTION>
Wells Real
Estate Pro Forma Pro Forma
Fund XII, L.P. Adjustments Total
-------------- ----------------- --------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 4,682,895 $(4,682,895)(a) $ 0
INVESTMENT IN JOINT VENTURES 5,434,008 6,426,048 (b) 11,860,056
DEFERRED PROJECT COSTS 209,412 (209,412)(c) 0
DEFERRED OFFERING COSTS 381,943 0 381,943
DUE FROM AFFILIATES 120,764 0 120,764
PREPAIDS AND OTHER ASSETS 400,000 (400,000)(a) 0
----------- --------------- -------------
Total assets $11,229,022 $ 1,133,741 $ 12,362,763
=========== =============== =============
</TABLE>
liabilities and partners' capital
<TABLE>
<S> <C> <C> <C>
ACCOUNTS PAYABLE AND ACCRUED EXPENSES $ 10,058 $ 0 $ 10,058
PARTNERSHIP DISTRIBUTION PAYABLE 142,481 0 142,481
DUE TO AFFILIATES 406,631 1,086,091(a) 1,540,372
47,650(b)
----------- --------------- -------------
Total liabilities 559,170 1,133,741 1,692,911
----------- --------------- -------------
PARTNERS' CAPITAL:
Limited partners:
Cash preferred--979,747 units outstanding 8,602,965 0 8,602,965
Tax preferred--249,530 units outstanding 2,066,887 0 2,066,887
----------- --------------- -------------
Total partners capital 10,669,852 0 10,669,852
----------- --------------- -------------
Total liabilities and partners capital $11,229,022 $ 1,133,741 $ 12,362,763
=========== =============== =============
</TABLE>
(a) Reflects Wells Real Estate Fund XII, L.P.'s portion of the
purchase price.
(b) Reflects Wells Real Estate Fund XII, L.P.'s contribution to the
Wells Fund XII-REIT Joint Venture.
(c) Reflects deferred project costs contributed to the Wells Fund XII-
REIT Joint Venture at approximately 4.17% of the purchase price.
9
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Items 31 through 35 and Item 37 of Part II are incorporated by reference to the
Registrant's Registration Statement, as amended to date, Commission File No. 33-
66657
Item 36 Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
--------------------
The following audited financial statements of Wells Real Estate
Fund XII, L.P. are filed as part of this Registration Statement
and included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Balance Sheet as of December 31, 1998, and
(3) Notes to Balance Sheet.
The following audited financial statements of Wells Partners,
L.P. are filed as part of this Registration Statement and
included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1998 and 1997,
(3) Statements of Income (Loss) for the years ended
December 31, 1998 and 1997,
(4) Statements of Partners' Capital for the years ended
December 31, 1998 and 1997,
(5) Statements of Cash Flows for the years ended December
31, 1998 and 1997,
(6) Notes to Financial Statements, and
(7) Schedule I - Market Value of Investment in Limited
Partnerships (Unaudited).
The following audited financial statements of Wells Capital, Inc.
are filed as part of this Registration Statement and included in
the Prospectus:
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1998 and 1997,
(3) Statements of Income (Loss) for the years ended
December 31, 1998 and 1997,
(4) Statements of Stockholder's Equity for the years ended
December 31, 1998 and 1997,
(5) Statements of Cash Flows for the years ended December
31, 1998 and 1997, and
(6) Notes to Financial Statements.
II-1
<PAGE>
The following financial statements relating to the acquisition of
the EYBL CarTex Building by Wells Real Estate, LLC - SC I are
filed as part of this Registration Statement and included in
Supplement No. 1 to the Prospectus:
Unaudited Statement of Revenues Over Certain Operating
Expenses
(1) Statement of Revenues Over Certain Operating Expenses
for the six months ended June 30, 1999, and
(2) Notes to Statement of Revenues Over Certain Operating
Expenses for the six months ended June 30, 1999.
The following financial statements relating to the acquisition of
the Sprint Building by The Wells Fund XI - Fund XII - REIT Joint
Venture are filed as part of this Registration Statement and
included in Supplement No. 1 to the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and the
six months ended June 30, 1999 (Unaudited), and
(3) Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and the six months ended June 30, 1999 (Unaudited).
The following financial statements relating to the acquisition of
the Johnson Matthey Building by The Wells Fund XI - Fund XII -
REIT Joint Venture are filed as part of this Registration
Statement and included in Supplement No. 1 to the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and the
six months ended June 30, 1999 (Unaudited), and
(3) Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and the six months ended June 30, 1999 (Unaudited).
The following unaudited pro forma financial statements of Wells
Real Estate Fund XII, L.P. are filed as part of this Registration
Statement and included in Supplement No. 1 to the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Financial Statements,
(2) Pro Forma Balance Sheet as of June 30, 1999,
(3) Pro Forma Income Statement for the period from
Inception (September 15, 1998) to December 31, 1998,
and
(4) Pro Forma Income Statement for the six month period
ended June 30, 1999.
II-2
<PAGE>
The following financial statements relating to the acquisition of
the Gartner Building by The Wells Fund XI - Fund XII - REIT Joint
Venture are filed as part of this Registration Statement and
included in Supplement No. 2 to the Prospectus:
Statement of Revenues Over Certain Operating Expenses
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1998 (Audited) and for
the six months ended June 30, 1999 (Unaudited),
(3) Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998 (Audited)
and for the six months ended June 30, 1999 (Unaudited).
The following unaudited pro forma financial statements of Wells
Real Estate Fund XII, L.P. are filed as part of this Registration
Statement and included in Supplement No. 2 to the Prospectus:
Unaudited Pro Forma Financial Statements
(1) Summary of Unaudited Pro Forma Financial Statements,
(2) Pro Forma Balance Sheet as of June 30, 1999,
(3) Pro Forma Income Statement for the period from
Inception (September 15, 1998) to December 31, 1998,
and
(4) Pro Forma Income Statement for the six month period
ended June 30, 1999.
The following audited financial statements of Wells Real Estate
Fund XII, L.P. are filed as part of this Registration Statement
and included in Supplement No. 3 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1999 and 1998,
(3) Statement of Income for the year ended December 31,
1999,
(4) Statements of Partners' Capital for the years ended
December 31, 1999 and 1998,
(5) Statements of Cash Flows for the years ended December
31, 1999 and 1998, and
(6) Notes to Financial Statements.
The following audited financial statements of Wells Partners,
L.P. are filed as part of this Registration Statement and
included in Supplement No. 3 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1999 and 1998,
(3) Statements of (Loss) Income for the years ended
December 31, 1999 and 1998,
(4) Statements of Partners' Capital for the years ended
December 31, 1999 and 1998,
(5) Statements of Cash Flows for the years ended December
31, 1999 and 1998,
(6) Notes to Financial Statements, and
II-3
<PAGE>
(7) Schedule I - Market Value of Investment in Limited
Partnerships as of December 31, 1999 (Unaudited).
The following audited financial statements of Wells Capital, Inc.
are filed as part of this Registration Statement and included in
Supplement No. 3 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Balance Sheets as of December 31, 1999 and 1998,
(3) Statements of Income for the years ended December 31,
1999 and 1998,
(4) Statements of Stockholder's Equity for the years ended
December 31, 1999 and 1998,
(5) Statements of Cash Flows for the years ended December
31, 1999 and 1998, and
(6) Notes to Financial Statements.
The following unaudited pro forma financial statements of Wells
Real Estate Fund XII, L.P. are filed as part of this Registration
Statement and included in Supplement No. 5 to the Prospectus:
Unaudited Pro Forma Balance Sheet
(1) Summary of Unaudited Pro Forma Balance Sheet, and
(2) Pro Forma Balance Sheet as of March 31, 2000.
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit
No. Description
------- -----------
1 Form of Dealer Manager Distribution Agreement between Registrant and
Wells Investment Securities, Inc. (previously filed in and
incorporated by reference to the Registrant's Registration Statement,
Commission File No. 33-66657, filed on March 1, 1999)
3.1 Form of Amended and Restated Agreement of Limited Partnership of Wells
Real Estate Fund XII, L.P. (included as Exhibit A to Prospectus)
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
(previously filed in and incorporated by reference to the Registrant's
Registration Statement, Commission File No. 33-66657, filed on
November 2, 1998)
8 Opinion of Holland & Knight LLP regarding tax matters (previously
filed in and incorporated by reference to the Registrant's
Registration Statement, Commission File No. 33-66657, filed on March
1, 1999)
10.1 Escrow Agreement between Registrant and NationsBank, N.A. (previously
filed in and incorporated by reference to the Registrant's
Registration Statement, Commission File No. 33-66657, filed on March
18, 1999)
II-4
<PAGE>
10.2 Form of Leasing and Tenant Coordinating Agreement between Registrant
and Wells Management Company, Inc. (previously filed in and
incorporated by reference to the Registrant's Registration Statement,
Commission File No. 33-66657, filed on March 1, 1999)
10.3 Form of Management Agreement between Registrant and Wells Management
Company, Inc. (previously filed in and incorporated by reference to
the Registrant's Registration Statement, Commission File No. 33-66657,
filed on March 1, 1999)
10.4 Agreement of Sale and Purchase for the EYBL CarTex Building between
Wells Real Estate, LLC - SC I (as successor in interest by assignment)
and Liberty Property Limited Partnership (previously filed as Exhibit
10.54 and incorporated by reference to Post-Effective Amendment No. 6
to the Registration Statement of Wells Real Estate Investment Trust,
Inc., Commission File No. 333-32099, filed on July 15, 1999)
10.5 Agreement of Sale and Purchase for the Sprint Building between The
Wells Fund XI - Fund XII - REIT Joint Venture (as successor in
interest by assignment) and Bridge Information Systems America, Inc.
(previously filed in and incorporated by reference to the Registrant's
Registration Statement, Commission File No. 33-66657, filed on
September 1, 1999)
10.6 Agreement of Sale and Purchase for the Johnson Matthey Building
between The Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Alliance Commercial
Properties, Ltd. (previously filed in and incorporated by reference to
the Registrant's Registration Statement, Commission File No. 33-66657,
filed on September 1, 1999)
10.7 Fifth Amendment to Lease for the Johnson Matthey Building between The
Wells Fund XI - Fund XII - REIT Joint Venture (as successor in
interest by assignment) and Johnson Matthey, Inc. (previously filed in
and incorporated by reference to the Registrant's Registration
Statement, Commission File No. 33-66657, filed on September 1, 1999)
10.8 Amended and Restated Joint Venture Partnership Agreement of The Wells
Fund XI - Fund XII - REIT Joint Venture dated June 21, 1999
(previously filed as Exhibit 10.28 and incorporated by reference to
Amendment No. to the Registration Statement of Wells Real Estate
Investment Trust, Inc., Commission File No. 333-83933, filed on
November 17, 1999)
10.9 Agreement of Purchase and Sale for the Gartner Building dated August
20, 1999 between The Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Hogan Triad Ft. Myers I, Ltd.
(previously filed as Exhibit 10.63 and incorporated by reference to
Post-Effective Amendment No. 7 to the Registration Statement of Wells
Real Estate Investment Trust, Inc., Commission File No. 333-32099,
filed on October 14, 1999)
10.10 Lease Agreement for the Gartner Building dated July 30, 1997 between
The Wells Fund XI - Fund XII - REIT Joint Venture (as successor in
interest by assignment) and Gartner Group, Inc. (previously filed as
Exhibit 10.63 and incorporated by reference to Post-Effective
Amendment No. 7 to the Registration Statement of Wells Real Estate
Investment Trust, Inc., Commission File No. 333-32099, filed on
October 14, 1999)
II-5
<PAGE>
10.11 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership dated April 10, 2000 (previously filed in and
incorporated by reference to the Registrant's Registration Statement,
Commission File No. 33-66657, filed on April 25, 2000)
10.12 Agreement for the Purchase and Sale of Property for the Siemens
Building dated February 22, 2000 between Wells Fund XII-REIT Joint
Venture (as successor in interest by assignment) and Troy Development
#1, LLC
10.13 Office Lease for the Siemens Building dated January 10, 2000 between
Wells Fund XII-REIT Joint Venture (as successor in interest by
assignment) and Siemens Automotive Corporation
23.1 Consent of Holland & Knight LLP (included in Exhibits 5.1 and 8)
23.2 Consent of Arthur Andersen LLP
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 3 to 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 19th day of July, 2000.
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
Pursuant to the requirements of the Securities Act of 1933, this Post-
Effective Amendment No. 3 to 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), July 19, 2000
--------------------- Treasurer and Sole Director of Wells
Leo F. Wells, III Capital, Inc., the sole general
partner of Wells Partners, L.P.
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
1 Form of Dealer Manager Distribution Agreement between Registrant
and Wells Investment Securities, Inc. (previously filed in and
incorporated by reference to the Registrant's Registration
Statement, Commission File No. 33-66657, filed on March 1, 1999)
3.1 Form of Amended and Restated Agreement of Limited Partnership of
Wells Real Estate Fund XII, L.P. (included as Exhibit A to
Prospectus)
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
(previously filed in and incorporated by reference to the
Registrant's Registration Statement, Commission File No. 33-66657,
filed on November 2, 1998)
8 Opinion of Holland & Knight LLP regarding tax matters (previously
filed in and incorporated by reference to the Registrant's
Registration Statement, Commission File No. 33-66657, filed on
March 1, 1999)
10.1 Escrow Agreement between Registrant and NationsBank, N.A.
(previously filed in and incorporated by reference to the
Registrant's Registration Statement, Commission File No. 33-66657,
filed on March 18, 1999)
10.2 Form of Leasing and Tenant Coordinating Agreement between
Registrant and Wells Management Company, Inc. (previously filed in
and incorporated by reference to the Registrant's Registration
Statement, Commission File No. 33-66657, filed on March 1, 1999)
10.3 Form of Management Agreement between Registrant and Wells
Management Company, Inc. (previously filed in and incorporated by
reference to the Registrant's Registration Statement, Commission
File No. 33-66657, filed on March 1, 1999)
10.4 Agreement of Sale and Purchase for the EYBL CarTex Building between
Wells Real Estate, LLC - SC I (as successor in interest by
assignment) and Liberty Property Limited Partnership (previously
filed as Exhibit 10.54 and incorporated by reference to Post-
Effective Amendment No. 6 to the Registration Statement of Wells
Real Estate Investment Trust, Inc., Commission File No. 333-32099,
filed on July 15, 1999)
10.5 Agreement of Sale and Purchase for the Sprint Building between The
Wells Fund XI - Fund XII - REIT Joint Venture (as successor in
interest by assignment) and Bridge Information Systems America,
Inc. (previously filed in and incorporated by reference to the
Registrant's Registration Statement, Commission File No. 33-66657,
filed on September 19, 1999)
<PAGE>
10.6 Agreement of Sale and Purchase for the Johnson Matthey Building
between The Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Alliance Commercial
Properties, Ltd. (previously filed in and incorporated by reference
to the Registrant's Registration Statement, Commission File No. 33-
66657, filed on September 19, 1999)
10.7 Fifth Amendment to Lease for the Johnson Matthey Building between
The Wells Fund XI - Fund XII - REIT Joint Venture (as successor in
interest by assignment) and Johnson Matthey, Inc. (previously filed
in and incorporated by reference to the Registrant's Registration
Statement, Commission File No. 33-66657, filed on September 19,
1999)
10.8 Amended and Restated Joint Venture Partnership Agreement of The
Wells Fund XI - Fund XII - REIT Joint Venture dated June 21, 1999
(previously filed as Exhibit 10.28 and incorporated by reference to
Amendment No. to the Registration Statement of Wells Real Estate
Investment Trust, Inc., Commission File No. 333-83933, filed on
November 17, 1999)
10.9 Agreement of Purchase and Sale for the Gartner Building dated
August 20, 1999 between The Wells Fund XI - Fund XII - REIT Joint
Venture (as successor in interest by assignment) and Hogan Triad
Ft. Myers I, Ltd. (as successor in interest by assignment) and
Liberty Property Limited Partnership (previously filed as Exhibit
10.63 and incorporated by reference to Post-Effective Amendment No.
7 to the Registration Statement of Wells Real Estate Investment
Trust, Inc., Commission File No. 333-32099, filed on October 14,
1999)
10.10 Lease Agreement for the Gartner Building dated July 30, 1997
between The Wells Fund XI - Fund XII - REIT Joint Venture (as
successor in interest by assignment) and Gartner Group, Inc.
(previously filed as Exhibit 10.63 and incorporated by reference to
Post-Effective Amendment No. 7 to the Registration Statement of
Wells Real Estate Investment Trust, Inc., Commission File No. 333-
32099, filed on October 14, 1999)
10.11 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership dated April 10, 2000 (previously filed in and
incorporated by reference to the Registrant's Registration
Statement, Commission File No. 33-66657, filed on April 25, 2000)
10.12 Agreement for the Purchase and Sale of Property for the Siemens
Building dated February 22, 2000 between Wells Fund XII-REIT Joint
Venture (as successor in interest by assignment) and Troy
Development #1, LLC (filed herewith)
10.13 Office Lease for the Siemens Building dated January 10, 2000
between Wells Fund XII-REIT Joint Venture (as successor in interest
by assignment) and Siemens Automotive Corporation (filed herewith)
23.1 Consent of Holland & Knight LLP (included in Exhibits 5.1 and 8)
23.2 Consent of Arthur Andersen LLP (filed herewith)
