As filed with the Securities Exchange Commission on January 21, 1999
File No. 333-67287
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
AMENDMENT NO. 1 TO
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
AEI INCOME & GROWTH FUND 23 LLC
(Name of small business issuer in its charter)
Deleware 6500 41-1848181
(State of other (Primary Standard Industrial (IRS Employer
jurisdiction Classification Code Number) Identification Number)
incorporation)
1300 Minnesota World Robert P. Johnson Copies to:
Trade Center 1300 Minnesota World Trade Center Thomas O. Martin
30 East Seventh Street 30 East Seventh Street Dorsey & Whitney LLP
St. Paul, Minnesota 55101 St. Paul, Minnesota 55101 Pillsbury Center South
(651) 227-7333 or (651) 227-7333 or 220 South Sixth Street
(800) 328-3519 (800) 328-3519 Minneapolis, Minnesota
(Address and telephone (Name, address, including 55402-1498
number of principal zip code and telephone
executive offices and number of agent for
intended principal place service of process)
of business)
Approximate date of proposed sale to public: As soon as
practical after the effective date of this Registration Statement.
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
AEI INCOME & GROWTH FUND 23
An offering of Limited Liability Company Units
$1,500,000 minimum
THE INVESTMENT:
AEI Income & Growth Fund 23 LLC is a limited liability company being
organized to purchase commercial properties throughout the United States.
Nearly every property will be free-standing and rented to single corporate
tenants under long-term "net" leases that require the tenant to pay most,
if not all, of the operating costs of the property. Our objectives are to
acquire properties that provide (1) regular cash distributions of lease
income; (2) growth in lease income through rent escalation; (3) capital
growth through appreciation in value; and (4) stable performance through
long-term leases. We cannot assure you that these objectives will be
achieved. AEI Fund 23 is not a mutual fund or any type of investment
company.
THE OFFERING:
<BULLET> Security Offered: 24,000 units ($24,000,000 total) of limited
liability company interest in AEI Fund 23 at
a price of $1,000 each.
<BULLET> Minimum Purchase: 2.5 units ($2,500); 2 units ($2,000) for IRAs
and Keogh Plans (higher in certain states).
<BULLET> Minimum Offering: All investment moneys will be placed in a
special bank escrow until at least $1,500,000
has been received.
<BULLET> Offering Period: The offering will last one year from the date
of this Prospectus, extendable to two years.
<BULLET> Proceeds to AEI
Fund 23: PER UNIT TOTAL (minimum)
Public Price $ 1,000.00 $ 1,500,000
Commissions 10.00 150,000
Due diligence expenses .50 7,500
---------- -----------
Proceeds to AEI Fund 23 $ 89.50 1,342,500
Other offering costs 4.50 67,500
Amount available for purchase
of properties $ 85.00 $ 1,274,500
RISKS:
WE ENCOURAGE YOU TO READ THE "RISK FACTORS" BEGINNING ON PAGE 6 OF THIS
PROSPECTUS:
<BULLET> We may not be able to provide you with information about the
properties AEI Fund 23 will purchase before you invest;
<BULLET> If we accept only $1,500,000 of subscriptions, and do not
raise more money, we may only be able to purchase a few
properties;
<BULLET> The value of AEI Fund 23's properties and the rental income
that the properties generate will be affected by market
conditions for real estate, by the financial stability of
tenants and by economic conditions;
<BULLET> You may have difficulty selling your units in AEI Fund 23
because there will not be a public market and because we
impose restrictions on transfer to avoid adverse tax issues;
<BULLET> The managers face a number of "conflicts of interest,"
including conflicts arising out of the payments they may
receive from AEI Fund 23.
NEITHER THE SEC NOR ANY STATE SECURITIES ADMINISTRATOR HAS APPROVED THE
UNITS OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE AND COMPLETE. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. WE CANNOT USE
PROJECTIONS IN THIS OFFERING NOR CAN WE MAKE ANY REPRESENTATION, VERBALLY
OR IN WRITING, ABOUT THE CASH BENEFIT OR TAX BENEFIT YOU MIGHT RECEIVE FROM
INVESTING. WE ALSO CANNOT SELL UNITS TO YOU UNTIL AT LEAST FIVE DAYS AFTER
YOU HAVE RECEIVED THIS PROSPECTUS.
AEI SECURITIES, INC.
January , 1999
-1-
Table of Contents
Page
Summary
Risk Factors
Who may invest
Capitalization
Estimated use of proceeds
Investment objectives and policies
Properties
Managers
Prior performance
Compensation to Managers
And Affiliates
Conflicts of interest
Cash distributions and tax
Allocations
Income tax aspects
Restrictions on transfer
Summary of operating agreement
Reports to investors
Plan of distribution
Sales materials
Legal proceedings
Experts
Legal opinion
Financial statements
Operating Agreement Exhibit A
Prior Performance Tables Exhibit B
Certain State Suitability Requirements Exhibit C
Subscription Agreement Exhibit D
-2-
SUMMARY
AEI FUND 23
AEI Income & Growth Fund 23 LLC is a newly organized limited
liability company that intends to:
<BULLET> Acquire free-standing, single tenant, commercial properties
rented to tenants under leases that require the tenant to
pay for most, if not all, of the property's real estate
taxes, insurance, maintenance, repairs and operating
expenses;
<BULLET> Generate rental income from such properties;
<BULLET> Sell such properties from time to time; and
<BULLET> Reinvest sale proceeds in additional properties.
AEI Fund 23 is not organized to shelter your taxable income from
other sources.
AEI Fund 23 will continue in existence until 2048 unless the
investors, by majority vote, determine that it should be dissolved
earlier.
RISKS
An investment in AEI Fund 23 is subject to a number of risks,
including:
<BULLET> You will be dependent on the managers to choose properties
and likely will not receive information about properties
prior to purchase;
<BULLET> AEI Fund 23 may be dependent on the operation and sale of
only a few properties if only $1,500,000 is raised;
<BULLET> You may not be able to sell your investment because there
will be no public market for the units and because of
restrictions on their transfer;
<BULLET> The value of properties that AEI Fund 23 purchases will
depend on market and economic conditions;
<BULLET> Defaults by tenants could interrupt rental income and devalue
properties;
<BULLET> Other activities of the managers could cause conflicts in
their ability to devote services to AEI Fund 23 and payments
they receive may cause them to have differing objectives than
investors;
PROPERTIES AND PROPERTY ACQUISITION
AEI Fund 23 doe s not yet own any properties, but will supplement
this prospectus when it has identified any property it intends to purchase.
Most of the properties it will purchase will to be rented to corporate
tenants in the restaurant or retail industries. Properties will be
acquired for cash, although AEI Fund 23 may acquire properties with
existing, assumable indebtedness and may finance properties later for up to
60% of the purchase price of all properties.
THE UNITS
The units represent a $1,000 interest in the equity of AEI Fund 23.
Unlike stock in a corporation, holders of units are taxed directly on
profits and are able to deduct losses of AEI Fund 23 on their personal tax
returns. Investors in units, as limited members, have a different interest
in profits, losses and distributions than the managers. Cash from AEI Fund
23 will be allocated and paid to investors and managers based on whether
it is from rent and other income or from the sale or financing of
properties. These payments will be made as follows:
<BULLET> rent and other income, less any operating expenses, will be
allocated and paid 97% to the investors and 3% to the
managers;
<BULLET> cash from sale or refinancing of properties, after provision
for debts, reserves and operating expenses, will be allocated
and paid 99% to the investors and 1% to the managers until
the investors have received a payout amount. Payout occurs
when total cash distributed from sale or financing equals an
investor's initial investment plus a 7% per year (not
compounded) return on investment. After this, 10% of cash
from sale or refinancing goes to the managers and 90% to
investors.
-3-
THE OFFERING
LENGTH. The offering will begin on the date of this Prospectus and end
one year later. The manager may extend this period, however, for up to one
more year in those states permitting an extension.
ESCROW. All investment orders will be held in a special bank account
and not released to AEI Fund 23 until at least $1,500,000 has been
received. If $1,500,000 has not been received within one year of the date
of this prospectus, no units will be sold and all funds will be returned
to investors with interest.
MINIMUM PURCHASE. You must purchase at least two and one-half units
($2,500) to become an investor in AEI Fund 23. You may, however, purchase
two units ($2,000) through an IRA or other tax-qualified plan.
MANAGERS
AEI Fund 23 will be managed by AEI Fund Management XXI, Inc., a
Minnesota corporation. It will operate from the principal office of the
manager at 1300 Minnesota World Trade Center, 30 East Seventh Street,
Saint Paul, Minnesota 55101 and its telephone number is (651) 227-7333
(toll-free 800-328-3519). Robert P. Johnson, President of AEI Fund
Management XXI, will also serve as special managing member and will be
responsible for overseeing the manager's activities.
COMPENSATION TO MANAGERS
In addition to their interests in profits and losses as managing
members of AEI Fund 23, the managers will be reimbursed for the following
services at cost:
<BULLET> The organization of AEI Fund 23 and this offering;
<BULLET> The administration of AEI Fund 23;
<BULLET> The acquisition of properties;
<BULLET> The disposition of properties;
<BULLET> The management of properties; and
<BULLET> The leasing and releasing of properties.
These payments are subject to the following limitations:
<BULLET> All reimbursements must be at the manager's "cost", which
includes only the direct expense of providing the service and,
in the case of reimbursement for employee salary, a portion of
office cost and depreciation based on the time sheets of
employees;
<BULLET> All reimbursements must be provided at a cost that is less
than or equal to the price that would be paid to an
unaffiliated party rendering comparable services in the same
geographic area;
<BULLET> Organizational expenses and acquisition expenses may not total
more than 20% of initial capital;
<BULLET> The total of (1) organizational expenses, plus (2) acquisition
expenses,plus (3) sales expenses, plus (4) overhead reimbursed
to the managers, plus (5) the portion of reimbursements that
represent salaries of controlling persons of the managers must
be less than a basket amount.The basket amount is equal to (1)
20% of initial capital, plus (2) 5% of cash flow from
commercial properties that are managed, plus (3) 3% of the
sales price of the properties(but only if the managers provide
sales services), plus (4) 7% of cash flow.
-4-
RISK FACTORS
GENERAL RISKS
YOU WILL HAVE TO RELY ON THE MANAGERS TO SELECT PROPERTIES. You
likely will not be able to evaluate properties before they are purchased,
and will not have a right to return of your investment if you do not like
a property. AEI Fund 23 is hiring, and will rely on, the managers to
choose its properties. We cannot assure you that AEI Fund 23 will find
suitable properties or that its objectives will be achieved.
YOU WILL HAVE VERY LITTLE CONTROL OVER OPERATIONS. Except for
limited voting rights, investors have no control over AEI Fund 23's
management, but must rely almost exclusively on the managers.
THERE WILL NOT BE A MARKET FOR YOUR UNITS AND THERE WILL BE
RESTRICTIONS ON TRANSFER OF UNITS. AEI Fund 23 is required under tax law
to place significant restrictions on the transfer of units to avoid being
taxed as a corporation. Investors are required to receive approval from
the manager before transferring units. The manager is required to refuse
transfer when it would affect tax status. Because of these requirements,
there will not be a public market in the units and you may not be able to
sell the units when you desire.
YOU WILL NOT HAVE A RIGHT TO AN EARLY RETURN OF YOUR CAPITAL.
Although its intent is to dissolve earlier, AEI Fund 23 is not required to
dissolve until 2048 unless investors vote to have it dissolve earlier. You
will not have a right redeem your units until it is dissolved. Although
AEI Fund 23 will have a unit repurchase program, that program is limited,
may not provide you with full value for your investment, may be periodically
suspended in the discretion of the managers, and is not available if there
is not adequate capital to pay for repurchases.
AEI FUND 23 MAY NOT BE ABLE TO DIVERSIFY ITS INVESTMENTS. If it raises
only $1,500,000, AEI Fund 23 may purchase as few as two properties and the
proportion of its capital spent on organizational and offering costs will
be higher. Further, although AEI Fund 23 intends to diversify its
investments, it is under no obligation to do so and may invest in a single
property. PENNSYLVANIA INVESTORS: Because the minimum is less than
$2,400,000, you are cautioned to carefully evaluate AEI Fund 23's ability
to accomplish its objectives and to inquire as to the current amount of
subscriptions.
AEI FUND 23 MAY DISSOLVE IF BOTH MANAGERS DIE OR WITHDRAW. If both of
the managers die, are removed, withdraw, or are declared bankrupt, AEI
Fund 23 may be required to dissolve and sell its properties at
disadvantageous prices. AEI Fund 23 will not carry insurance on the life
of the Robert Johnson, the special managing member and president of the
manager.
AEI FUND 23 IS NOT PROVIDING INVESTORS WITH SEPARATE REPRESENTATION BY
ATTORNEYS AND ACCOUNTANTS. AEI Fund 23, its investors and the managers are
not represented by separate counsel. Although counsel has given the tax
opinion referenced in the Tax Matters section of this prospectus and an
opinion that there is legal authority to issue the units, the legal counsel
and accountants for AEI Fund 23 have not been retained, and will not be
available, to provide other legal counsel or tax advice to individual
investors.
DISTRIBUTIONS IN THE EARLY STAGES OF AEI FUND 23 MAY BE A RETURN OF
CAPITAL. AEI Fund 23 intends to maintain an initial rate of distribution
equal to money market rates. If operating revenues are not sufficient to
fund all these distributions, they may constitute a return of capital.
TEMPORARILY INVESTED FUNDS MAY NOT BE FULLY INSURED. Until invested
in properties, offering proceeds will be invested in short-term government
securities or insured deposits with a financial institution and will earn
interest at short-term deposit rates. Such accounts may periodically
exceed the financial institution's insurance limits. AEI Fund 23 cannot be
certain that it would recover the full amount of the account if the
financial institution in which they are deposited were placed in
receivership. No funds will be invested in the accounts of an institution
with less than $100 million in assets or capital of less than seven percent
of assets.
-5-
RISKS OF OWNING REAL ESTATE
THERE ARE RISKS IN OWNING REAL ESTATE. Factors beyond the control of
the managers will effect the value of the properties of AEI Fund 23. These
include national economic conditions, changes in the investment climate for
real estate, changes in local market conditions, changes in interest rates,
changes in real estate tax rates, governmental rules and fiscal policies,
uninsured losses, and the financial condition of tenants,
WORKING CAPITAL RESERVES MAY NOT BE ADEQUATE. AEI Fund 23 will use
only a small portion of the proceeds of this offering for working capital
reserves. We cannot assure you that the reserves will be adequate to cover
unforseen contingencies.
DEFAULTS BY TENANTS MAY INTERRUPT CASH FLOW OR CAUSE DECLINE IN
PROPERTY VALUES. If a tenant defaults, we cannot assure you that AEI Fund
23 will be able to find a new tenant for vacant property at the same rental,
or sell the property without incurring a loss. If a tenant files for
bankruptcy, AEI Fund 23 may not be able to rapidly recover the property
from the bankruptcy trustee and may not receive rent sufficient to cover
its expenses.
SOME OF THE PROPERTIES MAY BE SUITABLE FOR ONLY ONE USE. Properties
purchased by AEI Fund 23 may be designed or built for a particular tenant.
If we hold such a property until termination of the lease and the tenant
elects not to renew, or if the tenant defaults on its lease obligations,
the property might not be readily marketable without substantial capital
improvements or remodeling. Improvements could require use of cash that
otherwise would be distributed to investors, or sale of the property at a
lower price.
THERE ARE UNIQUE RISKS IN THE RESTAURANT AND RETAIL INDUSTRY. Both
the restaurant and the retail industry are highly competitive and can be
affected by factors such as changes in regional or local economies,
seasonality, and changes in consumer preference. A downturn in these
industries could have an adverse effect on operations of the businesses
that occupy AEI Fund 23 properties.
CONSTRUCTION LENDING INVOLVES RISK. Risks during construction,
including cost overruns, nonperforming contractors, changes in
construction codes and changes in cost, could cause a borrower to default
on a construction loan. If a default occurs, AEI Fund 23 might have to
foreclose on the property. Foreclosure is normally subject to a period
of redemption during which the property may not be sold or leased. If the
property is only partially complete when foreclosed, AEI Fund 23 might
have to spend money to complete it so that it can be sold. Although AEI
Fund 23 might be able to collect from a guarantor if a borrower defaults,
the ability of the guarantor to satisfy the default could be impaired by
the same financial circumstances that caused the default.
AEI FUND 23 COULD LOSE PROPERTIES IF IT DEFAULTS ON BORROWINGS. AEI
Fund 23 might assume existing mortgages on properties if on favorable
terms, and might finance properties initially purchased for cash. This
practice is known as "Leveraging." Leveraging increases the capital
available to AEI Fund 23, but may also increase the risk of loss. If AEI
Fund 23 were to default on secured indebtedness, it could lose its
interest in the properties securing the indebtedness.
THE REINVESTMENT OF PROCEEDS FROM THE SALE OF A PROPERTY WILL BE
SUBJECT TO THE SAME RISKS AS THE INITIAL INVESTMENT. AEI Fund 23 may
periodically sell properties and reinvest the proceeds in replacement
properties. You will not have the right to receive cash upon sale of
these properties other than cash necessary to cover income tax on the gain
at a rate of 7% over the federal long-term capital gains rate. You will
be relying on the ability of the managers to find appropriate properties
in which to reinvest sales proceeds.
UNINSURED LOSSES. The managers will arrange for comprehensive
insurance coverage on the properties. However, certain types of losses
(generally of a catastrophic nature) may be either uninsurable or not
economically insurable. Should such a disaster occur, loose its entire
investment in the affected property.
-6-
FEDERAL INCOME TAX RISKS
OPERATION OF AEI FUND 23 COULD AFFECT THE PROPRIETY OF ALLOCATIONS.
Each investor will be entitled to deduct his or her allocated share of
losses and will report his or her allocated share of income and gain on
the investor's tax return. Whether those allocations will be honored by
the IRS depends on a number of facts related to operation of AEI Fund 23.
Because AEI Fund 23 has not commenced operation, counsel has not rendered
an opinion as to such allocations. If these allocations were not honored,
a significant change in the tax treatment of income, gain, loss and
deduction from AEI Fund 23 would occur.
THE TIMING OF TAX DEDUCTIONS MAY BE CHALLENGED BASED ON THE ALLOCATION
OF "BASIS" AMONG PROPERTIES. The managers will allocate the purchase price
of properties among buildings (the cost of which is depreciable), personal
property (the cost of which is depreciable over a shorter period), and the
underlying land (the cost of which is not depreciable). Because properties
have not been purchased, counsel has not rendered an opinion on whether
the allocation of purchase price, the rate of depreciation or the timing
of deductions is proper.
ACTIONS BY THE MANAGER WITH RESPECT TO RESALE OF PROPERTIES COULD CAUSE
GAINS TO BE CONSIDERED ORDINARY INCOME FOR TAX PURPOSES. If AEI Fund 23 is
characterized as a "dealer" in real estate at the time of sale or
disposition of its properties, gain or loss on such sales will be
considered ordinary income or loss. Because the character of AEI Fund 23
as a dealer or owner of properties is dependent on actions taken in the
future and the timing of purchases and sales, counsel has not rendered an
opinion on this issue.
THE STRUCTURE OF THE PURCHASE AND LEASE TRANSACTIONS OF AEI FUND 23
COULD CAUSE LOSS OF DEPRECIATION AND OTHER DEDUCTIONS. Sale leaseback
transactions in which the lessor provides certain features to the lessee,
such as a purchase option at a fixed price, could cause the IRS to conclude
the transaction is a financing transaction rather than a true lease. If
this were to occur, AEI Fund 23 would not be able to take some of the
deductions it anticipates and more taxable income would be recognized
during operation of a property.
INCORRECT ALLOCATION OF EXPENSES AMONG START-UP, ORGANIZATION AND
SYNDICATION COULD CAUSE MORE TAXABLE INCOME. The manager will allocate
expenses during the early stages of AEI Fund 23's operations to start-up,
organization, syndication and acquisition expenses for purposes of the
deduction or capitalization of such expenses. These allocations cannot be
made until the expenses are incurred and counsel has not rendered an
opinion as to their propriety. If the IRS determined that the allocations
were improper, AEI Fund 23 would loose deductions and investors would
recognize more income during ealry stages of operation of properties.
WHO MAY INVEST
To purchase units you must be able to represent in writing that you
have either:
<BULLET> a net worth (exclusive of homes, home furnishings and automobiles)
of at least $45,000 and an annual gross income of at least
$45,000;or
<BULLET> irrespective of annual gross income, a net worth of at least
$150,000 (determined with the same exclusions).
You will be required to purchase a minimum of two and one-half units
($2,500) unless you are investing through an IRA or other tax-qualified
plan. The minimum investment for IRAs and other tax-qualified plans is two
units ($2,000), provided that the person who established the account or
plan meets the standards for an individual investor. An investment in AEI
Fund 23 will not create an IRA or other tax-qualified plan for any investor.
The investment firms that solicit orders for units are required to make
every reasonable effort to determine that the purchase is appropriate for
each investor. In addition to net worth and income standards, the
investment firms are required to determine whether you can reasonably
benefit from an investment in the units based on your investment
objectives, your ability to bear the risk of the investment, and your
understanding of the risks of the investment. They must also determine
whether you understand the lack of liquidity of the units, the restrictions
on transferability of the units, the background and qualifications of the
managers, and the tax consequences of the investment.
-7-
Additional requirements applicable to residents of some states are set
forth in Exhibit C to this prospectus.
Trustees and custodians of tax-qualified plans should consider the
following, among other things, when making a decision to invest in AEI
Fund 23:
<BULLET> If AEI Fund 23 borrows money to purchase a property, some of its
income may be unrelated business taxable income. A tax-qualified
plan, although generally exempt from federal income tax, may be
subject to income taxation if its unrelated business taxable
income, after investment in AEI Fund 23, exceeds $1,000 in any
taxable year.
<BULLET> ERISA establishes diversification requirements that should be
considered when investing in AEI Fund 23.
<BULLET> ERISA should also be considered in light of the nature of an
investment in, and the compensation structure of, AEI Fund 23
and the potential lack of liquidity of the units.
The prudence of a particular investment must be determined by the
responsible fiduciary taking into account all the facts and circumstances
of the tax-qualified retirement plan and of the investment.
BECAUSE IT IS POSSIBLE THAT AEI FUND 23 WILL GENERATE UNRELATED BUSINESS
TAXABLE INCOME, IT IS NOT AN APPROPRIATE INVESTMENT FOR CHARITABLE
REMAINDER TRUSTS.
CAPITALIZATION
The capitalization of AEI Fund 23 at October 22, 1998, and after the
issuance and sale of the minimum of 1,500 Units and the maximum of 24,000
Units is as follows:
After Sale of After Sale of
1,500 Units 24,000 Units
Title of Class Minimum (Maximum)
Managers' Capital $ 1,000 $ 1,000
Investors' Capital 1,500,000 24,000,000
Less Offering Expenses (225,000) (3,360,000)
----------- -----------
Total Investors' Equity $ 1,275,000 $20,640,000
=========== ===========
There can be no assurance that the maximum proceeds will be
obtained.
-8-
ESTIMATED USE OF PROCEEDS
AEI Fund 23 expects that there will be approximately $1,275,000
available for investment in properties and for reserves for operations if
$1,500,000 is raised from investors and $20,640,000 if $24,000,000 is
raised from investors. The following table estimates the use of proceeds
from the sale of units. Some of the items below cannot be precisely
calculated and could vary materially from the amounts shown.
Minimum Maximum
(1,500 Units) (24,000 Units)
Dollars Percent Dollars Percent
Gross Offering Proceeds $ 1,500,000 100.0% $24,000,000 100.0%
Less Offering Expenses:
Selling Commissions and Nonaccountable
Expenses 150,000 10.0% 2,400,000 10.0%
Other Offering Expenses 75,000 5.0% 960,000 4.0%
----------- ---------- ----------- ----------
Amount Available for Investment
(net proceeds) $ 1,275,000 85.0% $20,640,000 86.0%
Acquisition Expenses 60,000 4.0% 720,000 3.0%
Working Capital Reserve 15,000 1.0% 240,000 1.0%
----------- ---------- ----------- ----------
Cash Available for Purchase
of Properties $ 1,200,000 80.0% $19,680,000 82.0%
=========== ========== =========== ==========
The amount available for investment in properties will not, in any event,
be less than 80% of gross offering proceeds. The proceeds of the offering
will be held in trust by AEI Fund 23 for the benefit of the purchasers of
units to be used only for the purposes set forth above.
-9-
INVESTMENT OBJECTIVES AND POLICIES
PRINCIPAL INVESTMENT OBJECTIVES
AEI Fund 23 intends to acquire free-standing, single-tenant,net-leased
commercial properties located throughout the United States. We may also
periodically sell properties and purchase other similar properties when,
at the discretion of the managers, conditions are favorable to do so.
ACQUISITION OF PROPERTIES
AEI Fund 23 intends to use the net proceeds to purchase income-
producing commercial real estate that is leased at the time of purchase.
It may commit to purchase properties when construction is completed at
agreed prices or pursuant to pricing formulas.
AEI Fund 23 will not purchase or lease any property from, or sell or
lease any property to, the managers or their affiliates. It may, however,
purchase property from the managers or their affiliates if they purchased
the property in their own name and temporarily held title to help acquire
the property, borrow money, or obtain financing. If a property is
purchased from a manager or affiliate, the property will be purchased for
a price no greater than the price paid by the managers or affiliate, plus
acquisition expenses.
Although AEI Fund 23 does not intend to acquire any unimproved or
undeveloped properties, or to participate in the development of any
properties, it may advance funds or make loans in connection with the
construction of a property. Any construction loan will be secured by the
land and improvements under construction. In no event will for
construction loans exceed 30% of offering proceeds.
The purchase price of each property will be supported by an independent
appraisal of the fair market value of the property. Nevertheless, the
managers will rely on their own analysis and not on such appraisals in
determining whether to acquire a particular property. Copies of the
appraisals will be retained at the office of AEI Fund 23 for at least five
years and will be available for inspection and duplication by any investor.
Prior to the acquisition of any property, AEI Fund 23 will be provided
with evidence satisfactory to the managers that it will acquire marketable
title to such property, subject only to acceptable liens and encumbrances.
Such evidence may include a policy of title insurance, an opinion of
counsel or such other evidence as is customary in the locality in which
the property is situated.
TEMPORARILY INVESTED FUNDS
After release from escrow, and before investment in properties, all
funds will be invested in short-term government securities or in insured
deposits with a financial institution and will earn interest at short-term
deposit rates. Any of the net proceeds of this offering (except for
amounts used to pay operating expenses or to establish working capital
reserves as determined by the manager) that have not been invested or
committed for investment in real property by the later of 24 months after
the date of this prospectus or six months after termination of the offering
of units will be distributed, without interest but together with a
proportionate amount of any commissions or other organization and offering
expenses, to the investors as a return of capital. All funds will be
available for the general use of AEI Fund 23 during such period and may be
expended in operating any properties that have been acquired. Investment
capital will not be segregated or held separate from other capital of AEI
Fund 23 pending investment. For the purpose of the foregoing, capital will
be considered committed to properties, and will not be returned to the
investors, if written contractual agreements have been signed prior to the
period described above, regardless of whether any such property is
ultimately purchased. To the extent that funds have been reserved to make
contingent payments in connection with a property under a written
contractual agreement, or because the managers determine that additional
reserves are necessary in connection with a property, regardless of
whether any such payment is ultimately made, funds will not be returned to
investors.
-10-
SALE OF PROPERTIES
At the discretion of the managers, net proceeds from sale of properties
may either be distributed to investors or reinvested in properties that
meet the acquisition criteria set forth in this prospectus. Net proceeds
from the sale of a property will not be reinvested unless enough cash is
distributed for investors to pay income taxes resulting from the sale of
the property, assuming investors are taxable at a rate of seven percent
above the individual capital gains rate.
AEI Fund 23 may sell cotenancy or other fractional interests in
properties, rather than selling its entire interest in a property. The
manager believes that, depending on market conditions, sales of smaller
interests through exchanges designed to comply with Section 1031 of the
Internal Revenue Code can result in greater overall sales proceeds. In
those instances in which AEI Fund 23 does not sell all of a property, it
will retain, either alone or with another program sponsored by affiliates
of the managers, the authority to direct management and policies relating
to operation and sale of the property.
Although AEI Fund 23 intends to sell its properties for cash,
purchase money obligations secured by mortgages may be taken as partial
payment. The terms of payment to AEI Fund 23 may be affected by custom in
the area in which the property being sold is located and by then prevailing
economic conditions. To the extent AEI Fund 23 receives notes and property
other than cash on sales, such proceeds will not be included in net
proceeds from sale until and to the extent the notes or other property are
actually collected, sold, refinanced or otherwise liquidated. Therefore,
the distribution to investors of the proceeds of a sale may be delayed
until the notes or other property are collected at maturity, sold,
refinanced or otherwise converted to cash.
AEI Fund 23 may receive payments (cash and other property) in the year
of sale in an amount less than the full sales price and subsequent payments
may be spread over several years. The entire balance of the principal may
be a balloon payment due at maturity. For federal income tax purposes,
unless AEI Fund 23 elects otherwise, it will report the gain on such sale
ratably as principal payments are received under the installment method of
accounting.
BORROWING POLICIES
The managers might not finance all properties and do not intend to
finance properties at all unless the financing can be obtained at rates
that are likely to generate an attractive spread over rental rates.
Although the managers believe that the interest rate environment at the
date of this Prospectus is favorable, if rates increase, the managers may
determine not to finance any properties. In no event will the total amount
of AEI Fund 23's indebtedness exceed 60% of the purchase price of all
properties that it holds, or 60% of the fair market value of the properties
on the date they are refinanced. To the extent that any financing is not
fully amortizing, and it exceeds 25% of the purchase price of properties,
its maturity (its due date) will not be earlier than ten years after the
date of purchase of the underlying property or two years after the
anticipated holding period of the property (provided such holding period
is at least seven years).
AEI Fund 23 will not obtain permanent financing from the managers or
their affiliates. Recourse for any indebtedness will be limited to the
particular property to which the indebtedness relates. To the extent
recourse is limited to a particular property, under most circumstances
such indebtedness would increase the investors' tax basis in the units.
AEI Fund 23 will not issue any senior securities and will not invest in
junior mortgages, junior deeds of trust or similar obligations.
JOINT VENTURE INVESTMENTS
Property may be purchased jointly with another program sponsored by
the managers or their affiliates. These joint ventured investments will be
made only with a program that has investment objectives and management
compensation provisions substantially identical to those of AEI Fund 23.
AEI Fund 23's ability to enter into a joint venture may be important if it
wishes to acquire an interest in a specific property but does not have
sufficient funds (or, at the time it enters into a commitment to acquire a
specified property, cannot determine whether it will have sufficient funds)
to acquire the entire property.
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In any joint venture with another fund sponsored by the managers or
their affiliates, the following conditions must be satisfied:
<BULLET> The joint venture must have comparable investment objectives and
the investment by each party to the joint venture must be on
substantially the same terms and conditions;
<BULLET> AEI Fund 23 may not pay more than once for the same services
and may not act indirectly through any such joint venture if
it would be prohibited from doing so directly;
<BULLET> The compensation of the managers and such affiliates in the
other fund must be substantially identical to their
compensation in AEI Fund 23;
<BULLET> AEI Fund 23 must have a right of first refusal to purchase
the other party's interest if the other party to the joint
venture wishes to sell a property
There is a potential risk of impasse on joint venture decisions and
a potential risk that, even though AEI Fund 23 will have the right of first
refusal to purchase the other party's interest in the joint venture, AEI
Fund 23 may not have the resources to exercise such right.
DISTRIBUTIONS
We intend to distribute net cash flow from operations to investors
within 30 days after the close of each fiscal quarter. The amount of any
distribution will depend upon the degree to which operations have been
profitable and generated cash flow. Net cash flow from operations will
not be used for the acquisition of properties, although it may be held as
reserves. Net cash flow may be used to repurchase units. Distributions to
investors who elect to participate in a distribution reinvestment plan will
be applied to the purchase of additional units.
A portion of distributions that are made while this offering is
continuing and properties are being acquired (a period of 36 months) will
likely constitute a return of your initial investment . After that time,
the distribution rate will be allowed to float quarterly based on the cash
flow or proceeds of sale available for distribution.
RESERVES FOR OPERATING EXPENSES
The managers expect that approximately one percent of the total
proceeds of the offering initially will be reserved to meet costs and
expenses. To the extent that the reserves and any income are insufficient
to defray the costs and other obligations of AEI Fund 23, it may be
necessary to finance or refinance properties or, if financing or
refinancing is not available on acceptable terms, to sell properties on
unfavorable terms. During the holding period of a property, AEI Fund 23
may increase reserves to meet anticipated costs and expenses and other
economic contingencies. If, in any fiscal quarter, the managers determine
that reserves are in excess of the amount necessary for operations, the
excess may be distributed.
MANAGEMENT OF PROPERTIES
Each property will be managed, and the lease obligations of tenants
will be enforced, by the manager or its affiliates. The managers will
negotiate with tenants, relett and remodel properties, receive and deposit
monthly lease payments, periodically verify payment of real estate taxes
and insurance coverage, and periodically inspect properties and tenant
sales records, where applicable. The manager or such affiliates will be
compensated for such management at cost, which includes an allocable
portion of overhead expenses. Because the properties will be net leased,
the tenants will be responsible, at their expense, for most of the day-to-
day on-site management and maintenance of the properties.
-12-
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
Investors have no voting rights with respect to the establishment,
implementation or alteration of the investment objectives and policies of
AEI Fund 23, all of which are the responsibility of the managers.
Nevertheless, the managers will not make any material changes in the
investment objectives and policies described above without first obtaining
the written consent or approval of investors owning in the aggregate more
than 50% of the then outstanding Units.
PROPERTIES
At the date of this prospectus, AEI Fund 23 had not acquired any
properties. The managers are continually evaluating properties for
acquisition and engaging in negotiations with sellers, tenants and
developers regarding the purchase of properties. Depending upon the
proceeds obtained, the managers intend to diversify the type and location
of properties acquired. AEI Fund 23 is not limited as to the amount or
percentage of its assets that may be invested in any one property.
Although we currently intend to purchase two or more properties with the
net proceeds of this offering, the managers may purchase only a single
property if, in their judgment, such purchase would be in the best interest
of AEI Fund 23.
All of AEI Fund 23's properties will be rented under leases that
require the tenant to pay most, if not all, of the real estate taxes,
insurance, maintenance, repairs and operating expenses of the properties.
Most of these leases will also provide that risks such as fitness for use
or purpose, design or condition, quality of material or workmanship,latent
or patent defects, compliance with specifications, location,use, condition,
quality, description or durability will be borne by the lessee. It is
customary in commercial property transactions that leases provide for
early termination upon the occurrence of certain events (e.g., casualty or
substantial condemnation). Some commercial leases, particularly those for
properties used in the sale of retail goods or services, require that the
landlord bear the costs of maintaining the structural integrity of the
building, including the roof and foundation.
ACQUISITION CANDIDATES
Many of the properties that are acquired will be leased to tenants in
the restaurant and retail industry . There is, however, no prohibition on
the acquisition of properties in other industries. The managers intend to
monitor industry trends and invest in properties that serve to provide the
most favorable return balanced with risk.
The Restaurant Industry. The restaurant industry is one of the
largest and fastest growing industries in the United States. Annual sales
at the top 100 restaurant chains alone exceeded $118 billion in 1997.
Demographic trends are particularly favorable to the casual dining segment
of the restaurant industry, with a steady increase in the number of two-
income families and a rapidly expanding senior citizen population. Because
this industry is highly property dependent, the managers believe it offers
some of the best opportunities for transactions of the type in which AEI
Fund 23 proposes to engage. Further, the managers believe that this
industry includes a number of companies and franchisees with established
track records that are attractive to AEI Fund 23.
The Retail Industry. Trends in the retail industry have increased the
attractiveness of retail establishments as acquisition candidates for AEI
Fund 23. Consumer demand for a large selection of merchandise in a single
category at discount prices has caused many retailers to turn to large
freestanding properties with minimal interior partitions. These retail
establishments or "superstores" are often grouped together into a "power
center" with few, if any, small retailers. Many of the large retailers
that operate these establishments are driven by operating margins to
minimize investment in real estate and use lease transactions to finance
the purchase and construction of their facilities. The managers believe
that the rapid expansion in these establishments may present attractive
candidates for acquisition .
ACQUISITION CRITERIA
In determining whether a property is a suitable acquisition for AEI
Fund 23, the managers will consider the following factors, among others:
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<BULLET> The creditworthiness of the lessee and the lease guarantor, if
any, and their ability to meet lease obligations independent of
cash flow to be generated by the property;
<BULLET> The location, condition, use and design of the property and its
suitability for a long-term net lease;
<BULLET> The terms of the proposed lease and guaranty, if any (including,
specifically, provisions relating to rent increases or
percentage rent and provisions relating to passing on operating
expenses to tenants);
<BULLET> The prospects for long-term appreciation of the property;
<BULLET> The prospects for long-range liquidity of the investment; and
<BULLET> The stability and potential growth of the community in which a
property is located.
In addition, the managers will apply the following standards with respect
to the properties to be acquired:
<BULLET> Tenants must be actively involved in the daily operation of the
type of business for which the property is leased.
<BULLET> Tenants must have experience and a history of successful
operations in the business for which the property is leased.
AEI Fund 23 will not acquire properties for lease to
inexperienced tenants.
<BULLET> Tenants will be required to provide evidence of cash flow,
independent of cash flow generated by the property, or cash
reserves, sufficient to allow the tenant to meet its current
obligations under the lease.
Although acquisitions may vary from these standards, any variation must be
justified to the managers.
LEASE ENHANCEMENTS
To secure performance by the lessee of its lease obligations, and to
minimize any interruption of rental payments from properties, AEI Fund 23
may require tenants to provide cash deposits, letters of credit, lease
insurance, personal guarantees or some combination of these credit
enhancements. Although any of these measures should help protect AEI Fund
23,in a number of instances it may be impossible to ensure that all rental
payments are protected. Individual guarantees or letters of credit may be
devalued by severe business setbacks of the tenant that result in the
insolvency of the guarantor or bankruptcy proceedings that impair AEI Fund
23's ability to immediately evict a tenant or proceed against the security.
Accordingly, despite these measures, some programs sponsored by affiliates
of the managers have owned properties on which rental payments have been
interrupted.
PROPERTY UPDATES
During the offering period, and when there is a reasonable probability
that a property will be acquired, this prospectus will be supplemented to
disclose the pending acquisition. Based upon the experience and acquisition
methods of the managers, this will normally occur on the signing of a
legally binding purchase agreement, but may occur before or after such
signing, depending on the particular circumstances surrounding each
potential acquisition. A supplement to this prospectus will describe in
detail the proposed terms of purchase, the property to be acquired, the
financial results of the prior operation, if any, of the property, and
other information considered appropriate for an understanding of the
transaction. Upon termination of this offering, no further supplements to
this prospectus will be distributed,but investors will continue to receive
acquisition reports containing substantially equivalent information
regarding properties.
IT SHOULD BE UNDERSTOOD THAT THE INITIAL DISCLOSURE OF ANY PROPOSED
ACQUISITION CANNOT BE RELIED UPON AS AN ASSURANCE THAT AEI FUND 23 WILL
ULTIMATELY CONSUMMATE THE ACQUISITION OR THAT THE INFORMATION PROVIDED
CONCERNING THE ACQUISITION WILL NOT CHANGE BETWEEN THE DATE OF THIS
PROSPECTUS OR SUPPLEMENT AND THE ACTUAL PURCHASE DATE.
-14-
MANAGERS
FIDUCIARY RESPONSIBILITY
The managers are accountable to AEI Fund 23 as fiduciaries and,
consequently, must exercise good faith in handling its affairs. The
managers have fiduciary responsibility for the safekeeping and use of all
capital and assets of AEI Fund 23, whether or not in the managers'
possession or control. The managers are prohibited from employing, or
allowing any other person or entity to employ the capital or assets of AEI
Fund 23 in any manner except for the exclusive benefit of AEI Fund 23.
The managers will not, however, be liable to AEI Fund 23 or the
investors for acts or omissions in the exercise of their judgment if their
actions were taken in the good faith belief that they were in the best
interest of AEI Fund 23 and not the result of negligence or misconduct.
Furthermore, AEI Fund 23 will indemnify the managers for any claim or
liability arising out of their activities on its behalf unless the claim
or liability was the result of negligence or misconduct.
In the opinion of the SEC and the securities administrators of most
states, indemnification for liabilities arising under securities laws is
against public policy and therefore unenforceable. If a claim for
indemnification for liabilities under securities laws is asserted by the
managers in connection with registration of the units, AEI Fund 23 will
submit to a court of appropriate jurisdiction, after apprising such court
of the position of the SEC and state securities administrators, the
question of whether indemnification by it is against public policy and
will be governed by the final adjudication of such issue.
MANAGEMENT
The managers will have the sole and exclusive right, power and
responsibility to manage AEI Fund 23's business, including, under certain
limited circumstances, the right and power to have it obtain loans secured
by its property. The managers will make all of the investment decisions,
including decisions relating to the properties to be acquired, the method
and timing of financing (if any) of such properties, the selection of
tenants, the terms of leases on such properties, and the method and timing
of the sale of properties. The managers will coordinate and manage all of
the activities of AEI Fund 23, maintain its records and accounts, and
arrange for the preparation and filing of all its tax returns. Certain of
the administrative and management functions to be performed by the
managers may be delegated to their affiliates, provided that any
compensation to affiliates of the managers will be at cost.
BACKGROUND AND EXPERIENCE
AEI FUND MANAGEMENT XXI, INC. AEI Fund Management XXI, Inc., the
manager, is a Minnesota corporation formed in 1994 to serve as a general
partner of AEI Income & Growth Fund XXI Limited Partnership, an affiliated
limited partnership with investment objectives and structure similar to
AEI Fund 23. The sole shareholder and director of the manager is Robert P.
Johnson, who also serves as its President. Each of the officers of the
manager also holds a position as an officer in the corporations formed to
serve as general partners of prior funds sponsored by the managers and
their affiliates. The officers and sole director of the manager are as
follows:
Name Age Position
Robert P. Johnson 54 Sole Director, Chief Executive Officer and
President
Mark E. Larson, CPA 45 Chief Financial Officer, Treasurer
and Secretary
Robert P. Johnson will also serve as the special managing member of
AEI Fund 23. Mr. Johnson is the President, Chief Executive Officer, sole
shareholder and sole director of the manager. From 1970 to the present he
has been employed exclusively in the investment industry, specializing in
limited partnership investments. In that capacity, he has been involved in
the development, analysis, marketing and management of public and private
investment programs investing in net lease properties as well as public
and private investment programs investing in energy development.Since 1971,
Mr. Johnson has been the President, a director and a registered principal
of AEI Securities, Inc., which is registered with the Securities and
-15-
Exchange Commission as a securities broker-dealer, is a member of the
National Association of Securities Dealers, Inc. (NASD) and is a member of
the Security Investors Protection Corporation (SIPC). Mr. Johnson has been
President, a director and the principal shareholder of AEI Fund Management,
Inc., a real estate management company founded by him, since 1978. Mr.
Johnson is currently a general partner or principal of the general partner
of each of the limited partnerships set forth under "Prior Performance."
Although not currently subject to any material contingent liabilities, Mr.
Johnson could become subject to the claims of creditors as a general
partner of such limited partnerships or other Funds he manages.
Mark E. Larson, a Certified Public Accountant, is Chief Financial
Officer, Secretary and Treasurer of the manager, and is a director of AEI
Fund Management, Inc. and has been employed by AEI Fund Management, Inc.
and affiliated entities since 1985. From 1979 to 1985, Mr. Larson was with
Apache Corporation as manager of Program Accounting responsible for the
accounting and reports for approximately 45 public partnerships. Mr. Larson
will be primarily responsible for supervising the accounting functions of
the manager and AEI Fund 23, including coordination of reports to the
Commission and investors.
AEI FUND MANAGEMENT, INC. Most of the management services for AEI
Fund 23 will be performed by AEI Fund Management, Inc., a Minnesota
corporation having the same officers as the manager. AEI Fund Management,
Inc. is a property and program management company that provides services
to the twelve publicly syndicated, and twelve privately placed, real
estate programs that are described under the caption "Prior Performance"
below. The sponsors have used a separate corporation, (AEI Fund Management
XXI, Inc.) as the manager so that the ability of AEI Fund 23 to continue
to operate is not affected (through AEI Fund Management, Inc.) by
operations of the other real estate programs for which it provides services.
AEI Fund Management has 30 employees, 4 of whom are engaged primarily in
property acquisitions, 3 in property management, 3 in property sales, 7 in
accounting and financial reporting, 8 in investor support services and 8 in
general administrative services. AEI Fund Management, Inc. has the same
officers as AEI Fund Management XXI, Inc. Management services will be
billed directly to AEI Fund 23.
YEAR 2000. AEI Fund Management maintains a computerized information
system for program, investor and financial reporting. It is currently
installing a new system and replacing both its hardware and software
components with client-server components. Although AEI Fund Management does
not believe that its former management information system will properly
report date specific information after December 31, 1999, it has been
assured by the vendors of the new system that the new system will accurately
report such date specific information. At the date of this prospectus, it
was operating its program and investor reporting functions with the new
system and anticipates that financial reporting will be converted to the new
system by March 31, 1999. AEI Fund Management has also inquired of its
vendors,including payroll and banking vendors, of their sensitivity to date
specific problems after December 31, 1999. All vendors have assured AEI
Fund Management that their systems will properly handle date specific
information by December 31, 1999. If AEI Fund Management were unable to
operate its financial reporting systems on the new system, it would be
required to procure an alternate system prior to year end. Because such
information system is not a direct cost of AEI Fund 23, however, unless it
was unable to install and operate such new system by December 31, 1999, it
does not believe it would have any material impact on AEI Fund 23.
PRIOR PERFORMANCE
During the past twenty-five years, Mr. Johnson and his affiliates have
have syndicated twelve public and twelve private net lease commercial
property investment partnerships in the United States.
Since 1984, Mr. Johnson and affiliates have formed, syndicated and now
manage twelve public real estate partnerships that have purchased, for
cash, single tenant properties under long-term net leases. With the
exception of size and the ability to use mortgage indebtedness for
acquisition of properties, all of such partnerships are similar to AEI
Fund 23. The offering of interests in the first such partnership, Net
Lease Income & Growth Fund 84-A Limited Partnership,terminated in December
1984 with the maximum $5,000,000 of subscriptions. The offering of
interests in the next four partnerships, AEI Real Estate Fund 85-A Limited
Partnership,AEI Real Estate Fund 85-B Limited Partnership, AEI Real Estate
Fund 86-A Limited Partnership, and AEI Real Estate Fund XV Limited
Partnership terminated in June 1985, February 1986, July 1986 and December
1986, respectively, each with the maximum $7,500,000 of subscriptions.
-16-
The offering of interests in AEI Real Estate Fund XVI Limited Partnership
terminated in November 1987, with the maximum $15,000,000 of subscriptions.
The offerings of interests in AEI Real Estate Fund XVII Limited
Partnership, AEI Real Estate Fund XVIII Limited Partnership, AEI Net Lease
Income & Growth Fund XIX Limited Partnership and AEI Net Lease Income &
Growth Fund XX Limited Partnership terminated on November 1, 1988,
December 4,1990, February 5, 1993, and January 19, 1995, respectively with
$23,388,700, $22,783,050, $21,157,928 and $24,000,000 of subscriptions.
The offering of interests in AEI Income & Growth Fund XXI terminated on
January 31, 1997 with $24,000,000 of subscriptions. The offering of
interests in AEI Income & Growth Fund XXII will terminate immediately
before commencement of this offering. An aggregate of approximately 13,500
limited partners purchased interests in such partnerships.
The properties purchased by all of such partnerships were new, or
recently constructed, net leased commercial properties throughout the
United States. At September 30, 1998, approximately $184,000,000 of
properties had been purchased or were under contractual commitment for
purchase by the public partnerships. The following table sets forth the
geographic distribution of the 143 properties purchased, or under
commitment to purchase, by prior public partnerships:
State Number of Properties State Number of Properties
Alabama 1 Missouri 5
Arizona 5 Montana 1
Arkansas 1 Nebraska 4
California 4 Nevada 2
Colorado 5 New Hampshire 1
Florida 6 New Mexico 1
Georgia 3 North Carolina 3
Illinois 4 Ohio 14
Indiana 3 Oregon 1
Iowa 2 Pennsylvania 1
Kansas 1 South Carolina 3
Kentucky 1 Tennessee 3
Louisiana 4 Texas 38
Michigan 6 Virginia 5
Minnesota 12 Wisconsin 3
By dollar amount invested, approximately 74% of such properties were
restaurants,12% were retail facilities, 8% were childcare centers, 6% were
auto service centers, convenience centers, a motel and an office building.
The managers will provide to any potential investor upon request, and upon
payment of a fee to cover costs of reproduction and mailing, a copy of the
Annual Report on Form 10-KSB for any of such Funds as filed with the
Securities and Exchange Commission.
All but two of the private partnerships were specified property
syndications. Of the remaining private partnerships, one acquired four
properties on a "blind pool" basis, one is a private partnership offered
to institutional investors that acquired seven properties on a blind pool
basis, and on is a private partnership currently being offered to
accredited investors on a blind pool basis. The private partnerships
purchased thirteen properties for $6,371,894, ten of which were
restaurants, two supermarkets and one an automotive center. Six of those
properties were in Minnesota, three in Florida and one each in Nebraska,
Iowa, Michigan and Ohio. As with this offering, the primary objective of
the earlier private partnerships was production of income (not tax shelter)
by investment in single-tenant properties located throughout the United
States and that were leased under lease that required tenants to pay most
of the operating costs of the properties.Many of the private partnerships
acquired properties with a significant amount of indebtedness.
Like most entities engaged in real estate operations, the partnerships
sponsored by the managers and their affiliates have invested in some
properties that were leased to tenants that failed to fully perform under
the terms of the leases, including timely performance of rental payments.
Upon nonperformance, the affiliates managing such properties take such
-17-
action, which may include termination of leases in the case of continued
recalcitrance or an apparent inability to meet lease obligations, as is
prudent in commercial lease transactions. In the case of terminations, the
property may be leased to a new tenant under renegotiated terms or sold.
When lessees default on lease obligations, rental payments will most
likely be interrupted for a period of time. Although such rental
interruption may cause a decrease in distributions of cash flow for a
period of time, because all of the public partnerships invest in a number
of properties and the managers attempt to diversify the types of property
held for investment, no default or series of defaults has caused a public
partnership sponsored by the managers to miss a quarterly distribution of
cash flow or to have inadequate cash to fund operations. It is the
continuing objective of the managers to minimize the number of such
properties through careful property evaluation and investigation of the
credit-worthiness of lessees prior to purchase and by renegotiating leases
or locating new tenants in a manner designed to minimize any interruption
of cash flow.
COMPENSATION TO MANAGERS AND AFFILIATES
AEI Fund Management XXI and AEI Fund Management will provide nearly
all of the management services AEI Fund 23 requires and will be compensated
accordingly. AEI Securities will coordinate the sale of units and will
receive commissions and expense allowances, most of which will be paid or
"reallowed" to investment firms that solict sales. AEI Fund Management,
which will provide administrative services, will be reimbursed for all of
its expenses in furnishing services at its "cost," which includes a portion
of the general expenses directly related to the furnishing of such services
In addition, AEI Fund Management XXI and Robert P. Johnson, as managing
members of AEI Fund 23, will receive an interest in net cash flow and net
proceeds on sale of properties. Robert P. Johnson, the individual manager,
is the sole shareholder, and the chief executive officer, of each of the
AEI Fund Management XXI, AEI Fund Management and AEI Securities.
The following table sets forth the forms of compensation, distributions
and cost reimbursements that will or may be paid to AEI Fund Management XXI,
AEI Fund Management and AEI Securities in connection with the organization,
operation and liquidation of AEI Fund 23 and its properties, assuming the
minimum 1,500 units and the maximum 24,000 units are sold. The following
arrangements were formulated by the managers and are not the result of
arm's-length negotiations.
PERSON OR ENTITY
RECEIVING FORM AND METHOD ESTIMATED
COMPENSATION OF COMPENSATION DOLLAR AMOUNT
OFFERING STAGE
AEI Securities Inc. Selling commissions and $2,520,000 (maximum) and
nonaccountable expense $157,500 (minimum), all but
allowance equal to 10% of approximately $480,000
proceeds, all or a portion maximum) and $30,000
of which may be reallowed to (minimum) of which is
other investment firms, and expected to be reallowed.
a 1/2% due diligence allowance,
a portion of which will be
reallowed to other investment
firms.
Managers and Reimbursement at cost for Estimated $840,000(maximum)
affiliates other organization and and $67,500 (minimum), but
offering expenses(1). subject to limitation(2).
Most organization and
offering expenses are paid
or repaid to nonaffiliates.
PROPERTY ACQUISITION STAGE
Managers and Reimbursement at cost for all Estimated $700,000 (maximum)
affiliates acquisition expenses (3). and $60,000 (minimum), but
subject to the limitation(3)
-18-
OPERATING STAGE
Managers Three percent (3%) of Net Not Presently Determinable
cash flow.
Managers and Reimbursement at cost for all Estimated $75,000 to
affiliates administrative expenses, $250,000 for the first 12
including all expenses related months of opertations and
to management and disposition $20,000 to $280,000 each
AEI Fund 23's properties and year after that. The
all other transfer agency, cummulative amount of
reporting, investor relations such expense
and other administrative reimbursements for
functions. (4) general overhead of the
of the managers and
affiliates, and for
controlling person
expenses, together with
front-end fees and sales
expenses, are subject to
limitations. (4)
Property Sale or Financing Stage
Managers 1% of distributions of net Not Presently Determinable
proceeds of sale until
investors have received an
amount equal to (a) their
"adjusted capital contributions,"
plus (b) an amount equal to 7%
of their adjusted capital
contributions per annum,
cumulative but not compounded,
to the extent not previously
distributed. 10% of distributions
of net proceeds of sale thereafter.
(1) Includes federal and state securities registration fees, fees of
counsel, accountant's fees, printing expenses, and other out-of-
pocket expenses paid to nonaffiliates.
(2) To the extent organization and offering expenses (including payments
to AEI Securities and third parties) when added to Acquisition
Expenses, exceed 20% of the capital contributions, they will be
borne by the managers.
(3) See Section 2.1 of the Operating Agreement for the definition of
acquisition expenses. All such expenses will be paid at cost (as
defined in the Operating Agreement).
(4) Subject to the limitations set forth in Section 6.2(b) of the
Operating Agreement, AEI Fund 23 will reimburse the managers and
their affiliates at cost for their administrative expenses in
managing all operations of AEI Fund 23, including expenses incurred
in connection with providing services for the acquisition, leasing,
and operation of properties. Such expenses include the salaries,
fees and expenses paid to employees and consultants of the managers
and such affiliates for work performed relative to AEI Fund 23
including office rent, telephone, travel, employee benefit expenses
and other expenses attributable to the performance of such services.
The majority of these expenses are allocated based on the number of
hours devoted by employees to the affairs of AEI Fund 23, as
recorded on daily time records of such employees and the remainder
are allocated at the end of each month based upon the number of
investors and the capitalization of AEI Fund 23. The cumulative
amount of such expense reimbursements for general overhead of the
managers and affiliates, and for controlling person expenses,
together with Front-End Fees and sales expenses may not exceed the
sum of (i) 20% of capital contributions, (ii) 5% of revenues from
properties, (iii) a 3% sales commission, and (iv) 7% of net cash flow.
-19-
No real estate commissions will be paid to the managers or affiliates
in connection with the purchase or sale of any of AEI Fund 23's properties.
The managers and affiliates are, however, compensated at their Cost,
subject to the limitations set forth in the preceding table and in Section
6.2 of the Operating Agreement, for all expenses they incur in connection
with the purchase and sale of properties. No Acquisition Fees will be paid
to the managers. The managers and their affiliates will not be compensated
for services not set forth in the table above.
CONFLICTS OF INTEREST
AEI Fund 23 will be subject to actual and potential conflicts of
interest arising out of relationships with the managers and their
affiliates. These conflicts include, but are not limited to, the following:
LACK OF ARM'S-LENGTH NEGOTIATIONS
The managers may realize income from AEI Fund 23 both during its
operation and upon its liquidation,. The agreements and arrangements,
including those relating to compensation, with the managers are not the
result of arm's-length negotiations. Moreover, because a significant
portion of the managers' compensation will not be payable until the sale
of properties,the interests of the managers and the investors with respect
to the timing and price of such sale may conflict.
OTHER REAL ESTATE ACTIVITIES OF MANAGERS
The managers and their affiliates are actively engaged in the
commercial property real estate business as general partners in other real
estate programs. Mr. Johnson also intends to offer additional real estate
programs in the future. AEI Fund 23 will not have independent management
and will rely on the managers and their affiliates for its operations.
The managers will devote only so much of their time to the business of AEI
Fund 23, as in their judgment, is reasonably required. It is anticipated
that, although Mr. Johnson may personally devote approximately 30% of his
time to the business of AEI Fund 23 during its offering and property
acquisition stages, the amount of time he spends on its activities will
probably be less than 10% of his overall work time after properties are
acquired. The allocation of management time, services and functions among
various existing programs and any future programs that the managers and
their affiliates may organize, as well as other business ventures in which
they are involved, may create conflicts of interest. The managers and
their affiliates believe that they have, or can retain, sufficient staff
to be fully capable of discharging their responsibilities to all Programs
with which they are affiliated.
COMPETITION WITH MANAGERS AND OTHER AFFILIATED PROGRAMS FOR PURCHASE AND
SALE OF REAL PROPERTY
The managers and their affiliates may engage in other business
ventures, including forming and sponsoring other public or private
programs, and neither AEI Fund 23 nor any investor will be entitled to any
interest therein.
It is possible that AEI Fund 23 will periodically have funds available
to acquire additional properties at the same time as other programs
sponsored by the managers or their affiliates. If this happens, conflicts
of interest will arise as to which of the programs should acquire the
property or properties involved. The managers and their affiliates will
review the investment portfolio of each program and will make the decision
as to which program will acquire the property on the basis of several
factors, including (i) the cash flow requirements of each program, (ii)
the degree of diversification of each program, (iii) the estimated income
tax effects of the purchase on each program, (iv) the amount of funds
available to each program and (v) the length of time such funds have been
available for investment. If funds should be available in two or more
programs to purchase a given property or properties and the factors
enumerated above have been evaluated and deemed equally applicable to each
program, the property will be acquired by the program that first reached
its minimum investment level, and any other conflicts that arise will be
resolved by the managers in their discretion.
In addition, conflicts of interest may arise when AEI Fund 23 attempts
to sell or rent real property. The managers may sell less than 100% of
the interest in a property and AEI Fund 23 may own a fractional
-20-
interest in the real estate being sold. The managers may be forced to
choose between selling the interest in the property that is held by AEI
Fund 23 and the interest that is held by the manager or another affiliated
program. Such conflicts will be generally be resolved by the managers, in
their discretion, after consideration of the investment objectives of the
program holding interests in the property and the length of time until the
planned final disposition of properties by such programs. The managers may
allow the sale of the fractional interest held by the managers or another
affiliated program prior to the sale of the interest held by AEI Fund 23.
There can be no assurances that the terms of sale of all fractional
interest in a property that are sold at different times will be the same.
POSSIBLE JOINT INVESTMENT WITH AFFILIATED PROGRAMS
AEI Fund 23 may invest in a property jointly with another program
sponsored by the managers or their affiliates under the conditions
described in "Investment Objectives and Policies--Joint Venture
Investments." In the event of such a joint venture, conflicts of interest
could arise between the joint venture partners.
MANAGER'S REPRESENTATION OF FUND IN AUDIT PROCEEDINGS
The manager will act as the "tax matters partner" pursuant to Section
6231 of the Internal Revenue Code. This grants the manager certain
discretion and authority regarding extensions of time for assessment of
additional tax against the investors related to Fund income, deductions or
credits and settlement or litigation of controversies involving such items.
The positions taken by the manager on tax matters may have differing
effects on the managers and the investors. Any decisions made by the
manager with respect to such matters will be made in good faith consistent
with its fiduciary duties to AEI Fund 23 and the investors. The manager,
to the extent its actions as tax matters partner are in good faith and
reasonably intended to be in the best interests of AEI Fund 23 and subject
to the indemnification and exculpation language contained in the Operating
Agreement, may be entitled to indemnity for liability incurred as a result
of such actions. See Exhibit A, Section 6.5 at Page A-14.
LACK OF SEPARATE REPRESENTATION
AEI Fund 23, the investors and the managers are not represented by
separate counsel. The attorneys and accountants who will perform services
for AEI Fund 23 also perform services for affiliates of AEI Fund 23,
including the managers, AEI Securities, Inc. and other affiliates of the
managers. Without independent legal representation, investors may not
receive legal advice regarding certain matters that might be in their
interest but contrary to the interest of the managers and their affiliates.
Should a dispute arise between AEI Fund 23 and the managers or their
affiliates or should negotiations or agreements between AEI Fund 23 and the
managers, other than those existing or contemplated on the effective date
of this Prospectus, be necessary, the managers will cause AEI Fund 23 to
retain separate counsel for such matters. Any future agreement between AEI
Fund 23 and the managers or their affiliates will provide that such
agreement may be terminated at the option of AEI Fund 23 upon 60 days'
notice without penalty to AEI Fund 23.
AFFILIATION OF SELLING AGENT
AEI Securities, which is wholly owned by Robert P. Johnson, is serving
as "Dealer-Manager" for the offering of units. Accordingly, the "due
diligence" investigation customarily performed by an underwriter is being
performed by an affiliate of the managers. AEI believes, however, that
such due diligence has, in fact, been exercised. Moreover, under Section
34 of Article III of the NASD Rules of Fair Practice, each investment firm
that sells units has an obligation to make an appropriate independent
inquiry about the offering.
EXPENSE REIMBURSEMENTS
The managers and their affiliates are reimbursed at their cost for the
services they perform on behalf of AEI Fund 23. The aggregate cost of
such reimbursements can be as much as the fees and increased interest in
net cash flow interest the managers are allowed to be paid under applicable
state regulation.
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CASH DISTRIBUTIONS AND TAX ALLOCATIONS
CASH DISTRIBUTIONS
The managers intend to make distributions of available net cash flow,
if any, within 30 days after the end of each fiscal quarter. AEI Fund
23's objective is to acquire net leased properties which will generate
partially "tax deferred" cash distributions to investors. Net cash flow
from operations, if any, with respect to each fiscal year will be
distributed 97% to the investors and 3% to the managers.
Upon financing, sale or other disposition of any of the properties,
net proceeds of sale may be reinvested in additional properties. Net
proceeds of sale that are not reinvested in additional properties will be
distributed as follows:
<BULLET> First, 99% to the investors and 1% to the managers until the
investors have received an amount from net proceeds of sale
equal to the sum of (i) their adjusted capital contributions,
plus (ii) an amount equal to a 7% per annum return on their
adjusted capital contributions, cumulative but not compounded,
to the extent such 7% return has not been previously distributed
to them.
<BULLET> Any remaining balance will be distributed 90% to the investors
and 10% to the managers.
The 1% unsubordinated interest in net proceeds of sale received by the
managers for a $1,000 capital contribution is not proportionate to the
interest that would be received by an investor with the same capital
contribution.
TAX ALLOCATIONS
For income tax purposes, all income, profits, gains and losses for
each fiscal year, other than any gain or loss realized upon the sale,
exchange or other disposition of any of AEI Fund 23's properties, shall be
allocated as follows: (a) net loss shall be allocated 99% to the
investors and 1% to the managers so long as the investors have positive
balances in their capital accounts (if their capital accounts are reduced
to zero,all losses are allocated to the managers); and (b) net income will
be allocated first in the ratio, and to the extent, net cash flow is
distributed to the investors for such year and any additional income for
such year will be allocated in the same ratio as the last dollar of net
cash flow is distributed.
For income tax purposes, the gain realized upon the sale, exchange or
other disposition of any property will be allocated as follows:
<BULLET> first, to and among the investors in an amount equal to the
negative balances in their respective capital accounts (pro rata
based on the relative amounts of such negative balances),
<BULLET> then, 99% to the investors and 1% to the managers until the
balance in each investor's capital account equals the sum of
such investor's Adjusted Capital Contribution plus an amount
equal to a 7% per annum return on such investor's Adjusted
Capital Contribution, cumulative but not compounded, to the
extent not previously distributed,
<BULLET> the balance of any remaining gain will then be allocated to the
investors and the managers in the same manner as the last dollar
distributed.
For income tax purposes, any loss on the sale, exchange or other
disposition of any property shall be allocated 98% to the investors and 2%
to the managers.
-22-
INCOME TAX ASPECTS
Federal income tax laws and regulations as they apply to AEI Fund 23
are complicated and are only summarized below. Investors are urged to
consult with their own counsel and accountants about the state and federal
income tax consequences of ownership of units. Investors must realize that
periodic consultations about their individual tax situations may be
necessary because of future changes in statutes and regulations or in
interpretations by courts or state and federal tax authorities.
OPINION OF COUNSEL
Dorsey & Whitney LLP, counsel to AEI Fund 23, has rendered an opinion
on the material federal tax issues relating to an investment in AEI Fund
23 which involve a reasonable possibility of challenge by the Internal
Revenue Service or, where such an opinion cannot be rendered with respect
to a material tax issue, has described the reasons for the inability to
opine. As set forth below, counsel has not rendered an opinion on certain
federal tax issues whose outcome depends upon facts and circumstances that
will be determinable or will arise only in the future. In particular, as
more fully described below, no opinion is given with respect to the
probable outcome of :
<BULLET> the allocation of basis among buildings (the cost of which is
depreciable),personal property (the cost of which is depreciable
over a shorter period), and the underlying land (the cost of
which is not depreciable);
<BULLET> whether AEI Fund 23 will be characterized as a "dealer" in real
estate at the time of sale or disposition of AEI Fund 23's
properties
<BULLET> whether the properties will be considered to be "held for
investment"
<BULLET> whether the leases to be entered into by AEI Fund 23 will be
"true leases"or will be "stepped payment leases" for purposes
of determining whether AEI Fund 23 will be considered an "owner"
of properties entitled to take depreciation and other deductions
thereon and for purposes of the timing of recognition of rental
income thereon; and
<BULLET> whether AEI Fund 23's allocation of start-up, organization,
syndication and acquisition expenses for purposes of the
deduction or capitalization of such expenses will be upheld.
Where counsel has not issued an opinion because the factors relevant to
the issue involved cannot be determined at this time, depend on an
investor's tax situation, or turn on aspects of law that are at present
uncertain, no inferences should be drawn as to any possible legal outcome.
Subject to the information contained in this prospectus and in
counsel's opinion (a copy of which is filed as Exhibit 8 to the
registration statement that has been filed with the SEC), counsel has
advised AEI Fund 23 that in the aggregate the significant tax benefits, as
described herein, potentially available to an investor will probably be
realized. An opinion of counsel represents only such counsel's best legal
judgment and has no binding effect or official status of any kind. No
assurance can be given that the conclusions reached in an opinion would be
sustained by a court if challenged by the IRS. Therefore, investors will
assume the risks of a challenge by the IRS of the tax interpretations set
forth herein or otherwise made by AEI Fund 23 or the managers and the
risks of changes in tax laws, rules, regulations and interpretations.
GENERAL
A limited liability company formed under the Delaware law is generally
treated in the same manner as a partnership for federal income tax
purposes. The limited liability company form has been employed to allow
investors in AEI Fund 23 to obtain a direct pass-through of their pro rata
share of the operating results of AEI Fund 23. Under the Internal Revenue
-23-
Code, no federal income tax is payable by a limited liability company that
is not a "publicly traded partnership." Each investor and manager is
required to report on his or her federal income tax return his or her
distributive share of the profits, losses, gains, income, deductions and
credits of AEI Fund 23. Subject to certain limitations, including
limitations on passive activity losses, each investor and manager may
deduct his or her share of AEI Fund 23's losses, if any, for any fiscal
year on his or her individual return to the extent of the adjusted basis
of his or her interest in AEI Fund 23 as of the end of such year. Likewise,
each investor and manager must include his or her distributive share of
any Fund taxable income for each year with his or her other taxable income
whether or not he or she has received cash distributions from AEI Fund 23
during such year.
PARTNERSHIP STATUS
AEI Fund 23 has received an opinion from its legal counsel to the
effect that, under currently applicable treasury regulations, AEI Fund 23
will be treated as a partnership for federal income tax purposes and,
subject to the discussion under the caption "publicly traded partnership"
below, will not constitute an "association" taxable as a corporation. In
rendering this opinion, counsel has relied on the existing treasury
regulations and the representation that AEI Fund 23 will not, for any
period, elect to be treated as an association taxable as a corporation.
PUBLICLY TRADED PARTNERSHIPS
The Internal Revenue Code contains several provisions that
significantly change the tax treatment of "publicly traded partnerships"
and the income and loss they generate. Unless 90% of a publicly traded
partnership's income is from passive-type investments, a publicly traded
partnership will be taxed as if it were a corporation. Generally, income
from a publicly traded partnership will be treated as portfolio income.
Such income from a publicly traded partnership cannot be offset by passive
losses from other sources and losses from the publicly traded partnership
cannot be used to offset passive income from other sources.
Based on the provisions of its operating agreement, and provided
transfers of interests are made only in accordance with such provisions,
counsel to AEI Fund 23 is of the opinion that it is likely that AEI Fund
23 will not be considered a publicly traded partnership as defined in
section 774 of the Internal Revenue Code.
ALLOCATIONS
The operating agreement of AEI Fund 23 allocates to each investor and
manager his or her distributive share of income, gain, loss, deduction, or
credit. The operating agreement also provides for a specific allocation
of proceeds among the investors and the managers upon dissolution and
termination of AEI Fund 23, upon the refinancing, sale, or other
disposition of AEI Fund 23 properties, and a specific allocation of cash
flow. Whether these allocations will be given effect for federal income
tax purposes depends upon whether they have "substantial economic effect."
If the allocations in the operating agreement do not have substantial
economic effect, the distributive share of income, gain, loss, deduction,
or credit of each investor and manager will be determined in accordance
with the interest in AEI Fund 23 held by such investor or manager.
Assuming that all investors and managers have positive balances in
their capital accounts (determined after adjusting capital accounts as
provided in the operating agreement of AEI Fund 23) throughout the term of
AEI Fund 23 and that the after-tax economic consequences of the allocations
made in the operating agreement do not violate the "substantiality"
requirement imposed by the IRS regulations, counsel is the opinion that it
is more likely than not that allocations made in accordance with the
operating agreement will have substantial economic effect. Counsel is
unable to render an opinion on the allocation of losses or deductions where
the investors have negative balances in their capital accounts,because the
operating agreement does not contain an unconditional obligation to restore
such deficit balance.
-24-
STATUS OF AEI FUND 23 AS OWNER AND LESSOR OF THE IMPROVEMENTS
Although it is anticipated that AEI Fund 23 will be treated as the
"owner" of its properties, the IRS has taken the position in certain
situations that lease transactions should be treated as financing
transactions. If a lease is considered a financing transaction for federal
income tax purposes,the lessor of the property is not treated as the owner
and is not entitled to take depreciation and other deductions with respect
to his or her investment. Leases entered into by prior programs sponsored
by the managers and their affiliates have, in general, contained terms
indicative of ownership in accordance with the factors enumerated by the
IRS. The managers will continue to attempt to enter into leases that will
result in AEI Fund 23, being treated as the owner of the leased property.
Nevertheless, the characterization of transactions as leases involves
analysis of complex factual situations under evolving judicial doctrines
and, because AEI Fund 23 has not yet entered into any leases and no
analysis thereof is possible, counsel for AEI Fund 23 has not expressed an
opinion on the status of AEI Fund 23 as owner and lessor of properties.
STEPPED PAYMENT LEASES
Under section 467 of the Internal Revenue Code, a lessor may be
required to accrue rental income for income tax purposes during a taxable
period in amounts that differ from the actual rental payments received
during the period if (i) rental payments are made after the close of the
calendar year following the calendar year in which the use of the property
occurs, or (ii) rental payments increase over the term of the lease
("Section 467 Lease"). Prior programs sponsored by the managers have
entered into leases which may qualify as Section 467 Leases. In certain
instances, such agreements may require accrual of a constant amount of
rental income despite changes in rental rates or may require recapture on
the disposition of the property subject to the lease. Because AEI Fund 23
has not yet entered into any lease agreements, it is not possible to
determine what treatment of AEI Fund 23's leases may be required under
section 467. If AEI Fund 23 enters into agreements that require accrual of
a constant amount, such an accrual could result in AEI Fund 23's
recognition in certain years of a greater amount of income than is actually
received. If, on the other hand, AEI Fund 23 is required to recapture
ordinary income on the disposition of property subject to its leases, AEI
Fund 23 will recognize ordinary income rather than capital gain to the
extent of the recapture.
ORGANIZATION AND SYNDICATION COSTS AND OTHER PAYMENTS TO THE MANAGERS
The managers and their affiliates will be reimbursed for all costs
incurred by the managers or such affiliates that are attributable to AEI
Fund 23. Such reimbursements will include costs incurred in syndicating,
organizing and managing AEI Fund 23, as well as an allocation of related
general and administrative costs of the managers and their affiliates. The
managers will categorize reimbursements as start-up, syndication,
organization, management or acquisition costs. Although the Internal
Revenue Code allows deduction of amounts paid or incurred to organize AEI
Fund 23 ("organization expenses"),or to create an active trade or business
conducted by AEI Fund 23 ("start-up expenses") over a period of not less
than 60 months, it does not allow deduction of amounts paid to issue or
market the units ("syndication expenses"). The managers will allocate
certain expenses between syndication, organization and start-up expenses.
There can be no assurance that the IRS will accept the managers'
determination of the classification of the costs with respect to
syndicating and organizing AEI Fund 23,and because the issue is factual in
nature, counsel to AEI Fund 23 has not issued an opinion on this issue.
Expenses incurred in connection with the acquisition of properties
will generally be added to the purchase price and deducted over their
useful lives. All other reimbursements will be deducted as management
expenses. The IRS could allege that such expenses reimbursed to the
managers or an affiliate are not currently deductible by AEI Fund 23. The
managers believe that the management expenses for which they will be
reimbursed will be deductible and will be paid for necessary and ordinary
services rendered to AEI Fund 23. The deductibility of such reimbursements
ultimately will depend upon, among other things, a factual determination
of the nature of the services performed and cannot be predicted with
certainty. AEI Fund 23's legal counsel has not issued an opinion on the
deductibility of these expenses because their deductibility is inherently
a factual issue that depends upon their amount or the appropriateness of
the relevant items for reimbursement.
-25-
DEPRECIATION DEDUCTIONS
GENERAL. The Internal Revenue Code permits a taxpayer to claim
depreciation deductions with respect to property used in a trade or
business or held for the production of income. As a general rule the cost
of acquiring or constructing an asset, including all costs incident to such
acquisition or construction, may be included in the tax basis thereof for
the purposes of computing cost recovery deductions.
AEI Fund 23 will claim depreciation, cost recovery and amortization
deductions with respect to the properties it acquires to the extent
permitted by the applicable Internal Revenue Code provisions. Although
these deductions will reduce AEI Fund 23's taxable income, they will also
reduce AEI Fund 23's adjusted basis in the properties, thereby increasing
the potential gain (or decreasing the potential loss) to AEI Fund 23 when
the properties are sold.
Because they will consist solely of commercial properties, AEI Fund
23 will depreciate most of its real properties over 39 years using the
straight-line method, although it might be required to use longer
depreciation period for properties that are tax-exempt use property as
described below. Some properties, including automotive service station
buildings and car wash buildings, have shorter useful lives and are
depreciated over a shorter recovery period (e.g. 15 years). A small portion
of the property to be purchased by AEI Fund 23 is expected to be five-year
recovery property.
Allocation of the purchase price of a property among the various
depreciable and nondepreciable assets is a factual question, and there can
be no assurance that the allocations made by the manager will be accepted
by the IRS. Because none of AEI Fund 23's properties have been acquired
and the issue depends on facts that are not yet determined, counsel to AEI
Fund 23 has not rendered an opinion on this issue. Adjustment of the
allocation of the purchase price of a property could decrease Fund
depreciation deductions thereby increasing Fund taxable income or
decreasing Fund losses.
TAX-EXEMPT USE PROPERTY. Units will be purchased by both tax-exempt
entities and investors not exempt from taxation. The Internal Revenue Code
provides that in some cases where a limited liability company has both tax-
exempt entities and non tax-exempt entities as members, a portion of the
property owned by the limited liability company will be deemed tax-exempt
use property that must be depreciated over the greater of 40 years or 125%
of any long-term lease. To avoid being characterized as tax exempt use
property, the operating agreement of AEI Fud 23 would have to make only
"qualified allocations."
Although the issue is somewhat uncertain because of the lack of
clear guideline in applicable IRS regulations, counsel has reviewed the
allocation provisions contained in the operating agreement and believes
that they are not qualified allocations under applicable provisions of the
Internal Revenue Code. Therefore, it is likely that, to the extent of the
interests of tax-exempt investors in the AEI Fund 23, a portion of the its
property will be depreciated over 40 years and that depreciation deductions
to all investors will be decreased in early years of operation as a result
of this adjustment.
BASIS OF FUND INTEREST
Subject to the "at risk rules" and the "passive activity loss
limitations" that are described in greater detail under "Personal Tax
Consequences" below, an investor will generally be allowed to deduct his or
her allocable share of losses from AEI Fund 23 to the extent of the
adjusted basis in the investor's units. Each investor's adjusted basis of
the units initially will include his or her contribution to the capital of
AEI Fund 23 and the investor's pro rata share of indebtedness as to which
neither AEI Fund 23 nor any investor is personally liable ("nonrecourse
liabilities"). Under the "at risk" rules, a taxpayer cannot deduct losses
arising from an activity, including the activity of holding real property,
to the extent such losses exceed the aggregate amount with respect to which
the taxpayer is financially "at risk" in such activity. Generally, a
taxpayer is "at risk" in the amount of his or her capital contribution plus
his or her share of recourse liabilities and "qualified" nonrecourse
liabilities within the meaning of Section 465(b)(6) of the Internal Revenue
-26-
Code. Although the managers will attempt to ensure that financing, if any,
that may be placed on properties in the future will be qualified
nonrecourse financing, because that determination depends on facts not yet
in existence, no assurances can be given that any loans actually obtained
by AEI Fund 23 will qualify as amounts at risk under Section 465.
An investor's adjusted basis of his or her units will increase by the
investor's distributive share of income from AEI Fund 23 for each year
and decrease by his or her distributive share of losses and by
distributions of cash and other property made by to him or her. For this
purpose the investor's share of any reduction in principal of AEI Fund
23's indebtedness will be treated as a distribution of cash to the investor.
The adjusted basis of an investor's units may not be reduced below zero.
In the event that the amount of losses allocated to an investor for any
fiscal year exceeds the investor's available basis of his or her units,
such excess losses may be carried forward to such time, if ever, such basis
is sufficient to absorb such excess losses.
NONLIQUIDATING DISTRIBUTIONS
Nonliquidating distributions of cash to an investor generally will be
regarded as a return of capital for tax purposes to the extent of a
investor's adjusted basis of his or her units and serve to reduce basis by
an amount equal to the cash distributed. To the extent that the amount of
cash distributed exceeds the investor's adjusted basis of her or his units
prior to distribution, the investor will recognize taxable gain.
Nonliquidating distributions of property other than cash to an investor
will reduce the investor's basis in his or her units by an amount equal to
the adjusted basis of the property in the hands of AEI Fund 23; provided,
however, that the adjusted basis of her or his units may not be reduced
below zero. The distributed property will have a basis in the hands of the
distributee investor equal to its adjusted basis in the hands of AEI Fund
23, except that the basis of such property shall not exceed the adjusted
basis of such investor's units reduced by the amount of any cash
distributed in the same transaction.
SALES OF FUND PROPERTY AND FORECLOSURE
If AEI Fund 23 sells a property, gain will be recognized to the extent
that the amount realized from the sale exceeds AEI Fund 23's adjusted basis
in the property and loss will be recognized to the extent that the adjusted
basis of the property exceeds the amount realized. The amount realized from
the sale of a property includes all cash received, all liabilities assumed
and the fair market value of all property received other than cash. If a
purchaser of a property assumes or takes subject to liabilities encumbering
the transferred property, the amount of such liabilities represents
consideration to be included in the amount realized by AEI Fund 23 as though
there had been a payment in a like amount.
The federal income tax consequences of the foreclosure of a mortgage,
deed of trust or other financing instrument with respect to a property
depend on a number of factors. In general, however, the investors will
recognize taxable gain to the extent the foreclosed liability exceeds the
adjusted basis of the property. If the property is sold in foreclosure for
an amount greater than the applicable liability, the rules described in the
preceding paragraph will apply.
If a depreciable real property is sold or otherwise disposed of within
one year after acquisition gain, if any, will be recaptured as ordinary
income to the extent that depreciation has been previously allowed on the
property. Further, in the case of an installment sale all depreciation to
be recaptured as ordinary income will be recaptured in the year of sale
without regard to the actual payment received in such year.
If AEI Fund 23 is considered a dealer in real estate at the time of
any sale of a property, installment sale reporting of the amount of
recognized gain will not be available. Therefore, an installment sale of
property by AEI Fund 23 could result in a recognition of income in an
amount exceeding cash distributions from AEI Fund 23 in the year of sale.
If AEI Fund 23 is not a dealer, deferral of recognition of income from an
installment sale will be available, although under certain circumstances
the amount of tax deferred may be subject to an interest charge denominated
as additional tax.
-27-
Under certain circumstances, the sale of property may not generate
for the investors net cash proceeds in amounts sufficient to cover the tax
liabilities thereby created for the investors. Such circumstances might
include (i) the sale of a property on adverse terms, i.e., for gross
proceeds that exceed the depreciated book value of the property by an
amount significantly greater than the net proceeds after payment of the
remaining principal amount of the related mortgage or deed of trust, (ii)
the sale or transfer of a property pursuant to foreclosure of a mortgage,
deed of trust or other financing instrument or (iii) the sale of a property
for proceeds that include illiquid assets, such as promissory notes of the
purchaser.
Any gain or loss on the sale or other disposition of (a) property
that is held by AEI Fund 23 as a "dealer" or (b) property that is neither a
capital asset nor a Section 1231 asset will be taxed as ordinary income or
loss, as the case may be. The holding period required for long-term
capital gain treatment (subject to a maximum federal tax rate of 20%) is
more than 12 months.
Losses from AEI Fund 23 that investors have been unable to deduct
due to application of the passive loss limitation rules may be applied
against gains subsequently realized from sales of the properties of AEI
Fund 23 or Units. Any losses remaining after such application in the event
of a complete liquidation of an investor's interest in AEI Fund 23 may be
applied against other income of the investor, whatever the source.
SALE OF UNITS
INVESTORS MUST RECOGNIZE THAT NO PUBLIC MARKET FOR UNITS MAY EXIST AT
SUCH TIME AS AN INVESTOR WISHES TO SELL HIS UNITS.
Unless you are a "dealer" in securities, gain or loss on sale or
disposition (including transfer by gift) of your units will be treated as
capital gain or loss. Nevertheless, your share of AEI Fund 23's unrealized
receivables and inventory items that have appreciated substantially in
value will give rise to ordinary income on a sale of units. For this
purpose, unrealized receivables of AEI Fund 23 include depreciation
recapture property to the extent that any gain realized if AEI Fund 23 had
sold such property at its fair market value would have been taxed as
ordinary income (as described above, with respect to depreciation
recapture). Inventory items include all items of AEI Fund 23 that, if sold
by AEI Fund 23 or if held by the selling investor and sold by him, would
have been taxed as ordinary income either because the property was neither
a capital asset nor a "Section 1231 asset" or because AEI Fund 23 or the
selling investor would be a "dealer" in such property. Furthermore, in
determining the amount received upon the sale or exchange of a unit, an
investor must take into account his or her share of any reduction of the
nonrecourse partnership liabilities. Accordingly, an investor's gain on
the sale or exchange of units may substantially exceed the cash proceeds
from the sale, and the income taxes payable with respect to such gain also
may exceed the cash proceeds.
A gift of units by an investor may result in the imposition of
income tax on the investor if the gift is made at a time when the
investor's share of AEI Fund 23's nonrecourse liabilities exceeds the basis
of the units that are the subject of the gift. The taxable income
resulting from a gift of units would be equal to the amount by which the
investor's share of nonrecourse partnership liabilities exceeds his basis
in the units given. Such a gift also may result in a federal gift tax
being imposed upon the donor.
If an investor transfer units, AEI Fund 23 may elect pursuant to
section 754 of the Internal Revenue Code to adjust the transferee's share
of the basis of the assets of AEI Fund 23. The manager has discretion to
determine whether such adjustment to the basis of the assets of AEI Fund 23
will be made. Because of the complexities and added expense of the tax
accounting required to implement such an election, the manager does not
intend to cause AEI Fund 23 to make the Section 754 election. Therefore,
any benefit that might be available to the investors by reason of such an
election probably will not be available. Moreover, an investor may have
greater difficulty in selling his units or may realize a lower sales price
since the purchaser will obtain no current tax benefits from his investment
to the extent that his cost of such investment exceeds his allocable share
of AEI Fund 23's basis in its assets.
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LIQUIDATION OF AEI FUND 23
When AEI Fund 23 is liquidated, an investor will recognize taxable
gain to the extent that any money distributed to the investor exceeds the
adjusted basis of the investor's interest in AEI Fund 23. An investor will
recognize a loss only if he or she receives liquidation distributions from
AEI Fund 23 consisting solely of money, unrealized receivables or inventory
items and then only to the extent that the adjusted basis of his or her
interest in AEI Fund 23 exceeds the basis of the items distributed to the
investor. In the event other property is distributed to an investor as a
liquidation distribution, the basis of such other property in the hands of
the investor shall be equal to the adjusted basis of such investor's
interest in AEI Fund 23 reduced by any money distributed to such investor
in the same transaction.
TAX AUDIT, RETURNS AND PENALTIES
The manager will arrange for the preparation and filing of all
necessary tax returns for AEI Fund 23. The manager also will serve as the
"tax matters partner" under the Internal Revenue Code. As tax matters
partner, the manager will have discretion and authority regarding
extensions of time for assessment of additional tax against investors
related to income, deductions or credits from AEI Fund 23 and settlement or
litigation of controversies involving such items. This is significant
because controversies regarding determination of taxable income will be
resolved, under regulations, through settlement or litigation at the AEI
Fund 23 level. Investors are required to report any item of income, gain
or loss consistently with the reporting of such item by AEI Fund 23, unless
a specific explanation of the inconsistency is included with the affected
income tax return.
Each investor whose interest in revenues of AEI Fund 23 is one
percent or more will receive notice of any tax controversy from the IRS.
Each investor will have the right to participate in settlement or
litigation of any tax controversy if such right is exercised timely.
Investors who do not reserve their right to reject settlements accepted by
the manager will be bound by the settlement. All investors will be bound
by the outcome of any litigation that may result. The IRS may assess
penalties against investors for understatement of tax based on whether
treatment of taxable items by the Fund had "substantial basis."
PERSONAL TAX CONSEQUENCES
The provisions of the Code discussed below may have tax consequences
to investors beyond their investment in AEI Fund 23, and the applicability
of such provisions to an investment in AEI Fund 23 must be considered with
regard to the total individual tax situation of the investor, which is
beyond the scope of the tax discussion contained in this Prospectus.
1. INVESTMENT BY TAX-QUALIFIED PLANS/UBTI. Tax-qualified plans,
although generally exempt from federal income taxation under Section 501(a)
of the Internal Revenue Code, nevertheless are subject to tax to the extent
that their unrelated business taxable income ("UBTI") exceeds $1,000 during
any tax year. An allocable portion of income from property that is "debt-
financed property" will constitute UBTI. Debt-financed property is
generally defined to mean any property as to which there is "acquisition
indebtedness." Acquisition indebtedness includes indebtedness incurred in
acquiring or improving a property, indebtedness incurred before acquisition
or improvement if such indebtedness would not have occurred but for the
acquisition or improvement, and indebtedness incurred after acquisition or
improvement if reasonably foreseeable at the time of acquisition or
improvement.
If AEI Fund 23 properties are financed with acquisition
indebtedness, tax-qualified plans that invest will be required to recognize
UBTI. If a tax-qualified plan's share of UBTI from AEI Fund 23 together
with UBTI from other investments of the plan exceeds $1,000 during any tax
year, the plan will be required to pay federal income tax on the UBTI. If
any of AEI Fund 23's properties are financed with acquisition indebtedness,
an allocable portion of the income directly associated with such financed
properties reduced by an allocable portion of the deductions directly
associated with such financed properties will be treated as UBTI. The
allocable portion will be equal to the average acquisition indebtedness
outstanding on such properties for the taxable year to the average adjusted
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basis of the property during the taxable year. When AEI Fund 23 disposes
of a property with acquisition indebtedness, the tax-qualified plan will be
required to recognize an allocable portion of the gain as UBTI based on the
ratio between the highest amount of acquisition indebtedness during the 12-
month period ending with the date of sale or disposition and the average
adjusted basis of the property during the taxable year.
The portion of AEI Fund 23's income that is not deemed to be UBTI
will continue to be exempt for a tax-qualified plan even if a portion of
AEI Fund 23's income is deemed to be UBTI. Moreover, the UBTI will not
affect the tax-qualified plan's tax status or its exemption from taxation
of normal investment income from other sources.
2. INVESTMENT BY CHARITABLE REMAINDER TRUSTS/UBTI. AEI Fund 23
is not an appropriate investment for a charitable remainder trust because
such an investment would likely cause all of the trust's income to be
subject to federal tax. A charitable remainder trust loses its exemption
from income tax if it has any amount of UBTI. Since AEI Fund 23 may borrow
money to purchase one or more of the properties that it acquires, AEI Fund
23 may have "acquisition indebtedness" with respect to such properties, and
a charitable remainder trust, as a member, would be deemed to have its
proportionate share of such acquisition indebtedness. Therefore, a
charitable remainder trust that invested in AEI Fund 23 (either directly or
indirectly, through a partnership or another entity taxable as a
partnership) would derive at least some unrelated business taxable income
from that investment, which would cause all of its income to become subject
to federal income tax.
3. LOSSES AND CREDITS FROM PASSIVE ACTIVITIES. AEI Fund 23 will
be a "passive activity" for virtually all investors, with the possible
exception of the managers. Under the Internal Revenue Code, losses from a
"passive activity" are deductible only against the income from that
activity and other passive activities. Passive activity losses that are
not deductible are carried forward and become deductible against future
passive activity income or when the taxpayer liquidates his or her interest
in the activity. When an investor disposes of his or her units or AEI Fund
23 is liquidated, any passive activity losses not previously deducted by
the investor together with any losses recognized as a result of the
disposition or liquidation, will be allowed as a deduction against income
in the following order: (i) passive income or gain from AEI Fund 23, (ii)
net income or gain from all passive activities and (iii) any other income
or gain (subject to limitations on the deductibility of capital items)
Credits from passive activities are, in general, limited to the tax
attributable to income from passive activities. Accordingly, to the extent
losses or deductions from passive activities of AEI Fund 23, when combined
with deductions from all other passive activities of such investor, exceed
the investor's income from passive activities, the excess losses or
deductions will be suspended and carried forward to future years until
applied.
Interest, dividends, annuities or royalties not derived in the
ordinary course of a trade or business on property held for investment, and
associated expenses and gain or loss on sale, are not taken into account in
computing income or loss from passive activity. Instead, these items are
considered "portfolio income items." If a limited liability company holds
assets producing portfolio income items, the gross income (and gain or
loss) from and expenses allocable to such portfolio assets are considered
to arise from an activity which is separate from any passive activity
engaged in by the limited liability company. Also, that portion of any
gain from the sale of an interest in such a limited liability company will
be considered a portfolio income item to the extent the underlying assets
determined on an applicable date generate portfolio income items.
The manager intends to conduct AEI Fund 23's affairs in a manner so
that an investor's distributive share of income derived from AEI Fund 23's
real estate rental activities will constitute passive activity income which
may be utilized by such investor as an offset against passive activity
losses. In the opinion of counsel for AEI Fund 23, and subject to IRS
regulations which may be adopted in the future, it is more likely than not
that the real estate rental activities of AEI Fund 23, from which AEI Fund
23 does not derive the equivalent of a guaranteed return or portfolio
income or other item not allocable thereto, will constitute passive
activities with respect to an investor, and therefore that an investor's
distributive share of income or loss (computed without taking into account
portfolio income items and other non-passive activity items, if any) will
constitute income or loss from passive activities. Interest income earned
on the proceeds of the offering of units prior to the investment of such
proceeds in real property and income (or loss) attributable to working
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capital investments will be treated as portfolio income items, and losses
from passive activities will not offset an investor's share of income
derived from such portfolio income items.
4. MINIMUM TAX. Passive losses, such as operating losses from AEI
Fund 23, if any, are not allowed in determining alternative minimum
taxable income to the extent they exceed alternative minimum taxable income
from passive activities. In applying these limitations, minimum tax rules
apply to the measurement and allowability of all relevant items of income,
deduction and credit. The amount of any passive loss that is subject to
disallowance is determined after computing all preferences and making all
other adjustments to income that apply for minimum tax purposes. Thus, the
amount of suspended losses attributable to passive activities may differ
for minimum and regular tax purposes. Prospective investors are urged to
consult their tax advisors with respect to the effect of the alternative
minimum tax on their specific situations.
5. FOREIGN INVESTORS. Although this discussion is not intended to
to describe foreign or federal tax consequences of an investment in AEI
Fund 23 by foreign investors, it should be noted that the Foreign
Investment in Real Property Tax Act of 1980 taxes nonresident aliens and
foreign corporations on gains from the disposition of United States real
property interests as if such taxpayers were engaged in a trade or business
in the United States. If AEI Fund 23 disposes of properties or if a
foreign investor disposes of an interest in AEI Fund 23, the foreign
investor may be subject to tax and withholding as a result of the
disposition.
Furthermore, AEI Fund 23 is required to withhold federal income tax on
amounts of income allocable to foreign investors (rather than amounts
actually distributed to them). The rates of withholding are 35% of the
amount of income allocable to a foreign investor that is a corporation and
39.6% of the amount of income allocable to any other foreign investor. AEI
Fund 23 is obliged to make estimated quarterly withholding payments based
on annualized taxable income.
STATE INCOME TAXES
This prospectus does not summarize the state income tax consequences
of owning a unit in the various states in which investors may reside or of
owning property in the various states in which AEI Fund 23 may acquire
properties. An investor is advised to consult with his own tax counsel as
to the state income tax consequences in his particular state of residence.
RESTRICTIONS ON TRANSFER
It is anticipated that there will never be a public market for the
units and, therefore, an investor should not expect to readily liquidate
this investment or to use the units as collateral for a loan. If an
investor wishes to transfer units, he or she might not be able to find a
buyer for the units due to market conditions or the general illiquidity of
the units. Moreover, if an investor was able to sell his or her units,
depending upon the price negotiated, he or she might receive less than the
amount of his or her original investment. No representation is made that
the units could be resold for their original purchase price.
The operating agreement allows transfers, other than "permitted
transfers," only to the extent that they comply with certain safe harbors
created by the IRS from treatment as a "publicly traded partnership" for
tax purposes." Counsel for AEI Fund 23 has advised the managers that these
limitations are necessary to fall within the safe harbor provisions from
treatment as a publicly traded partnership for tax purposes.
Under AEI Fund 23's operating agreement, any substituted investor must,
as a condition of receiving any interest in AEI Fund 23, agree in the
instrument of assignment to become an investor and pay reasonable legal
fees and filing costs in connection with his substitution as an investor.
Transfer of units will be recognized by AEI Fund 23 only as of the last
day of the month in which written evidence respecting the assignment is
received by AEI Fund 23 in form satisfactory to the managers.
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SUMMARY OF OPERATING AGREEMENT
The rights of members in AEI Fund 23 are established and governed by
the operating agreement that is enclosed with this prospectus as Exhibit A.
The subscription agreement that each investor signs includes a power of
attorney that gives the managers the power to sign the operating agreement
on the investors behalf. Each investor and his advisors should carefully
review the operating agreement. The following summarizes certain
provisions of the Operating Agreement, but is not as complete or as
detailed as the operating agreement itself.
Some provisions of the operating agreement are described in other
sections of this prospectus. For a discussion of compensation and payments
to the managers and their affiliates, see "Compensation to Managers and
Affiliates"; for a discussion of the distribution of cash and the
allocation of profits and losses for tax purposes, see "Cash Distributions
and Tax Allocations"; for a discussion of investment objectives and
policies, see "Investment Objectives and Policies";for a discussion of the
liability of the managers for their acts or omissions and of the
indemnification of the managers, see "Managers--Fiduciary Responsibility";
for a discussion of the reports to be received by the investors, see
"Reports to Investors."
TERM AND DISSOLUTION
The operating agreement provides that AEI Fund 23 will be dissolved
and liquidated at any of the following times or events:
<BULLET> December 31, 2048;
<BULLET> The election of investors holding a majority of the units;
<BULLET> The sale or disposition of its final assets;
<BULLET> The final decree of a court that such dissolution is
required under law; of
<BULLET> If the managers withdraw without a successor either being
appointed by the withdrawing managers or being elected by
investors holding a majority of the units.
Return of Capital
Prior to dissolution and liquidation, no investor will have the
right to demand the return of his capital contribution unless AEI Fund 23
is unable to fully utilize the offering proceeds, either by purchasing
properties or through joint ventures with other similar programs.
VOTING RIGHTS
The investors, as limited members, will have the right to vote on
and approve the following matters:
<BULLET> Amendments to the Operating Agreement;
<BULLET> Removal of either or both of the managers;
<BULLET> Election of a new manager;
<BULLET> The sale of all or substantially all of the assets of AEI
Fund 23;
<BULLET> Dissolution of AEI Fund 23 by the members.
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Investors may vote at a meeting or by written consent. In either
case, the vote of the holders of the majority of the units outstanding,
will decide each matter, except that any amendment to the Operating
Agreement that adversely effects the managers may be approved without their
consent.
MEETINGS
No regular or periodic meeting of unit holders is required or
contemplated. Upon delivery of proper notification, the managers may at
any time call a meeting of the investors. In addition, investors holding
at least 10% of the units have the right to request that the manager call a
meeting. After receipt of a request for a meeting, the managers are
required to send notice to all investors of the meeting within 10 days and
hold the meeting at the time requested (which must be more than 15 days and
less than 60 days after the request).
REPURCHASE OF UNITS
Starting 36 months after the date of this prospectus, and subject to
certain conditions discussed in the Operating Agreement, AEI Fund 23 will
repurchase an investor's unit(s) upon the written request of the investor.
The per unit repurchase price will be equal to 80% of the net value of AEI
Fund 23's assets, as estimated by the manager, divided by the number of
units outstanding. For these purposes, the manager will base the net value
of assets on the discounted present value of the rental income from
properties, on the most recent price at which units have been purchased by
third parties, or such other method as it believes is reasonable. The
managers will calculate and make available to investors on the first
business day of January and July of each year the price at which units may
be presented for repurchase. AEI Fund 23's obligation to repurchase units
is limited in any year to two percent of the number of units outstanding at
the beginning of the year of repurchase.
Investors will be allowed to present their units for repurchase
during two different periods in each year. Investors who want their units
repurchased must submit notification, on a form supplied by the manager, of
the number of units they want repurchased. The notification must be
postmarked after January 1 but before January 31, or after July 1 but
before July 31 of the year of repurchase. If units totaling more than two
percent are tendered, repurchase requests with the earliest postmarks will
be honored first. Units will be repurchased on March 31 and September 30
of each year and any investor who tenders units that are not repurchased
must retender the units in succeeding periods if he or she wants the
request reconsidered. AEI Fund 23 is not obligated to repurchase any
unit(s) if doing so would, in the discretion of the managers, impair its
operations. Repurchases will be funded out of either revenues otherwise
distributable to investors or borrowings. No assurances can be given that
revenues or borrowings will be available, that AEI Fund 23 will be able to
repurchase any or all of the units tendered, or that the managers will not
suspend repurchases. A repurchase will result in smallerdistributions to
remaining investors in the year of repurchase, but will not result in a
reduction of taxable income or gains to such investors. In addition, a
repurchase may result in certain adverse tax consequences to the tendering
investor.
DISTRIBUTION REINVESTMENT PLAN
The managers have established a distribution reinvestment plan to
enable investors who elect in writing to have their distributions of cash
flow from AEI Fund 23 reinvested in additional units of AEI Fund 23 during
the period of the offering pursuant to this Prospectus. The managers, in
their discretion, may determine not to provide such a reinvestment plan or
to terminate the reinvestment plan at any time. The reinvestment plan
provides for the direct purchase by the reinvesting investor of units at
the public offering price per unit ($1,000).
No distributions accrued to an investor who participates in the
reinvestment plan prior to release of funds from escrow and execution of
the Operating Agreement will be reinvested.
All other distributions to participants in the reinvestment plan
will be reinvested within 30 days after the date of the distribution in
additional units or fractional units, provided that:
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(1) the sale of units continues to be registered or
qualified for sale under federal and applicable state securities
laws;
(2) each continuing participant has received a current
prospectus relating to AEI Fund 23, including any supplements, and
executed a confirmation within one year of such reinvestment
indicating his or her intention to purchase units in AEI Fund 23 and
confirming that he or she continues to satisfy the investor
suitability requirements; and
(3) there has been no distribution of sales or refinancing
proceeds to investors.
The reinvestment plan will terminate upon completion of the public offering
of the units. If at any time one of the requirements described above is not
satisfied, distributions will be paid in cash to participants in the
reinvestment plan.
EACH INVESTOR PARTICIPATING IN THE REINVESTMENT PLAN AGREES THAT, IF AT ANY
TIME THE INVESTOR FAILS TO MEET SUITABILITY STANDARDS OR CANNOT MAKE THE
OTHER INVESTOR REPRESENTATIONS CONTAINED IN THE CURRENT FUND PROSPECTUS,
THE SUBSCRIPTION AGREEMENT, OR THE OPERATING AGREEMENT, HE OR SHE WILL
PROMPTLY NOTIFY THE MANAGER IN WRITING.
Investors should note that affirmative action is required to change
or withdraw from participation in the reinvestment plan. Change in or
withdrawal from participation in the reinvestment plan will be effective
only with respect to distributions made 30 days following receipt by the
managers of written notice of change or withdrawal. In the event an
investor transfers his or her units, the transfer will terminate the
investor's participation in the reinvestment plan as of the first day of
the quarter in which such transfer is effective.
Selling commissions may be paid by AEI Fund 23 in amounts not to
exceed eight percent with respect to any units purchased with reinvested
distributions. Each participant in the reinvestment plan is permitted to
identify, change or eliminate the name of his or her account executive at a
participating dealer. Identification of the account executive may be
changed or eliminated for subsequent distributions. If no account
executive is identified, or if the account executive is not employed by a
broker-dealer having a dealer agreement with AEI Fund 23, no selling
commission will be paid with respect to distributions which are then
reinvested, and AEI Fund 23 will retain for additional investment in real
estate any amounts otherwise payable as commissions. All holders of units,
based on the number of units outstanding, will receive the benefit of the
savings realized by AEI Fund 23 from investors who do not identify account
executives.
No reinvestment fee or charge will be offset against any reinvested
distributions pursuant to the reinvestment plan. The cost of administering
the reinvestment plan will be considered an organization and offering cost
of AEI Fund 23 and the actual cost of administering such reinvestment plan
may be reimbursed to the managers in accordance with the limitations on
reimbursements for organization and offering expenses.
Following each reinvestment under to the reinvestment plan, each
participant in the plan will be sent a statement showing the distributions
received and the number and price of units issued to the participant.
TAXABLE PARTICIPANTS WILL INCUR TAX LIABILITY FOR INCOME ALLOCATED TO THEM
EVEN THOUGH THEY HAVE ELECTED NOT TO RECEIVE THEIR DISTRIBUTIONS IN CASH
BUT RATHER TO HAVE THEIR DISTRIBUTIONS REINVESTED IN THE PURCHASE OF UNITS.
AEI Fund 23 reserves the right to amend any aspect of the
reinvestment plan, or to terminate the reinvestment plan, with respect to
any distribution of cash flow subsequent to notice of such amendment or
termination, provided that notice is sent to all participants in the plan
at least 10 days prior to the record date for the distribution. The
managers also reserve the right to assign the administrative duties of the
reinvestment plan to a reinvestment agent who may hold units on behalf of
participants, provide reports to participants, and satisfy other record
keeping requirements.
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Investors may also be given the opportunity to reinvest distributions
from AEI Fund 23 in interests of a program having substantially identical
investment objectives as AEI Fund 23,if affiliates of the managers publicly
offer such program interests after the termination of the offering of units
under this prospectus. Investors would be allowed to reinvest distributions
from AEI Fund 23 in a subsequent program only if (i) the subsequent program
is registered under federal and applicable state securities laws, (ii) the
subsequent program has substantially identical investment objectives, (iii)
reinvesting investors are afforded the revocation rights described above with
respect to such reinvestments and the payment of commissions on such
reinvestments, and (iv) each participating investor receives the prospectus
relating to such subsequent program and satisfies the investment
qualifications, including minimum investment requirements, for such
subsequent offering.
Nothing herein shall be construed as obligating the managers or any
affiliate to continue the offering of Units or to offer units in any
subsequent real estate programs or permit reinvestment therein.
LIABILITIES OF INVESTORS
No investor will be liable for any obligations of AEI Fund 23 in
excess of the capital contribution he or she has agreed in the operating
agreement to make by signing a subscription agreement, plus his or her
share of undistributed net income; except that an investor receiving a
return of his or her capital contribution will be liable to AEI Fund 23,
for a period of one year if such capital contribution was returned in
accordance with the Operating Agreement and for a period of six years if it
was not, for any sum, not in excess of such returned capital contribution
with interest, necessary to discharge the liabilities to all creditors who
extended credit, or whose claims arose, before such capital contribution
was returned. Investors will not have the right to a return of their
capital contributions except in accordance with the distribution and
repurchase provisions of the Operating Agreement.
RIGHTS, POWER AND DUTIES OF THE MANAGERS
The managers will have the exclusive right to manage the business of
AEI Fund 23. The managers will be responsible for the selection,
acquisition, sale, financing, refinancing and leasing of the properties.
The rights, powers and duties of the managers may be delegated or
contracted to an affiliate of the managers at cost. AEI Fund Management
XXI, Inc. will initially serve as manager.
WITHDRAWAL OR REMOVAL OF A MANAGER
Neither AEI Fund Management XXI (the manager) nor Robert P. Johnson
(the special managing member) may withdraw from AEI Fund 23 without
providing a substitute manager. Any substitute manager must be accepted by
the vote of a majority, by interest, of the investors at a special meeting
called by the manager for such purpose. A manager shall be expelled or
replaced upon its bankruptcy or insolvency or upon a finding of fraud or
breach of its management duties or upon the vote of a majority, by
interest, of the investors at a special meeting called for the purpose of
replacing such manager.
SUBSTITUTED INVESTORS; ASSIGNEES
No investor will have the right to substitute an investor in his or
her place unless the substituted investor has agreed in the instrument of
assignment to become an investor and has paid all expenses in connection
with admission as a substituted investor. An assignee who does not become
a substitute investor as provided above will only have the right to receive
the distributions from AEI Fund 23 to which the assigning investor would
have been entitled if no such assignment had been made. Such assignee will
have no right to require any information or account of AEI Fund 23's
transactions or to inspect AEI Fund 23's books.
APPOINTMENT OF MANAGERS AS ATTORNEYS-IN-FACT
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Each investor will irrevocably constitute and appoint the managers,
and each of them individually, to be his true and lawful attorney-in-fact,
with full power to execute such documents as may be necessary or
appropriate to carry out the provisions of the operating agreement.
"ROLL-UPS"
The operating agreement prohibits transactions in which units are
required to be exchanged for securities of another entity (as defined in
the operating agreement as a "roll-up") unless certain rights of the
investors are maintained in the resulting entity and unless a vote of the
majority of the investors is obtained. The operating agreement defines a
roll-up to include certain transactions involving the acquisition, merger,
conversion, or consolidation, either directly or indirectly, of AEI Fund 23
and the issuance of securities from another entity. This definition
comports with requirements under certain state securities laws but differs
slightly from definitions used by the SEC and may differ from definitions
contained in rules or legislation promulgated in the future. The
determination of whether a transaction constitutes a roll-up will, in the
first instance, be made by the managers.
The operating agreement provides, in material part, that AEI Fund 23
may not participate in any roll-up that would
<BULLET> reduce the democracy rights of investors;
<BULLET> impede the ability of the equity owners of the resulting
entity to purchase the securities of that entity;
<BULLET> limit the voting rights of the investors as equity owners of
the resulting entity;
<BULLET> limit rights to access to records of the resulting entity; or
<BULLET> provide, without the consent of investors, that the costs of
the roll-up are to be borne by AEI Fund 23.
Further, the operating agreement requires AEI Fund 23 to obtain an
appraisal by a competent independent expert of its assets, based on all
available information and assuming an orderly liquidation of AEI Fund 23's
assets, in connection with any roll-up and to provide a summary of that
appraisal to investors. If the appraisal is included in a prospectus to
offer securities of the entity that results from the roll-up, it must be
filed with securities authorities and AEI Fund 23 will have liability for
misrepresentations or omissions therein.
Any roll-up requires the vote of holders of not less than a majority
of the units. The operating agreement provides that an investor who votes
against the amendments must be given the option of accepting securities in
the resulting entity or accepting either cash for such investor's units at
the pro rata appraised value of the assets or retention of such investor's
interest in AEI Fund 23 on the same terms and conditions as existed
previously.
REPORTS TO INVESTORS
The books and records of AEI Fund 23 will be maintained at its
principal offices and will be open for examination and inspection by the
investors during reasonable business hours. AEI Fund 23 will furnish a
list of names and addresses and number of units held by all investors to
any investor who requests such a list in writing for a proper purpose, with
costs of photocopying and postage to be borne by the requesting investor.
The assignee of an investor does not have a right to receive any reports
unless such assignee is admitted as a substitute member in accordance with
the Operating Agreement.
The managers will distribute to each investor, within 75 days after
the close of each taxable year of AEI Fund 23, all information necessary
for the preparation of investor's federal income tax returns. A separate
report will be issued, solely for purposes of asset evaluation by tax-
qualified Plans, that will contain the managers' estimate of the fair
market value of the units.
-36-
The managers will also distribute to the investors, within 120 days
after the end of each fiscal year, an annual report containing a balance
sheet and statements of operations, changes in members' equity and cash
flows (which will be prepared on a GAAP basis of accounting and will be
examined and reported upon by an independent public accountant) and a
report of AEI Fund 23's activities during the period reported upon. Such
annual report will describe all reimbursements to the managers and their
affiliates and all distributions to investors, including the source of such
payments.
The managers will also distribute to the investors, within 60 days
after the end of each quarter, a report containing a condensed balance
sheet, condensed statements of operation, and a related cash flow
statement, together with a detailed statement describing all real
properties acquired (including the geographic locale and the plan of
operation, the appraised value and purchase price and all other material
information), setting forth all fees, if any, received by the managers or
their affiliates and describing the services rendered for such fees.
THE MANAGERS INTEND TO MAKE ALL OF THE FOREGOING REPORTS AVAILABLE
ELECTRONICALLY, AND TO ALLOW DELIVERY TO AN E-MAIL ADDRESS OR THROUGH
ACCESS AT ONE OF THE MANAGER'S WEB SITES. BECAUSE ELECTRONIC DELIVERY IS
EXPECTED TO SAVE CONSIDERABLE PRINTING AND MAILING COSTS, ALL INVESTORS WHO
HAVE THE ABILITY TO ACCEPT ELECTRONIC DELIVERY ARE URGED TO COMPLETE THE
PORTION OF THE SUBSCRIPTION AGREEMENT THAT PROVIDES WRITTEN CONSENT TO THIS
FORM OF DELIVERY.
Finally, when and if required by applicable SEC rules, AEI Fund 23
will make available to investors, upon request, the information set forth
in SEC Form 10-QSB within 45 days after the close of each quarter and SEC
Form 10-KSB within 90 days after the close of each fiscal year. The
managers are permitted to combine such reports so long as they are
distributed in a timely manner.
PLAN OF DISTRIBUTION
AEI Fund 23 is offering, through AEI Securities, as the manager of a
syndicate of investment firms that will solicit purchase of units,
$24,000,000 of its limited liability company interests in the form of
24,000 units of $1,000 each. The minimum investment required of each
investor is two and one-half units ($2,500), except that an IRAs and other
tax-qualified plans will be permitted to purchase two units ($2,000). The
offering period will commence on the date hereof. No units will be sold
unless subscriptions for at least 1,500 units are received within one year
after the date of this prospectus.
Each investor will be required to accept and adopt the provisions of
the operating agreement attached to this prospectus as Exhibit A and to
complete and execute a subscription agreement, which includes a power of
attorney (Exhibit D). At the time the prospective investor submits a
subscription agreement,he or she must tender a check to AEI Fund 23 in the
amount of $1,000 for each U\unit being purchased. Checks should be made
payable to "Fidelity Bank--AEI Real Estate Escrow." Units will only be
sold to an investor who represents in writing that, at the time the
investor executes the Subscription Agreement, he or she meets the
applicable suitability requirements.
All funds received from subscribers will be deposited in an escrow
account with the Fidelity Bank, Edina, Minnesota until $1,500,000 has been
deposited. Purchases by the managers and their affiliates will not be
counted for purposes of meeting the minimum. If the required $1,500,000
has not been deposited within one year after the date of this prospectus,
all subscriptions will be canceled and all funds will be promptly returned
to investors with interest actually and without any deduction. A subscriber
may not withdraw his funds from the escrow account. When subscriptions for
the minimum number of Units have been received, the managers may remove
funds from escrow and instruct the escrow agent to pay accrued selling
commissions.
Upon admission to AEI Fund 23, each investor will receive his pro rata
share of any interest earned on escrowed funds based on the date of deposit
of his subscription payment. Escrow funds will be invested in insured
deposits with a financial institution and will earn interest at short-term
deposit rates. Following first admission, AEI Fund 23 will admit additional
investors as investors on or before the first business day of
-37-
each month until the termination of the offering. Only subscribers whose
subscriptions have been received and accepted at least three days prior to
each admittance date will be admitted as investors on such date.
The managers have complete discretion to reject any subscription
agreement executed by any subscriber within thirty days of its submission
and funds from a rejected subscriber will be returned within 10 days
thereafter.Subscriptions may be rejected for an investor's failure to meet
the suitability requirements, an over-subscription of the offering, or for
other reasons determined to be in the best interest of AEI Fund 23.
AEI Securities and other investment firms that are members of the NASD
as "participating dealers," have agreed to use their "best efforts" to
sell the units. None of these investment firms are obligated to purchase
units and resell them or to sell any or all of the units.. Participating
dealers in the offering will offer and sell units on the same terms and
conditions as AEI Securities. AEI Securities will receive selling
commissions and a nonaccountable expense allowance totaling 10% of the
gross proceeds from the sale of units, all or a portion of which it will
repay to participating dealers. AEI Securities may also receive up to 1/2
of 1% of the gross offering proceeds for the reimbursement of due diligence
expenses of the participating dealers, all of which will be repaid by AEI
Securities to the participating dealers.
The investment firms that act as participating dealers and their
controlling persons, will be indemnified by the managers against certain
liabilities, including liabilities under the Securities Act of 1933. As of
the date of this prospectus, no broker-dealers have entered into a
Participating Dealer Agreement. The managers will receive reimbursement of
certain expenses incurred by them in connection with the supervision and
monitoring of the organizational and pre-sale activities of AEI Fund 23.
SALES MATERIALS
Sales material may be used in connection with this offering only when
accompanied or preceded by the delivery of this prospectus. The only
written sales material that may be disseminated to prospective investors
is a brochure prepared by the managers describing AEI Fund 23 and its
proposed activities and a brochure attached to a folder in which this
prospectus will be placed. In certain states the sales material may not be
available. In addition, audio-visual materials may be used in connection
with this offering in certain states. With the aforementioned exceptions,
sales materials have not been authorized for use by the managers and should
be disregarded.
The offering is made only by means of this prospectus. Although the
information contained in the supplemental sales material does not conflict
with the information contained in this prospectus, such sales material
does not purport to be complete and should not be considered part of this
prospectus or as forming the basis of the offering of the units.
LEGAL PROCEEDINGS
Neither AEI Fund 23 nor the managers are parties to any pending legal
proceedings that are material to AEI Fund 23. Neither AEI Fund Management
XXI, Inc. nor Robert P. Johnson, who is the general partner of other
investment programs, is an adverse party in any legal proceedings with
limited partners in such other limited partnerships.
EXPERTS
The balance sheets of AEI Income & Growth Fund 23 LLC and AEI Fund
Management XXI, Inc. as of October 22, 1998 and September 30, 1998,
respectively, included in this Prospectus have been examined by Boulay,
Heutmaker, Zibell & Co., P.L.L.P., independent public accountants, as
indicated in their report with respect thereto, and are included herein in
reliance on the authority of said firm as experts in giving such report.
-38-
The statements concerning federal taxes under the headings "Income Tax
Aspects" and "Risks and Other Important Factors" have been reviewed by
Dorsey & Whitney LLP, counsel for AEI Fund 23, and have been included
herein, to the extent they constitute matters of law, in reliance upon the
authority of said firm as experts thereon. Counsel for AEI Fund 23
believes that such material constitutes a full and fair general disclosure
of the material tax risks associated with an investment in the Units.
LEGAL OPINION
The legality of the units will be passed upon for AEI Fund 23 by its
counsel, Dorsey & Whitney LLP.
INDEPENDENT AUDITOR'S REPORT
To the Partners
AEI Income & Growth Fund 23 LLC
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Income
& Growth Fund 23 LLC as of October 22, 1998. This financial
statement is the responsibility of the Partnership's management.
Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally accepted
auditing standards. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether
the balance sheet is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the
amounts and disclosures in the balance sheet. An audit also
includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
Balance Sheet presentation. We believe that our audit of
the balance sheet 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 AEI
Income & Growth Fund 23 LLC as of October 22, 1998 in conformity
with generally accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P
Certified Public Accountants
Minneapolis, Minnesota
October 22, 1998
AEI INCOME & GROWTH FUND 23 LLC
BALANCE SHEET
October 22, 1998
ASSETS
Cash $ 1,000
=======
LIABILITIES AND MEMBERS EQUITY
Partners' Capital
Initial Members Equity 1,000
--------
Total Liabilities and Members Equity $ 1,000
========
The accompanying Notes to the Balance Sheet are an integral part
of this statement.
AEI INCOME & GROWTH FUND 23 LLC
NOTES TO THE BALANCE SHEET
(1) Summary of Organization and Significant Accounting Policies -
Organization
AEI Income & Growth Fund 23 LLC (the LLC) a Limited
Liability Company commenced operations on October 14, 1998
to acquire and lease commercial properties to operating
tenants. The LLC's operations are managed by AEI Fund
Management XXI, Inc.(AFM), the Manager of the LLC. Robert P.
Johnson, the President and sole shareholder of AFM, serves as
the Special Managing Member of the LLC. The LLC has elected
December 31 for its Fiscal Year End. The Membership
Agreement provides that the entity is to expire in the year
2048.
The terms of the offering call for a subscription price of
$1,000 per LLC Unit, payable on acceptance of the offer.
The LLC has not yet sold any Units.
Under the terms of the Restated Operating Agreement, 24,000
LLC Units are available for subscription which, if fully
subscribed, will result in contributed Limited Members'
capital of $24,000,000. The agreement sets forth the
methods for allocation of Net Cash Flow, Net Proceeds of
Sale and profits, losses and other items.
Operations
In the interim period since inception, the LLC did not
engage in any operations or incur any expenses except for
banking fees and a minor management fee. Accordingly, a
Statement of Income, Statement of Cash Flows and Statement
of Changes in Members' Capital are not presented.
Accounting Estimates
Management uses estimates and assumptions in preparing the
balance sheet in accordance with generally accepted
accounting principles. Those estimates and assumptions
affect the reported amounts of assets, liabilities, and
equity. Actual results could differ from those estimates.
(2) Income Taxes -
The income or loss of the LLC for federal income tax
reporting purposes is includable in the income tax returns of
the members. Accordingly, no recognition has been given to
income taxes in the accompanying balance sheet.
The tax return, the qualification of the LLC as such for tax
purposes, and the amount of distributable LLC income or loss
are subject to examination by federal and state taxing
authorities. If such an examination results in changes with
respect to the LLC qualification or in changes to
distributable LLC income or loss, the taxable income of the
members would be adjusted accordingly.
(3) Fair Value of Financial Instruments -
The carrying value of certain assets and liabilities
approximate fair value.
REPORT OF INDEPENDENT AUDITORS
Board of Directors
AEI Fund Management XXI, Inc.
Saint Paul, Minnesota
We have audited the accompanying balance sheet of AEI
Fund Management XXI, Inc. as of September 30, 1998 and
December 31, 1997. This financial statement is the
responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with generally
accepted auditing standards. Those standards require that
we plan and perform the audit to obtain reasonable assurance
about whether the balance sheet is free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the
balance sheet. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
Balance Sheet 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 AEI Fund Management XXI, Inc. as of September
30, 1998 and December 31, 1997, in conformity with generally
accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P
Certified Public Accountants
Minneapolis, Minnesota
November 9, 1998
AEI FUND MANAGEMENT XXI, INC.
BALANCE SHEET
ASSETS
September 30, December 31,
1998 1997
CURRENT ASSETS:
Cash and Cash Equivalents $ 13,446 $ 10,196
Partnership Distributions Receivable 7,093 4,453
Receivable from AEI Fund Management, Inc. 130 10
---------- ----------
Total Assets $ 20,669 $ 14,659
========== ==========
LIABILITIES AND STOCKHOLDER'S EQUITY
LIABILITIES:
Deficit in Real Estate Partnership
Investments $ 27,047 $ 17,806
STOCKHOLDER'S EQUITY:
Common Stock, Par Value $.01 Per Share,
1,000 Shares Issued 10 10
Additional Paid-in Capital 990 990
Retained Earnings (Deficit) (7,378) (4,147)
---------- ----------
Total Stockholder's Equity (Deficit) (6,378) (3,147)
---------- ----------
Total Liabilities and
Stockholder's Equity $ 20,669 $ 14,659
========== ==========
The accompanying notes to Balance Sheet are an integral part
of this statement.
AEI FUND MANAGEMENT XXI, INC.
NOTES TO BALANCE SHEET
(1)Summary of Organization and Significant Accounting Policies -
Organization
AEI Fund Management XXI, Inc. (Company) is the Managing
General Partner of AEI Income & Growth Fund XXI Limited
Partnership (Fund XXI), and AEI Income & Growth Fund
XXII Limited Partnership (Fund XXII). The Company is
the Managing Member of AEI Income & Growth Fund 23(Fund
23) LLC, which was formed in October, 1998.
Investors in Fund XXI, Fund XXII and Fund 23 have no
interest in the assets or operations of the company.
Financial Statement Presentation
The Company accounts for its investments in
Partnerships under the equity method of accounting.
The Company's major source of revenue is its share of
distributions allocated under the terms of the
Partnerships' Limited Partnership Agreements. At
September 30, 1998 and December 31, 1997, the Company
has accumulated deficits of $27,047 and $17,806,
respectively, in excess of its basis in Fund XXI and
Fund XXII. The Company would be responsible to fund a
deficiency in its capital account if the Partnership
terminates.
Accounting Estimates
Management uses estimates and assumptions in preparing
this Balance Sheet in accordance with generally
accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets,
liabilities and stockholder's equity. Actual results
could differ from those estimates.
Cash Equivalents
The Company considers all highly liquid debt
instruments purchased with a maturity of three months
or less to be cash equivalents.
(2) Receivable from AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative
and operating functions of the Company. The receivable
from AEI Fund Management, Inc. represents the balance
due for those services. The balance is non-interest
bearing and unsecured and is to be paid in the normal
course of business.
(3) Income Taxes -
The Company elected S-Corporation status. As a result,
the income of the Company for Federal and State income
tax reporting purposes is includable in the income tax
return of the sole stockholder. Accordingly, there is
no provision for income taxes.
EXHIBIT A
OPERATING AGREEMENT
OF
AEI INCOME & GROWTH FUND 23 LLC
TABLE OF CONTENTS
Article
Page
I. Formation of Limited Liability Company A-2
II. Definitions A-2
III. Purpose and Character of Business A-6
IV. Capital A-6
V. Allocation of Profits, Gains and
Losses; Distributions to Members A-9
VI. Rights, Powers and Duties of Managing Members A-11
VII. Provisions Applicable to Limited Members A-17
VIII. Books of Account; Reports and Fiscal Matters A-19
IX. Assignment of Limited Member's Interest A-21
X. Death Withdrawal, Expulsion and Replacement
of the Managing Members A-22
XI. Amendment of Agreement and Meetings A-23
XII. Dissolution and Liquidation A-24
XIII. Miscellaneous Provisions A-25
OPERATING AGREEMENT
OF
AEI INCOME & GROWTH FUND 23 LLC
THIS OPERATING AGREEMENT is entered into as of this
day of _____, 1998, by and among AEI Fund Management
XXI, Inc. (the "Managing Member"), a Minnesota corporation,
Robert P. Johnson (the "Special Managing Member"), and all
other parties comprising the Limited Members, who shall
execute this agreement and whose addresses appear at the end
of this agreement.
I. FORMATION OF THE LIMITED LIABILITY COMPANY
The parties hereto do hereby confirm the formation of
a limited liability company (the "Company") pursuant to the
provisions of the Delaware Limited Liability Company Act
(the " Act") by the filing of a Certificate of Formation on
and agree that the Company shall be governed by the terms of
this agreement. The parties agree that they shall promptly
file any amended certificates of formation that may be
required in the appropriate office in the State of Delaware
and in such other offices as may be required, and that the
parties shall comply with the other provisions and
requirements of the Limited Liability Company Act as in
effect in Delaware, which Act shall govern the rights and
liabilities of the Members, except as herein or otherwise
expressly stated.
1.1 NAME. The business of the Company is conducted
under the firm name and style of: AEI INCOME & GROWTH FUND
23 LLC.
1.2 AGENT FOR SERVICE. The agent for service of
process is The Corporation Trust Company. The location of
the and agent for service of process of the Company shall be
at The Corporation Trust Company, Corporation Trust Center,
1209 Orange Street, Wilmington, New Castle County, Delaware
19801.
1.3 PRINCIPAL PLACE OF BUSINESS /NAMES AND ADDRESSES.
The location of the principal place of business, principal
office and agent for service of process of the Company shall
be at the offices of the Managing Member, 1300 Minnesota
World Trade Center, 30 East Seventh Street, Saint Paul,
Minnesota 55101. The Company may also maintain offices at
such other place of business as the Managing Member may from
time to time determine. The name and address of the Managing
Member is AEI Fund Management XXI, Inc., 1300 Minnesota
World Trade Center, 30 East Seventh Street, Saint Paul,
Minnesota 55101. The name and address of the Special
Managing Member is Robert P. Johnson, 1300 Minnesota World
Trade Center, 30 East Seventh Street, Saint Paul, Minnesota
55101. The names and addresses of the Limited Members are
set forth on Schedule A at the end of this agreement.
1.4 TERM. The Company shall commence business on the
date hereof, and shall continue until December 31, 2048,
unless dissolved, terminated and liquidated prior thereto
under the provisions of Article XIII.
II. DEFINITIONS
As used in this agreement, the following terms shall
have the following meanings:
2.1 "Acquisition Expenses" means expenses including,
but not limited to, legal fees and expenses, travel and
communication expenses, costs of appraisals, non-refundable
option payments on properties not acquired, accounting fees
and expenses, title insurance and miscellaneous expenses
related to selection and acquisition of properties, whether
or not acquired.
2.2 "Acquisition Fees" means the total of all fees
and commissions paid by any party in connection with making
or investing in mortgage loans or the purchase, development
or construction of Properties, whether designated as a real
estate commission relating to the purchase of Properties,
selection fee, Development Fee, Construction Fee,
A-2
nonrecurring management fee, loan fees or points paid by
borrowers to the Managing Member if the Company invests in
mortgage loans, or any fee of a similar nature, however
designated or however treated for tax or accounting
purposes. Acquisition Fees shall not include Development
Fees and Construction Fees paid to any person or entity not
Affiliates of the Managing Members in connection with the
actual development and construction of a project.
2.3 "Adjusted Capital Contributions" means the
aggregate original capital contribution of a Limited Member
reduced, from time to time, by (i) any return of capital
contributions pursuant to Section 4.5, and (ii) to the
extent the Company has paid a cumulative (but not
compounded) 6% per annum return on Adjusted Capital
Contributions, by total cash distributed from Net Proceeds
of Sale with respect to the Units; and increased from time
to time by the product of (i) the Adjusted Capital
Contribution of any Limited Member whose Units are
repurchased and (ii) the ratio of each remaining Limited
Member's Units to the total Units outstanding after such
repurchase. Adjusted Capital Contributions shall not be
reduced by distributions of Net Cash Flow.
2.4 "Administrative Expenses" means expenses incurred
by the Managing Members and their Affiliates during the
operation of the Company directly attributable to rendering
the following services to the Company: (i) administering
the Company (including agency type services, member
relations and communications, financial and tax reporting ,
accounting and payment of accounts, payment of
distributions, payment of unit redemptions, staffing and
processing other investor requests); (ii) property
management (including collecting, depositing and monitoring
rental payments and penalties, monitoring compliance with
leases, monitoring the maintenance of property and liability
insurance and the payment of taxes, maintenance of lease
insurance (if applicable), monitoring and negotiating other
forms of tenant security and financial condition, ongoing
site inspections and property reviews and reviewing tenant
reports); (iii) property and lease workout (including
enforcing lease provisions in default, filing lease
insurance claims, enforcing guarantees, collecting letters
of credit or foreclosing other collateral, if applicable,
eviction of tenants in default, re-leasing of properties,
and monitoring tenant disputes and foreclosures); (iv)
property financing and refinancing; and (v) Company
dissolution and liquidation (accounting, final payment to
creditors, administrative filings and other costs).
2.5 "Affiliate" means (i) any person directly or
indirectly controlling, controlled by or under common
control with another person, (ii) any person owning or
controlling 10% or more of the outstanding voting securities
of such other person, (iii) any officer, director or partner
of such person and (iv) if such other person is an officer,
director or partner, any such company for which such person
acts in such capacity.
2.6 "Competitive Real Estate Commissions" means real
estate or brokerage commissions paid for the purchase or
sale of a Property that are reasonable, customary and
competitive in light of the size, type and location of such
Property and which do not, in any event, exceed 6% of the
contract price for the sale of such Property.
2.7 "Construction Fee" means a fee or other
remuneration for acting as general contractor and/or
construction manager to construct improvements, supervise
and coordinate projects or to provide Major Repairs or
Rehabilitation of Company Property.
2.8 "Cost" means, when used with respect to services
furnished by the Managing Members or their Affiliates to, or
on behalf of, the Company, the lesser of (i) the actual
expenses incurred by such Managing Members and Affiliates in
providing services necessary to the prudent operation of the
Company, including salaries and expenses paid to officers,
directors, employees and consultants, depreciation and
amortization, office rent, travel and communication
expenses, employee benefit expenses, supplies and other
overhead expenses directly attributable to the furnishing of
such services; or (ii) the price that would be charged by
unaffiliated parties rendering similar services in the same
geographic location. Overhead expenses shall be charged
only if directly attributable to such services and shall be
allocated based upon the amount of time personnel actually
spend providing such services, or such other method of
allocation as is acceptable to the Company's independent
public accountant.
2.9 "Development Fee" means a fee for packaging the
Company's Property, including negotiating and approving
plans, and undertaking to assist in obtaining zoning and
necessary variances and necessary financing for a specific
Property, either initially or at a later date.
A-3
2.10 "Front-End Fees" means fees and expenses paid by
any party for services rendered during the Company's
Organizational or acquisition phase, including
Organizational and Offering Expenses, Acquisition Fees,
Acquisition Expenses, interest on deferred fees and expenses
and other similar fees, however designated by the Managing
Member.
2.11 "Managing Members" means the Managing Member,
the Special Managing Member and any substitute Managing
Member as provided in Article X.
2.12 "Special Managing Member" means Robert P.
Johnson, and any substitute as provided in Article X.
2.13 "Investment in Properties" means the amount of
capital contributions actually paid or allocated to the
purchase of Properties, including working capital reserves
allocable thereto (except that working capital reserves in
excess of 5% will not be included) and other cash payments
such as interest and taxes, but excluding Front-End Fees.
2.14 "Limited Members" means all parties who shall
execute, either personally or by an authorized attorney-in-
fact, this agreement as Limited Members and comply with the
conditions in Section 4.2, and any and all assignees of the
Limited Members, whether or not such assignees are admitted
to the Company as substitute Limited Members; provided,
however, that an assignee of the interest of any Limited
Member shall not be considered a "Limited Member" for
purposes of Articles X and XI hereof unless such assignee is
admitted as a substitute Limited Member as provided in
Article IX.
2.15 "Limited Liability Company Act" means the
Delaware Limited Liability Company Act, as the same may be
amended.
2.16 "Limited Liability Company Unit" or "Unit" means
the Company interest and appurtenant rights, powers and
privileges of a Limited Member and represents the stated
capital contributions with respect thereto, all as set forth
elsewhere in this agreement.
2.17 "Major Repairs or Rehabilitation" means the
repair, rehabilitation or reconstruction of a Property where
the aggregate costs exceed 10% of the fair market value of
the Property at the time of such services.
2.18 "Managing Member" means AEI Fund Management XXI,
Inc., and any substitute as provided in Article X.
2.19 "Net Value" means the aggregate value of the
Company's assets less the Company's liabilities, as
determined by the Managing Member, after taking into account
(i) the present value of future net cash flow from rental
income on the Fund's properties, (ii) the price at which
Units of the Company have last been purchased, and (ii) such
other factors as the Managing Members deem relevant.
2.20 "Net Cash Flow" means Company cash funds
provided from operations, including lease payments from
builders and sellers without deduction for depreciation, but
after deducting cash funds used to pay all other expenses,
debt payments, capital improvements and replacements and
less the amount set aside for restoration or creation of
reserves.
2.21 "Net Proceeds of Sale" means the excess of gross
proceeds from any sale, refinancing (including the financing
of a Property that was initially purchased debt-free) or
other disposition of a Property over all costs and expenses
related to the transaction, including fees payable in
connection therewith, and over the payments made or required
to be made on any prior encumbrances against such Property
in connection with such transaction.
2.22 "Members" means the Managing Member, the Special
Managing Member and the Limited Members.
2.23 "Organization and Offering Expenses" means those
expenses incurred in connection with and in preparing the
Company for registration and subsequently offering and
distributing it to the public, including any sales
commissions, nonaccountable expense allowances or
reimbursement of due diligence expenses paid to broker-
dealers in connection with the distribution of the Company
and all advertising expenses.
A-4
2.24 "Company" means the limited liability company
formed by this agreement.
2.25 "Permitted Transfer" means, with respect to the
transfer of Units in any fiscal year of the Company (i)
transfers in which the basis of the Unit in the hands of the
transferee is determined, in whole or in part, by reference
to its basis in the hands of the transferor, or is
determined under Section 732 of the Internal Revenue Code of
1986, as amended (the "Code"), (ii) transfers of Units upon
the death of a Limited Member, (iii) transfers of Units
between members of a family (as defined in Section 267(c)(4)
of the Code), (iv) transfers of Units at original issuance
and sale, (v) transfers of Units pursuant to distribution
under a Qualified Plan, and (vi) block transfers of Units by
a single Member in one or more transactions during any
thirty calendar day period representing in the aggregate
more than five percent (5%) of the total interest of all
Members in Company capital and profits.
2.26 "Properties" or "Property" means real properties
or any interest therein acquired directly or indirectly by
the Company and all improvements thereon and all repairs,
replacements or renewals thereof, together with all personal
property acquired by the Company that from time to time is
located thereon or specifically used in connection
therewith.
2.27 "Prospectus" means that certain prospectus of
the Company dated , 1998.
2.28 "Qualified Matching Service" means a listing
system operation, provided either through the Managing
Members or through any unrelated third party (including any
dealer in the Units), in which Limited Members contact the
operator to list Units they desire to transfer and through
which the operator attempts to match the listing Limited
Member with a customer desiring to buy Units without (i)
regularly quoting prices at which the operator stands ready
to buy or sell interests, (ii) making such quotes available
to the public, or (iii) buying or selling interests for its
own account.
2.29 "Qualified Matching Service Transfer" means a
transfer of Units through a Qualified Matching Service in
which (i) at least a fifteen (15) calendar day delay occurs
between the day (the "Contact Date") a Limited Member
provides written confirmation to the Qualified Matching
Service that his or her Units are available for sale and the
earlier of (A) the day information is made available to
potential buyers that such Units are available for sale, or
(B) the day information is made available to the selling
Limited Member regarding the existence of outstanding bids
to purchase Units, (ii) the closing of the transfer does not
occur until at least forty five (45) days after the Contact
Date, (iii) the Limited Member's offer to sell is removed
from the Qualified Matching Service within one hundred and
twenty (120) days of the Contact Date, and (iv) no Units of
such Limited Member are entered for listing by the Qualified
Matching Service for at least sixty (60) days after the
removal of the Limited Member's information from such
Qualified Matching Service; provided, however, that no
transfer shall be a Qualified Matching Service Transfer if,
after giving effect to such transfer, the aggregate of (a)
Qualified Matching Service Transfers, (b) transfers pursuant
to the repurchase provisions contained in section 7.7 of
this agreement of Limited Member interests and (c) all other
transfers of Limited Member interests except Permitted
Transfers since the beginning of the fiscal year in which
such transfer is made would exceed ten percent (10%) of the
Company interests outstanding.
2.30 "Qualified Plans" means Keogh Plans and
pension/profit-sharing plans that are qualified under
Section 401 of the Internal Revenue Code.
2.31 "Roll-Up" means a transaction involving the
acquisition, merger, conversion, or consolidation, either
directly or indirectly, of the Company and the issuance of
securities of a Roll-Up Entity; provided, however, that a
Roll-Up shall not include a transaction involving the
conversion to corporate, trust or association form of only
the Company if, as a consequence of such transaction, there
will be no significant adverse change in any of the
following:
(i) voting rights of Limited Members;
(ii) the term of existence of the surviving entity
beyond that of the Company;
(iii) compensation to the Managing Members or their
Affiliates;
(iv) the investment objectives of the Company or the
surviving entity.
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2.32 "Roll-Up Entity" means a Company, real estate
investment trust, corporation, trust or other entity that
would be created or would survive after successful
completion of a proposed Roll-Up Transaction.
2.33 "Sponsor" means any person, Company,
corporation, association or other entity which is directly
or indirectly instrumental in organizing, wholly or in part,
the Company or any person, Company, corporation, association
or other entity which will manage or participate in the
management of the Company, and any Affiliate of such person,
Company, corporation, association or other entity, but does
not include a person, Company, corporation, association or
other entity whose only relation with the Company is as that
of an independent property manager, whose only compensation
is as such. "Sponsor" does not include wholly independent
third parties such as attorneys, accountants, and
underwriters whose only compensation is for professional
services rendered in connection with the offering of Company
interests. A person, Company, corporation, association or
other entity may also be a Sponsor of the Company by: (i)
taking the initiative, directly or indirectly, in founding
or organizing the business or enterprise of the Company,
either alone or in conjunction with one or more other
persons, companies, corporations, associations or other
entities; (ii) receiving a material participation in the
Company in connection with the founding or organizing of the
business of the Company, in consideration of services or
property, or both services and property; (iii) having a
substantial number of relationships and contacts with the
Company; (iv) possessing significant rights to control
Company Properties; (v) receiving fees for providing
services to the Company which are paid on a basis that is
not customary in the industry; (vi) providing goods or
services to the Company on a basis which was not negotiated
at arm's length with the Company.
III. PURPOSE AND CHARACTER OF THE BUSINESS
The purpose and character of the business of the
Company shall be to acquire an interest in the Properties
upon such terms and conditions as the Managing Member, in
its absolute discretion, shall determine, including, without
limitation, taking title to the Properties; to own, lease,
operate and manage the Properties for income-producing
purposes; to furnish services and goods in connection with
the operation and management of the Properties; to enter
into agreements pertaining to the operation and management
of the Properties; to borrow funds for such purposes and to
mortgage or otherwise encumber any or all of the Company's
assets or Properties to secure such borrowings; to sell or
otherwise dispose of the Properties and the assets of the
Company; and to undertake and carry on all activities
necessary or advisable in connection with the acquisition,
ownership, leasing, operation, management and sale of the
Properties.
IV. CAPITAL
4.1 MANAGING MEMBERS. The Managing Member and the
Special Managing Member shall be obligated to make capital
contributions to the Company, to the extent not previously
made, in the amounts of $600 and $400, respectively. The
Managing Members shall not be obligated to make any other
contributions to the capital of the Company, except that, in
the event that the Managing Members have negative balances
in their capital accounts after dissolution and winding up
of, or withdrawal from, the Company, the Managing Members
will contribute to the Company an amount equal to the lesser
of (a) the deficit balances in their capital accounts or (b)
1.01% of the total capital contributions of the Limited
Members' over the amount previously contributed by the
Managing Members hereunder.
4.2 LIMITED MEMBER CAPITAL CONTRIBUTIONS.
(a) INITIAL CONTRIBUTION. There shall initially be
available for subscription by prospective Limited
Members an aggregate of 24,000 Limited Liability Company
Units. The purchase price of each Unit shall be $1,000,
except that the AEI Securities Incorporated may purchase
Units for $920. Except as provided in section 4.10,
each subscriber must subscribe for a minimum purchase of
two and one-half Units, with the exception of Qualified
Plans and Individual Retirement Accounts, which must
subscribe for a minimum purchase of two Units and
subscribers may purchase fractional Units above such
minimums.
(b) REQUIREMENTS FOR LIMITED MEMBER STATUS. Upon the
initial closing of the sale of Units, the purchasers
will be admitted as Limited Members not later than 15
days after the release from impound of the purchasers'
funds. Thereafter, an investor will be admitted to the
Company not later than the first day of each month
provided that his or her subscription for Units has been
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received at least three days prior to such date. All
subscriptions for Units shall be accepted or rejected by
the Company within 30 days of their receipt: if rejected,
all funds shall be returned to the subscriber within ten
business days. The Members shall not be obligated to make
any additional contributions to the capital of the
Company.
4.3 CAPITAL ACCOUNTS. A separate capital account
shall be maintained by the Company for each Member. It is
intended that the capital account of each Member will be
maintained in accordance with the capital accounting rules
of Treas. Reg. Section 1.704-1(b)(2)(iv). In general this
will mean that the capital account of each Member shall be
initially credited with the amount of his or her cash
contribution to the capital of the Company. The capital
account of each Member shall further be credited by the
amount of any additional contributions to the capital of the
Company made by such Member from time to time, shall be
debited by the amount of any cash distributions made by the
Company to such Member and shall be credited with the amount
of income and gains and debited with the amount of losses of
the Company allocated to such Member. In all instances the
capital accounting rules in Treas. Reg. Section 1.704-
1(b)(2)(iv) will determine the proper debits or credits to
each Member's capital account. The Managing Member may, at
its option, increase or decrease the capital accounts of the
Members to reflect a revaluation of Company Property on the
Company's books at the times when, pursuant to Treas. Reg.
Section 1.704-1(b)(2)(iv), such adjustments may occur. The
adjustments, if made, will be made in accordance with such
Regulation, including allocating taxable items, as computed
for book purposes, to the capital accounts as prescribed in
such Regulation. In the case of the transfer of all or a
part of an interest in the Company, the capital account of
the transferor Member attributable to the transferred
interest will carry over to the transferee Member. In the
case of termination of the Company pursuant to Section 708
of the Code, the rules of Treas. Reg. Section 1.704-
1(b)(2)(iv) shall govern adjustments to the capital
accounts. If there are any adjustments to Company property
as a result of Sections 732, 734, or 743, the capital
accounts of the Members shall be adjusted as provided in
Treas. Reg. Section 1.701-1(b)(2)(iv)(m). Except as
provided in Section 4.1 of this agreement, in the event that
any Member has a negative capital account balance after
dissolution and winding up of the Company, such Member will
not be obligated to contribute capital in the amount of such
deficit.
4.4 NO RIGHT TO RETURN OF CONTRIBUTION. The Limited
Members shall have no right to withdraw or to receive a
return of their contributions to the capital of the Company,
as reflected in their respective capital accounts from time
to time, except upon presentment of Units in accordance with
Section 7.7 or upon the dissolution and liquidation of the
Company pursuant to Article XII.
4.5 RETURN OF UNUSED NET OFFERING PROCEEDS. In the
event that any portion of the Limited Members' capital
contributions is not invested or committed for investment in
real property before the later of two years after the date
of the Prospectus or six months after the date of the offer
and sale of Units pursuant to the Prospectus is terminated
(except for amounts utilized to pay operating expenses of
the Company and to establish reasonable working capital
reserves as determined by the Managing Member), such portion
of the capital contributions shall be distributed, without
interest but with any Front-End Fees, including without
limitation commissions or other Organization and Offering
Costs, paid thereon, by the Company to the Limited Members
as a return of capital. All of such capital contributions
will be available for the general use of the Company during
such period and may be expended in operating the Properties
that have been acquired. For the purpose of the foregoing,
funds will be deemed to have been committed to investment,
and will not be returned to the Limited Members to the
extent written contractual agreements have been executed
prior to the expiration of the preceding period, regardless
of whether any such investment is ultimately consummated
pursuant to the written contractual agreement. To the
extent any funds have been reserved to make contingent
payments in connection with any Property pursuant to a
written contractual agreement in connection with such
Property or pursuant to a reasonable decision of the
Managing Members that additional reserves are necessary in
connection with any Property, regardless of whether any such
payment is ultimately made, subscription funds will not be
returned to the Limited Members.
4.6 LOANS TO COMPANY; NO INTEREST ON CAPITAL. The
Members may make loans to the Company from time to time, as
authorized by the Managing Member, in excess of their
contributions to the capital of the Company, and any such
loans shall not be treated as a contribution to the capital
of the Company for any purpose hereunder, nor shall any such
loans entitle such Member to any increase in his or her
share of the profits and losses and cash distributions of
the Company, nor shall any such loans constitute a lien
against the Properties. The amount of any such loans with
interest thereon at a rate determined by the Managing
Member, in its absolute discretion, but not to exceed the
rate that otherwise would be charged by unaffiliated lending
institutions on comparable loans for the same purpose, shall
be an obligation of the Company to such Member. The
Managing Members or their Affiliates may loan funds to the
Company during the offering period for the purpose of
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acquiring a Property. Interest on such loans shall not be
in excess of the rate that either would be charged by an
unrelated lending institution on comparable loans for the
same purpose in the same locality of the Properties or
represents the cost of funds of the Managing Members or
their Affiliates. No interest shall be paid by the Company
on the contributions to the capital of the Company by the
Members.
4.7 PURCHASE OF LIMITED LIABILITY COMPANY UNITS BY
MANAGING MEMBERS. The Managing Members and their Affiliates
may subscribe for and acquire Units for their own account;
provided, however, that any Units acquired by the Managing
Members or their Affiliates will be acquired for investment
and not with a view to the distribution thereof and that the
aggregate amount of Units so purchased by the Managing
Members will not exceed five percent (5%) of the Units
offered. With respect to such Units, the Managing Members
and their Affiliates shall have all the rights afforded to
Limited Members under this agreement, except as may be
expressly provided in this agreement.
4.8 NONRECOURSE LOANS. A creditor who makes a
nonrecourse loan to the Company will not have or acquire, at
any time as a result of making the loan, any direct or
indirect interest in the profits, capital or property of the
Company other than as a secured creditor.
4.9 WORKING CAPITAL RESERVE. The Managing Members
shall use their best efforts to maintain a working capital
reserve of one percent (1%) of the aggregate Adjusted
Capital Contributions and to restore such reserve if
depleted.
4.10 DISTRIBUTION REINVESTMENT PLAN.
(a) A Limited Member may elect to participate in a
program for the reinvestment of his or her distributions
of Net Cash Flow (the "Distribution Reinvestment Plan")
and have his or her distributions of Net Cash Flow from
operations reinvested in Units of the Company. Limited
Members participating in the Distribution Reinvestment
Plan may purchase fractional Units and there shall be no
minimum purchase amount with respect to such
participants. Each Limited Member electing to
participate in the Distribution Reinvestment Plan shall
receive, at the time of each distribution of Net Cash
Flow, a notice advising such Limited Member of the
number of additional Units purchased with such
distribution and advising such Limited Member of his or
her ability to change his or her election to participate
in the Distribution Reinvestment Plan.
(b) If a Limited Member withdraws from the
Distribution Reinvestment Plan, such withdrawal shall be
effective only with respect to distributions made more
than 30 days following receipt by the Company of written
notice of such withdrawal. In the event of a transfer
by a Limited Member of Units, such transfer shall
terminate the Limited Member's participation in the plan
as of the first day of the quarter in which the transfer
is effective.
(c) Distributions may be reinvested only if (i) the sale of
Units continues to be registered or qualified for sale under
federal and applicable state securities laws; (ii) each
continuing Participant has received a current prospectus relating
to the Company, including any supplements thereto, and executed a
confirmation within one year of such reinvestment indicating such
Participant's intention to purchase units in the Company through
the Plan and confirming that the Participant continues to satisfy
the investor suitability requirements; (iii) there has been no
distribution of Net Proceeds of Sale or Refinancing. If (A) any
of the foregoing conditions are not satisfied at the time of any
distribution, or (B) no interests are available to be purchased,
such distributions shall be paid in cash.
(d) Each Limited Member electing to participate in the
Distribution Reinvestment Plan hereby agrees that his or her
investment in this Company constitute his or her agreement to be
a Limited Member of the Company and to be bound by the terms and
conditions of this agreement and, if at any time he or she fails
to meet applicable investor suitability guidelines or cannot make
the other investor representations required or set forth in the
then current Company agreement prospectus or subscription
agreement, he or she will promptly notify the Managing Members in
writing.
(e) The Company shall pay a commission in connection with
any reinvestment pursuant to the plan to any broker-dealer
designated by the Participant in the plan. If no broker-dealer
is designated or the Limited Member has advised the Company that
he or she desires that such commissions not be paid, or if the
designated broker-dealer has not signed a dealer agreement with
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respect to the Company, or if the broker-dealer is no longer
qualified under applicable law to engage in the solicitation of
the sale of such Company interests, then no commission shall be
paid and all Limited Members in the Company shall be credited
with a pro rata portion of the commission not so paid. No fees
shall be paid to the Company or the Managing Members at the time
of any such reinvestment, but the Managing Members of the Company
may be reimbursed for the Cost incurred in making such
reinvestment, in accordance with the provisions of this
agreement.
(f) The Managing Members may, at their option, elect to
terminate the Distribution Reinvestment Plan at any time without
notice to Limited Members.
V. ALLOCATION OF PROFITS, GAINS AND LOSSES; DISTRIBUTIONS
TO MEMBERS
The Members agree that the income, profits, gains and losses
of the Company shall be allocated and that cash distributions of the
Company shall be made as follows:
5.1 ALLOCATION OF INCOME, PROFITS, GAINS AND LOSSES. For
income tax purposes, income, profits, gains and losses of the
Company for each fiscal year, other than any gain or loss realized
upon the sale, exchange or other disposition of any Property, using
such methods of accounting for depreciation and other items as the
Managing Member determines to use for federal income tax purposes,
shall be allocated as of the end of each fiscal year to each Member
based on his or her varying interest in the Company during such
fiscal year. The Company shall determine, in the discretion of the
Managing Member and as recommended by the Company auditors, whether
to prorate items of income and deduction according to the portion of
the year for which a Member was a member of the Company or whether
to close the books on an interim basis and divide such fiscal year
into segments. Subject to Section 5.6, for income tax purposes,
income, profits, gains and losses, other than any gain or loss
realized upon the sale, exchange or other disposition of any
Property, shall be allocated as follows:
(a) Net loss shall be allocated 99% to the Limited Members,
.6% to the Managing Member and .4% to the Special Managing
Member; and
(b) Net income, profits and gains shall be allocated first in
the ratio in which, and to the extent, Net Cash Flow is
distributed to the Members for such year, and any additional
income, profits and gains for such year will be allocated in the
same ratio as the last dollar of Net Cash Flow is distributed.
5.2 DISTRIBUTIONS OF NET CASH FLOW. Net Cash Flow from
operations, if any, with respect to a fiscal year will first be
distributed 97% to the Limited Members and 3% to the Managing
Members. Any amounts distributed to the Limited Members in
accordance with this Section 5.2 shall be allocated among the
Limited Members pro rata based on the number of Units held by each
Limited Member and the number of days such Units were held during
such fiscal year.
5.3 ALLOCATION OF GAIN OR LOSS UPON SALE, EXCHANGE OR OTHER
DISPOSITION OF A PROPERTY.
(a) Subject to Section 5.6, for income tax purposes, the gain
realized upon the sale, exchange or other disposition of any
Property shall be allocated as follows:
(i) First, to and among the Members in an amount equal
to the negative balances in their respective capital accounts
(pro rata based on the respective amounts of such negative
balances).
(ii) Next, 99% to the Limited Members and 1% to the
Managing Members until the balance in each Limited Member's
capital account equals the sum of such Limited Member's
Adjusted Capital Contribution plus an amount equal to a 7%
per annum return on such Limited Member's Adjusted Capital
Contribution, cumulative but not compounded, to the extent
not previously distributed pursuant to Section 5.2 and
Section 5.4(a).
(iii) The balance of any remaining gain will then be
allocated 90% to the Limited Members and 10% to the Managing
Members.
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(b) Subject to Section 5.6, any loss on the sale, exchange or
other disposition of any Property will be allocated 98% to the
Limited Members and 2% to the Managing Members.
5.4 DISTRIBUTION OF NET PROCEEDS OF SALE. Upon financing,
refinancing, sale or other disposition of any of the Properties, Net
Proceeds of Sale may be reinvested in additional properties;
provided, however, that sufficient cash is distributed to the
Limited Members to pay state and federal income taxes (assuming
Limited Members are taxable at a marginal rate of 7% above the
federal capital gains rate applicable to individuals) created as a
result of such transaction. Except for distributions upon
liquidation of the Company (which are governed by Section 12.3 of
this agreement), Net Proceeds of Sale that are not reinvested in
additional properties will be distributed as follows:
(a) First, 99% to the Limited Members and 1% to the Managing
Members until the Limited Members have received an amount from
Net Proceeds of Sale equal to the sum of (i) an amount equal to a
7% per annum return on their Adjusted Capital Contributions,
cumulative but not compounded, to the extent such 7% return has
not been previously distributed to them pursuant to Section 5.2
and this Section 5.4(a), plus (ii) their Adjusted Capital
Contributions.
(b) Any remaining balance will be distributed 90% to the
Limited Members and 10% to the Managing Members.
In no event will the Managing Members receive more than 10% of Net
Proceeds of Sale.
5.5 CUMULATIVE RETURN. The Company shall pay a cumulative,
but not compounded, 6% per annum return on Adjusted Capital
Contributions before applying Net Proceeds of Sale to a reduction of
Adjusted Capital Contributions. The cumulative (but not compounded)
return on Adjusted Capital Contributions with respect to each Unit
shall commence on the first day of the calendar quarter following
the date on which such Unit is initially held by a Limited Member.
5.6 REGULATORY ALLOCATIONS. The following Regulatory
Allocations shall be made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided in
Section 1.704-2(f) of the Treasury
Regulations, notwithstanding any other provision of these
Regulatory Allocations, if there is a net decrease in Company
minimum gain during any Company fiscal year, each Member shall be
specially allocated items of Company income and gain for such
year (and, if necessary, subsequent years) in an amount equal to
that Member's share of the net decrease in Company minimum gain
(within the meaning of Treas. Reg. 1.704-2(b)(2) and 1.704-
2(d)) determined in accordance with Treas. Reg. 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each Member pursuant thereto. The items to be so allocated shall
be determined in accordance with Treas. Reg. 1.704-2(f)(6) and
1.704-2(j)(2). This paragraph (a) is intended to comply with the
minimum gain chargeback requirement in Treas. Reg. 1.704-2(f)
and shall be interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Treas. Reg. 1.704-2(i)(4),
notwithstanding any other provision of these Regulatory
Allocations, if there is a net decrease in Member nonrecourse
debt minimum gain, as defined in Treas. Reg. 1.704-2(i)(2) and
determined pursuant to Treas. Reg. 1.704-2(i)(3), attributable
to a Member nonrecourse debt, as defined in Treas. Reg. 1.704-
2(b)(4), during any Company fiscal year, each Member who has a
share of the Member nonrecourse debt minimum gain attributable to
such Member nonrecourse debt, determined in accordance with
Treas. Reg. 1.704-2(i)(5), shall be specially allocated items
of Company income and gain for such year (and if necessary,
subsequent years) in an amount equal to such Member's share of
the net decrease in Member nonrecourse debt minimum gain
attributable to such Member nonrecourse debt, determined in
accordance with Treas. Reg. 1.704-2(i)(4). Allocations
pursuant to the previous sentence shall be made in proportion to
the respective amounts required to be allocated to each Member
pursuant thereto. The items to be so allocated shall be
determined in accordance with Treas. Regulations 1.704-2(i)(4)
and 1.704-2(j)(2). This paragraph (b) is intended to comply with
the minimum gain chargeback requirement in Treas. Reg. 1.704-
2(i)(4) and shall be interpreted consistently therewith.
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(c) QUALIFIED INCOME OFFSET. If a Member unexpectedly
receives an adjustment, allocation or distribution described
in Treas. Reg. s 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such
unexpected adjustment, allocation or distribution puts such
Member's capital account into a deficit balance or increases such
deficit balance determined after such account is credited by any
amounts which the Member is obligated to restore or is deemed to
be obligated to restore pursuant to the penultimate sentence of
Treas. Reg. 1.704-2(g)(1) and 1.704-2(i)(5) and debited by the
items described in Treas. Reg. 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) and for all other allocations tentatively made pursuant
to these Regulatory Allocations as if this paragraph (c) were not
in this agreement, such Member shall be allocated items of
Company income and gain in an amount and manner sufficient to
eliminate such deficit or increase as quickly as possible. It is
intended that this paragraph (c) shall meet the requirement that
this agreement contain a "qualified income offset" as defined in
Treas. Reg. 1.704-1(b)(2)(ii)(d) and this Section shall be
interpreted and applied consistently therewith.
(d) GROSS INCOME ALLOCATION. In the event any Member has a
deficit capital account at the end of any fiscal year which
is in excess of the sum of (i) the amount such Member is
obligated to restore pursuant to any provision of this agreement,
and (ii) the amount such Member is deemed to be obligated to
restore pursuant to the penultimate sentences of Treas. Reg.
1.704-2(g)(1) and 1.704-2(i)(5), each such Member shall be
specially allocated items of Company income and gain in the
amount of such excess as quickly as possible, provided that an
allocation pursuant to this paragraph (d) shall be made only if
and to the extent that such Member would have a deficit capital
account in excess of such sum after all other allocations
provided for in these Regulatory Allocations have been made as if
paragraph (c) and this paragraph (d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse deductions, within
the meaning of Treas. Reg. 1.704-2(b)(1), for any fiscal year or
other period shall be specially allocated to the Members in
proportion to their Units.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member nonrecourse
deductions, within the meaning of Treas. Reg. 1.704-2(i)(1)
and 1.704-2(i)(2), for any fiscal year or other period shall be
specially allocated to the Member who bears the economic risk of
loss with respect to the Member nonrecourse debt to which such
Member nonrecourse deductions are attributable in accordance with
Treas. Regulations Section 1.704-2(i).
(g) SECTION 754 ADJUSTMENT. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code
Sections 732, 734(b) or 743(b) is required, pursuant to Treas.
Reg. 1.704-1(b)(2)(iv)(m)(2) or (4), to be taken into account
in determining capital accounts, the amount of such adjustment to
the capital accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Members in a manner consistent with
the manner in which their capital accounts are required to be
adjusted pursuant to such Sections of the Treasury Regulations.
The Regulatory Allocations are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the
Members that to the extent possible, all Regulatory Allocations
shall be offset either with other Regulatory Allocations or with
special allocations of other items of Company income, gain, loss, or
deduction pursuant to this paragraph. Therefore, notwithstanding
any other provision of these Regulatory Allocations (other than the
Regulatory Allocations), the Managing Member shall make such
offsetting special allocations of Company income, gain, loss, or
deduction in whatever manner it determines appropriate so that,
after such offsetting allocations are made, each Member's capital
account balance is, to the extent possible, equal to the capital
account balance such Member would have had if the Regulatory
Allocations were not part of the Agreement and all Company items
were allocated pursuant to Section 12.1 and Section 12.2. In
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exercising its discretion under this paragraph, the Managing Member
shall take into account future Regulatory Allocations under Sections
paragraphs (a) and (b) that, although not yet made, are likely to
offset other Regulatory Allocations previously made under paragraphs
(e) and (f).
5.7 LIMITATION ON LOSS ALLOCATION. Notwithstanding anything
in Sections 5.1 above, losses allocated pursuant to Section 5.1
shall not exceed the maximum amount of losses that can be so
allocated without causing a Member to have an adjusted capital
account deficit at the end of any fiscal year. In the event one of
the Members would have an adjusted capital account deficit as a
consequence of an allocation of losses pursuant to Section 5.1, the
limitation set forth herein shall be applied on a Member by Member
basis so as to allocate the maximum permissible losses to each
Member under Section 1.704-1(b)(2)(ii)(d) of the Regulations. All
losses in excess of the foregoing limitation shall be allocated to
the Members in proportion to their Units.
5.8 ALLOCATION AMONG MANAGING MEMBERS. Any allocations or
distributions to the Managing Members shall be made in the following
ratio: 60% to the Managing Member and 40% to the Special Managing
Member.
VI. RIGHTS, POWERS AND DUTIES OF MANAGING MEMBERS
The Members agree that the Managing Members, acting through
the Managing Member, shall have the following rights, powers and,
where provided, duties in connection with the conduct of the
business of the Company.
The Managing Member shall manage the affairs of the Company in
a prudent and business-like fashion and shall use its best efforts
to carry out the purposes and character of the business of the
Company. The Managing Member shall devote such of its time as it
deems necessary to the management of the business of the Company and
may enter into agreements with an Affiliate to provide services for
the Company, provided that such services are furnished at Cost.
6.1 APPOINTMENT OF MANAGING MEMBER. Subject to the
limitations herein, and to the express rights afforded Limited
Members herein, including, without limitation, the rights set forth
in Articles VII and XI herein, the Special Managing Member and the
Limited Members delegate to the Managing Member the sole and
exclusive authority for all aspects of the conduct, operation and
management of the business of the Company, including making any
decision regarding the sale, exchange, lease or other disposition of
the Properties; PROVIDED, HOWEVER, that the Managing Member shall be
required to obtain the prior consent of a majority of the Limited
Members, by interest, to the sale of all or substantially all of the
assets of the Company. In the event the Managing Member proposes to
cause the Company to enter into a transaction requiring the consent
of the Special Managing Member, the Managing Member shall forthwith
notify the Special Managing Member of its intentions in writing.
The Special Managing Member shall be considered to have consented to
such proposal if he fails to notify the Managing Member of his
objection thereto within 20 days of the date of notice of such
proposal, such notification to include a brief statement of each
reason for the Special Managing Member's opposition to such proposal.
With the exceptions stated above, the Managing Member shall have
the exclusive authority to make all decisions affecting the Company
and to exercise all rights and powers granted to the Managing Members.
6.2 REIMBURSEMENT OF EXPENSES.
(a) Subject to the limitations set forth in Section 6.2(b),
the Company shall reimburse the Managing Members and their
affiliates at their Cost: (i) for any expenditures of their own
funds for purposes of organizing the Company and arranging for
the offer and sale of Units (including commissions); (ii) for all
Acquisition Expenses incurred by them, (iii) for the services
they provide in the sales effort of the Properties, and (iv) for
the expenses of controlling persons and overhead expenses
directly attributable to the forgoing services or attributable to
Administrative Services (which overhead expenses shall be
allocated based upon the amount of time personnel actually spend
providing such services, or such other method of allocation as is
acceptable to the Company's independent public accountant). In
addition, the Company shall reimburse the Managing Members and
their affiliates at their Cost for Administrative Expenses
necessary for the prudent operation of the Company, provided that
any expenses of controlling persons and overhead expenses
included in such Administrative Expense reimbursements shall be
subject to the limitations set forth in Section 6.2(b).
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(b) The aggregate cumulative reimbursements pursuant to
Section 6.2(a)(i) to (iv) to the Managing Members and their
Affiliates, will not exceed, at the end of any fiscal year, the
sum of (i) the Front-End Fees of up to 20% of capital
contributions, (ii) property management fees of up to 1% of Net
Cash Flow, 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 term of the lease, (iii) real estate
commission of 3% of Net Proceeds of Sale of properties on which
the Managing Members or Affiliates furnish a substantial amount
of sales efforts, and (iv) 10% of Net Cash Flow less the Net Cash
Flow actually distributed to the Managing Members. The Managing
Members will review the reimbursements that they and their
Affiliates receive at the end of each fiscal year of the Company.
If the Managing Members and their Affiliates receive
reimbursement for items set forth in Section 6.2(a)(i) to (iv) in
excess of the limitations set forth in this section, they will
refund the difference to the Company within 30 days of discovery
of such excess. Such review shall not take into account any of
the fees that might be paid in years after the fiscal year for
which the calculation is made.
(c) The Company's annual report to Limited Members will
contain information concerning reimbursements made to the
Managing Member and its Affiliates. Within the scope of the
annual audit, an independent certified public accountant shall
verify the allocation of costs to the Company. The methods of
verification shall be in accordance with generally accepted
auditing standards and shall, accordingly, include such tests of
the accounting records and such other auditing procedures that
the Managing Member's independent certified public accountants
consider appropriate in the circumstances. Such methods of
verification shall at a minimum provide: (i) a review of the time
records of employees and control persons, the costs of whose
services were reimbursed and (ii) a review of the specific nature
of the work performed by each such employee and control person.
The additional cost of such verification will be itemized by such
accountant on a program-for-program basis, and the Managing
Members will be reimbursed for such additional cost only to the
extent that the cost of such verification, when added to all
reimbursements to the Managing Members for services rendered to
the Company, does not exceed the competitive price for such
services which would be charged by non-affiliated persons
rendering similar services in the same or comparable geographic
location.
(d) The Managing Members and their Affiliates will not be
reimbursed or otherwise paid for any services except as set forth
in Section 6.2(a).
6.3 OTHER ACTIVITIES OF MANAGING MEMBERS. The Managing
Members, during the term of this Company, may engage in and possess
an interest for their own account in other business ventures of
every nature and description, independently or with others,
including, but not limited to, the ownership, financing, leasing,
operation, management, syndication, brokerage, investment in and
development of real estate; and neither the Company nor any Member,
by virtue of this agreement, shall have any right in and to said
independent ventures or any income or profits derived therefrom.
Nothing in this section shall be deemed to diminish the Managing
Member's overriding fiduciary obligation to the Company, or to
constitute a waiver of any right or remedy the Company or Limited
Members may have in the event of a breach by a Managing Member of
such obligation.
6.4 INDEMNIFICATION AND LIABILITY OF MANAGING MEMBERS.
(a) The Company shall indemnify each of the Managing Members
and their Affiliates (other than an Affiliate that is acting in
the capacity of a Broker-Dealer selling Units) against any claim
or liability incurred or imposed upon such Managing Member or
such Affiliates provided such Managing Member or Affiliate was
acting on behalf of or performing services for the Company and
the Managing Member has determined, in good faith, that the
course of conduct which caused the loss or liability was in the
best interests of the Company, and such conduct of the Managing
Member or Affiliate did not constitute misconduct or negligence.
The Managing Members or Affiliates shall not be liable to the
Company or any Member by reason of any act or omission of such
Managing Member or Affiliate provided the Managing Member has
determined, in good faith, that the course of conduct which
caused the loss or liability was in the best interests of the
Company, and such conduct of the Managing Member or Affiliate did
not constitute misconduct or negligence. Solely for purposes of
this Section 6.4, but for all such purposes, the term "Affiliate"
shall mean only those Affiliates, as defined in Section 2.5, that
furnish services to the Company within the scope of the Managing
Members' authority.
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(b) No Managing Member or Affiliate or any Broker-Dealer
selling Units shall be indemnified for any liability imposed by
judgment, or costs associated therewith, including attorneys'
fees, arising from or out of a violation of state or federal
securities laws. The Managing Members and such Affiliates, and
such Broker-Dealers, shall be indemnified for settlements and
related expenses of lawsuits alleging securities law violations,
and for expenses incurred in successfully defending such
lawsuits, provided that the party seeking indemnification places
before the court the position of the Massachusetts Securities
Division, of the Missouri Securities Division, of the
Pennsylvania Securities Commission, of the administrator of other
relevant state securities laws and of the Securities and Exchange
Commission on indemnification for securities law violations, and
the court thereafter either:
(i) approves the settlement and finds that
indemnification of the settlement and related costs should be
made, or
(ii) approves indemnification of litigation costs if a
successful defense is made.
Any indemnification pursuant to this Section 6.4, or otherwise,
shall be recoverable only from the assets of the Company and not
from any of the Limited Members. No Managing Member or Affiliate
shall be entitled to advances for legal expenses and other costs
incurred as a result of legal action initiated against the
Managing Members or Affiliate unless (1) the action relates to
the performance of the duties of such Managing Member or
Affiliate on behalf of the Company, (2) the action is not
initiated by a Limited Member, and (iii) the Managing Member or
Affiliate undertakes to repay such advances in cases in which it
is determined they are not entitled to indemnification.
(c) The Managing Member shall have fiduciary responsibility
for the safekeeping and use of all funds and assets of the
Company, whether or not in its immediate possession or control,
and the Managing Member shall not employ, or permit another to
employ, such funds or assets in any manner except for the
exclusive benefit of the Company. The Managing Members and the
Company may not permit the Limited Members to contract away the
fiduciary duty owed to the Limited Members by the Managing
Members under the common law.
6.5 PROHIBITED TRANSACTIONS. Notwithstanding anything to the
contrary contained herein, the Managing Members and Affiliates of
the Managing Members (i) may not receive interest and other
financing charges or fees on loans made to the Company in excess of
the amounts that would otherwise be charged by unaffiliated lending
institutions on comparable loans for the same purpose and in the
same locality of the Property if the loan is made in connection with
a particular Property, (ii) may not require a prepayment charge or
penalty on any loan from the Managing Members to the Company, (iii)
may not provide financing to the Company that is payable over a
period exceeding 48 months or for which more than 50% of the
principal is due in more than 24 months, (iv) may not grant to
themselves an exclusive listing for the sale of any Property, (v)
may not directly or indirectly pay or award any commissions or other
compensation to any person engaged by a potential investor for
investment advice as an inducement to such adviser to advise the
purchaser of the Units, provided, however, that this provision shall
not prohibit the normal sales commissions payable to a registered
broker-dealer or other properly licensed person for selling the
Units, (vi) may not commingle Company funds with the funds of any
other person, (vii) may not sell property to, purchase property
from, or lease property to or from the Company, provided that the
Company may purchase real property from the Managing Members or
their Affiliates (but not from affiliated programs unless the
interest purchased by the Company from the affiliated program is
equal to or smaller than the interest retained by the affiliated
program and the joint venture so created complies with section 6.6
of this agreement) if the Managing Members or their Affiliates
purchased the property in their own name and temporarily held title
thereto for a period not in excess of twelve months for the purpose
of facilitating the acquisition of the property, the borrowing of
money, the obtaining of financing for the Company or any other
purpose related to the business of the Company, and the property is
purchased by the Company for a price no greater than the price paid
by the Managing Members or their Affiliates plus Acquisition
Expenses in accordance with the provisions of this agreement, and
any profit or loss on such property during such period is paid to or
charged against the Company, and there is no other benefit arising
out of such transaction to the Managing Members or their Affiliates
apart from compensation otherwise permitted by this agreement (the
prohibitions of this Section 6.5(vii) shall also apply to any
program in which the Managing Members have an interest), (viii) may
not receive a commission or fee in connection with the reinvestment
or distribution of the proceeds of the resale, exchange or
refinancing of the Properties (ix) may not cause the Company to
incur indebtedness directly or indirectly related to the purchase of
properties, from any source, aggregating in excess of 60% of the
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purchase price of all Company Properties, (x) may not cause the
Company to invest in other limited partnerships or limited liability
companies, provided that joint venture arrangements set forth in
Section 6.6 shall not be prohibited, (xi) may not cause the Company
to acquire property in exchange for Units, (xii) may not cause the
Company to pay a fee to the Managing Members or their Affiliates for
insurance coverage or brokerage services, (xiii) may not cause the
Company to make loans or investments in real property mortgages
other than in connection with the purchase or sale of the Company's
properties, (xiv) may not cause the Company to operate in a manner
as to be classified as an "investment company" for purposes of the
Investment Company Act of 1940, (xv) may not cause the Company to
underwrite or invest in the securities of other issuers, except as
specifically discussed in Section 6.6 and in the Prospectus, (xvi)
may not cause the Company to incur the cost of that portion of
liability insurance that insures the Managing Members or their
Affiliates for any liability as to which such Managing Members or
their Affiliates are prohibited from being indemnified under Section
6.4., (xvii) may not receive a real estate commission in connection
with the purchase, sale or financing of a Property and will not
permit aggregate compensation to others in connection with the sale
of any Property to exceed a Competitive Real Estate Commission,
(xviii) may not receive an Acquisition Fee (including, without
limitation, Development Fee or Construction Fee) or permit such
Acquisition Fees, together with Acquisition Expenses paid to any
party, by the Company to exceed 18% of the total capital
contributions of Limited Members pursuant to Section 4.2 of this
agreement, (xix) may not cause the Company to incur Front-End Fees
to the extent that such fees would cause the Company's Investment in
Properties to be less than 80% of capital contributions, (xx) may
not receive any rebate or give-up nor participate in any reciprocal
business arrangement in circumvention of the NASAA Guidelines, nor
shall any Managing Member participate in any reciprocal business
arrangement that would circumvent the restrictions of such NASAA
Guidelines against dealing with affiliates or promoters, and (xxi)
may not cause the Company to make any loans or advances at any time
to the Managing Members or their Affiliates.
6.6 INVESTMENTS IN OTHER PROGRAMS. The Company may purchase
limited partnership or limited liability company interests of
another program. The Company may, however, invest (a) in general
partnerships or ventures that own and operate a particular property
provided the Company, either alone or together with any publicly-
registered Affiliate, acquires a controlling interest in such other
ventures or general partnerships, and such general partnerships or
joint venture does not result in duplicate fees, or (b) in joint
venture arrangements with another publicly-registered program
sponsored by the Managing Members or their Affiliates, or (c) in
joint venture arrangements with the Managing Members or their
Affiliates other than another publicly registered program. For
purposes of Section 6.6(a), "controlling interest" means an equity
interest possessing the power to direct or cause the direction
of the management and policies of the Company or joint venture,
including the authority to:
(i) review all contracts entered into by the general Company
or joint venture that will have a material effect on its business
or property;
(ii) cause a sale or refinancing of the property or the
Company's interest therein subject in certain cases where
required by the Company or joint venture agreement, to limits as
to time, minimum amounts and/or a right of first refusal by the
joint venture Member or consent of the joint venture Member;
(iii) approve budgets and major capital expenditures, subject
to a stated minimum amount;
(iv) veto any sale or refinancing of the property, or,
alternatively, to receive a specified preference on sale or
refinancing proceeds; and,
(v) exercise a right of first refusal on any desired sale or
refinancing by the joint venture Member of its interest in the
property except for transfer to an Affiliate of the joint venture
Member.
For purposes of 6.6(b), the Company shall be permitted to
invest in joint venture arrangements with another publicly-
registered program or programs sponsored by the Managing Members or
their Affiliates for the purpose of acquiring a property from
unaffiliated parties only if all the following conditions are met:
(a) The two programs have substantially identical investment
objectives;
(b) There are no duplicate property management or other fees;
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(c) The Managing Members' compensation is substantially
identical in each program;
(d) In the event of a proposed sale of property held in the
joint venture by the other joint venture member, the Company will
have a right of first refusal to purchase the other party's
interest; and
(e) The investment by each of the programs in the joint
venture must be on substantially the same terms and conditions.
For purposes of 6.6(c), the Company shall be permitted to invest
in joint venture arrangements with the Managing Members or their
Affiliates other than a publicly-registered program for the
purpose of acquiring a property from unaffiliated parties only
if all the following conditions are met:
(a) The investment is necessary to relieve the Managing Member
from any commitment to purchase the property entered into in
compliance with Section 6.5(vii) prior to the closing of the
offering period of the Company;
(b) There are no duplicate property management or other fees;
(c) The investment by each of the programs in the joint venture
must be on substantially the same terms and conditions;
(d) In the event of a proposed sale of property held in the
joint venture member, the Company will have a right of first refusal
to purchase the other party's interest.
6.7 UNIMPROVED OR NON-INCOME PRODUCING PROPERTY/PROPERTY
UNDER CONSTRUCTION.
(a) The Company may not acquire unimproved or non-income
producing property except in amounts and upon terms which can be
financed by the Limited Members' capital contributions or from
funds provided from operations. In no event shall the Company
acquire unimproved or non-income producing property exceeding 10%
of the total capital contributions of Limited Members pursuant to
Section 4.2 of this agreement. For purposes of this Section 6.7,
properties that are expected to produce income within two years
shall not be considered unimproved or non-income producing
properties. Neither the Managing Members nor any Affiliate will
develop, construct or provide Major Repairs or Rehabilitation for
properties, or render services in connection with such activites;
provided that nothing in this section shall prohibit an
unaffiliated third parties from engaging in such activities on
behalf of the Company.
(b) The Company may not acquire property which is under
construction unless completion is guaranteed at the purchase
price contracted for by (i) a completion bond, (ii) a written
guarantee by a person who, or entity that, has provided financial
statements demonstrating sufficient net worth and collateral, or
(iii) retention of a reasonable portion of the purchase price as
an offset in the event the seller does not perform.
6.8 INVESTMENTS IN JUNIOR TRUST DEEDS. The Company may not
invest in junior trust deeds and other similar obligations except to
the extent such investments arise upon sale of Properties. In no
event shall such investments exceed 10% of the gross assets of the
Company.
6.9 REQUIREMENT FOR REAL PROPERTY APPRAISAL. All Property
acquisitions by the Company will be supported by an appraisal
prepared by a competent, independent appraiser. The appraisal will
be maintained in the Company's records for at least five years and
will be available for inspection and duplication by any Limited
Member.
6.10 BALLOON PAYMENTS.
(a) Any Indebtedness of the Company (which shall, in any
event, be subject to the limitations contained in Section 6.5(ix)
of this agreement) which is not fully amortized in equal payments
over a period of not more than 30 years, shall have a maturity
date (due date) which is not earlier than ten years after the
date of purchase of the underlying property or two years after
the anticipated holding period of the property (provided such
holding period is at least seven years); provided, however, that
this Section 6.10(a) shall not limit the ability of the Company
to finance Properties using adjustable rate mortgages.
(b) The Company may not incur indebtedness of any kind,
including all-inclusive and wrap-around loans and interest-only
loans, in connection with the purchase of a Property, but may
assume indebtedness on operating properties that complies with
the provisions of this section 6.10 and section 6.5(ix).
(c) The provisions of this Section 6.10 shall not apply (but
the provisions of section 6.5(ix) shall apply) to indebtedness
representing, in the aggregate, 25% or less of the total purchase
price of all Properties acquired, or to interim financing,
including construction financing, with a full take-out
commitment.
6.11 SELLING COMMISSIONS.
(a) Except as otherwise provided in this Section 6.11, the
Company shall pay any and all Selling Commissions and expense
allowances in the amount of $100 per Unit sold in accordance with
the Dealer Manager Agreement with AEI Securities Incorporated.
The Company shall also reimburse the Dealer Manager for the bona
fide due diligence expenses of dealers selling Units to the
extent the aggregate of such reimbursements do not exceed $5.00
per Unit sold.
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(b) A registered principal or representative of AEI
Securities Incorporated or any other broker-dealer may purchase
Units net of commissions, at a per Unit purchase price of $920.
6.12 ROLL-UP TRANSACTIONS
(a) The Company shall not participate in any Roll-Up (i)
which would result in Limited Members having democracy rights in
the Roll-Up Entity which are less than those provided in this
Company Agreement (provided that, if the form of the Roll-Up
entity is other than a Company, the democracy rights shall
conform to those provided in this Company Agreement to the
greatest extent possible); (ii) which includes provisions that
would act to materially impede or frustrate the accumulation of
shares of any purchaser of the securities of the Roll-Up entity
(except to the extent required to preserve the tax status of the
Roll-Up Entity); (iii) which would limit the rights of Limited
Members to exercise voting rights in the securities of the Roll-
Up entity on the basis of the number of equity interests held by
such Limited Members; (iv) which would result in a Roll-Up Entity
which would have rights to access of records less than those of
the Company; or (v) which provides for the costs of the Roll-Up
to be borne by the Company and which is not approved by Limited
Members.
(b) No Roll-Up shall be conducted unless an appraisal of all
material Company assets has been obtained from a competent person
or entity that has no material current or prior business or
personal relationship with the Managing Members or their
Affiliates and who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of
the type held by the Company and is qualified to perform
such appraisal. The appraisal shall be based on an evaluation
of all relevant information, assuming an orderly liquidation of
the Company's assets over a 12-month period, and shall indicate
the value of the Company's material assets as of a date
immediately preceding announcement of the proposed Roll-Up. A
summary of the appraisal shall be included in a report to the
Limited Members in connection with the Proposed Roll-Up and if
such report is a part of a prospectus used to offer securities
in the Roll-Up Entity, the appraisal shall be filed with the SEC
and the states in connection with the registration statement
for the offering.
(c) Any Limited Member who votes against a Roll-Up that is
completed, shall be given the option to (i) accept the securities
in the Roll-Up Entity in the Roll-Up, or (ii) either one of (x)
remaining a Limited Member in the Company or (y) receiving cash
in the amount of the appraised value of the assets of the
Company.
VII. PROVISIONS APPLICABLE TO LIMITED MEMBERS
The following provisions shall apply to the Limited Members,
and the Limited Members hereby agree thereto.
7.1 LIABILITY. The Limited Members shall be liable with
respect to the Company only to the extent of the amount of the
contribution to capital made by such Limited Members as provided in
Section 4.2. The Units are nonassessable.
7.2 NO PARTICIPATION IN MANAGEMENT. No Limited Member shall
take any part or participate in the conduct of, or have any control
over, the business of the Company, and no Limited Member shall have
any right or authority to act for or to bind the Company; provided,
however, that the Company may not sell all or substantially all of
the assets of the Company without the prior written consent of a
majority of the Limited Members, by interest.
7.3 NO WITHDRAWAL OR DISSOLUTION. No Limited Member shall at
any time withdraw from the Company except as provided in this
agreement. No Limited Member shall have the right to have the
Company dissolved or to have his or her contribution to the capital
of the Company returned except as provided in this agreement. The
death or bankruptcy of a Limited Member shall not dissolve or
terminate the Company.
7.4 CONSENT. To the fullest extent permitted by law, each of
the Limited Members hereby consents to the exercise by the Managing
Member of all the rights and powers conferred on the Managing Member
by this agreement.
7.5 POWER OF ATTORNEY. Each of the Limited Members and the
Special Managing Member hereby irrevocably constitute and appoint
the Managing Member his or her or its true and lawful attorney, in
his or her or its name, place and stead to make, swear to, execute,
acknowledge and file:
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(a) this Operating Agreement and any and all certificates of
formation of the Company, and any amendments thereto that may be
required by the Limited Liability Company Act, including
amendments required for the reflection of return of capital to
any Member or the contribution of any additional capital, and the
continuation of the business of the Company by a substitute
and/or additional Managing Member;
(b) any certificate or other instrument and any amendments
thereto that may be required to be filed by the Company in order
to accomplish the business and the purposes of the Company,
including any business certificate, fictitious name certificate
or assumed name certificate;
(c) any cancellation of such certificates of formation, this
Operating Agreement and any and all other documents and
instruments that may be required upon the dissolution and
liquidation of the Company;
(d) new certificates of formation and any and all documents
and instruments that may be required to effect a continuation of
the business of the Company as provided in this agreement; and
(e) any amended operating agreement or certificate of
formation that has been duly adopted hereunder or authorized
hereby.
It is expressly intended that the foregoing power of attorney
is (1) coupled with an interest and shall survive the bankruptcy,
death, incompetence or dissolution of any person hereby giving such
power and (2) does not affect the Limited Members' rights to approve
or disapprove any amendments to this agreement or other matters as
provided elsewhere herein.
If a Limited Member assigns his or her interest in the
Company, as provided in Article IX, the foregoing power of attorney
shall survive the delivery of the instruments effecting such
assignment for the purpose of enabling the Managing Member to sign,
swear to, execute and acknowledge and file any and all amendments to
the certificates of formation of the Company and other instruments
and documents necessary to effectuate the substitution of the
assignee as a Limited Member.
7.6 LIMITATION OF ACQUISITION OF EQUITY SECURITIES OF THE
MANAGING MEMBERS. The Limited Members (excluding the Managing
Members or their Affiliates who purchase Limited Liability Company
Units) shall not own, directly or indirectly, individually or in the
aggregate, more than 20% of the outstanding equity securities of
either of any Managing Member or its Affiliates.
The phrase "own, directly or indirectly" used herein shall
have the meaning set forth in Section 318 of the Internal Revenue
Code of 1954, as currently in effect or as hereafter amended. As of
the date hereof, such term includes ownership by a Limited Member,
his or her spouse, children, grandchildren, parents, any Company of
which the Limited Member or any of the foregoing is a member, any
estate or trust of which the Limited Member or any of the foregoing
is the beneficiary and any corporation at least 50% owned in the
aggregate by said Limited Member or any of the foregoing.
7.7 RIGHT TO PRESENT UNITS FOR PURCHASE.
(a) Beginning 36 months from the date of the Prospectus, each
Limited Member shall have the right, subject to the provisions of
this Section 7.7, to present his or her Units to the Company for
purchase by submitting notice on a form supplied by the Company
to the Managing Member specifying the number of Units he or she
wishes repurchased. Such notice must be postmarked after January
1 but before January 31, and after July 1 but before July 31 of
each year. On March 31 and September 30 of each year, and
subject to the limitations set forth below, the Managing Member
shall cause the Company to purchase the Units of Limited Members
who have tendered their Units to the Company. The purchase price
shall be equal to eighty percent (80%) of the Net Value of the
Company's assets divided by the number of Units outstanding. The
Managing Members shall publish the repurchase price offered for
Units based on the Net Value of the Company's assets on the first
business day of January and July of each year. The Company will
not be obligated to purchase in any year any number of Units such
that such Units, when aggregated with all other transfers of
Units that have occurred since the beginning of the same calendar
year (excluding Permitted Transfers) would exceed two percent
(2%) of the total number of Units outstanding on January 1 of
such year. In the event requests for purchase of Units received
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in any given year exceed the two percent (2%) limitation, the
Units to be purchased will be determined based on the postmark
date of the written notice of Limited Members tendering Units.
Any Units tendered but not selected for purchase in any given
year will be considered for purchase in subsequent years only if
the Limited Member retenders his or her Units. In no event shall
the Company be obligated to purchase Units if, in the sole
discretion of the Managing Member, such purchase would impair the
capital or operation of the Company nor shall the Company
purchase any Units in violation of applicable legal requirements.
(b) For purposes of all calculations pursuant to Article V of
this agreement, any Net Cash Flow or Net Proceeds of Sale used to
repurchase Units or to repay borrowings that were used to
repurchase Units shall be deemed distributed to the remaining
Limited Members pro rata based on the ratio of the number of
Units owned to all Units outstanding after such repurchase.
7.8 VOTING RIGHTS. To the extent permitted under the Limited
Liability Company Act, as amended, the Limited Members may, by vote
of a majority of the outstanding Units (excluding Units held by the
Managing Members for their own accounts), and without the
concurrence of the Managing Members:
(1) amend this Operating Agreement in accordance with
the provisions of Article XI;
(2) remove the Managing Member and elect a new Managing
Member in accordance with Section 10.4 of this
agreement;
(3) approve or disapprove the sale of all or
substantially all of the assets of the Company;
(4) dissolve the Company in accordance with Section
12.1(g).
VIII. BOOKS OF ACCOUNT; REPORTS AND FISCAL MATTERS
8.1 BOOKS; PLACE; ACCESS. The Managing Member shall maintain
accurate books of account and each and every transaction shall be
entered therein. The Company records shall contain the names and
addresses of all Members. The books of account and the records
shall be kept at the office of the Company in St. Paul, Minnesota,
and any Member or his or her legal counsel may inspect and copy the
Company books and records at any time during ordinary business
hours. The Managing Member shall have no obligation to deliver or
mail to Limited Members copies of certificates of limited Company or
amendments thereto.
8.2 METHOD. The books of account shall be kept in accordance
with generally accepted accounting principles.
8.3 FISCAL YEAR. The fiscal year of the Company shall end on
December 31 of each year.
8.4 ANNUAL REPORT. At the Company's expense, the books of
account shall be audited at the close of each fiscal year by a firm
of independent public accountants selected by the Managing Member,
and a copy of its report shall be transmitted within 120 days after
the close of such fiscal year to the Members and to such state
securities commissioners as may be required by the rules and
regulations of the various states.
The annual report shall contain (a) a balance sheet as of year
end, a statement of operations for the year then ended, a statement
of Members' equity, and statement of cash flows, all of which shall
be audited with a report containing an unqualified opinion expressed
thereon, or an opinion containing no material qualification of an
independent public accountant, (b) a report of the activities of the
Company during the period covered by the report and (c) the amount
of any fees or other reimbursements to the Managing Members or any
Affiliates of the Managing Members during the fiscal year to which
such annual report relates, including information required by
Section 6.2. Such report shall set forth distributions to Limited
Members for the period covered thereby and shall separately identify
distributions from (i) cash flow from operations during the period,
(ii) cash flow from operations during a prior period that had been
held as reserves, (iii) proceeds from the disposition of property
and investments and (iv) reserves from the gross proceeds of the
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offering originally obtained from the Limited Members. The
financial information contained in the annual report will be
prepared on the GAAP basis. The Managing Member also shall make
available to each Limited Member, upon request, a copy of any annual
reports that the Company may be required to file with the Securities
and Exchange Commission within 90 days after the close of the period
to which such reports relate.
8.5 QUARTERLY REPORTS. During the life of the Company, the
Managing Member shall prepare and distribute to all Members within
60 days after the end of each quarter and to such state securities
commissioners as may be required by the rules and regulations of the
various states, a quarterly summary of Company financial results.
Such quarterly reports shall contain (a) a current condensed balance
sheet, which may be unaudited, (b) a condensed operating statement
for the quarter then ended, which may be unaudited, (c) a condensed
cash flow statement for the quarter then ended, which may be
unaudited, and (d) other pertinent information regarding the Company
and its activities during the quarter covered by the report. Such
quarterly reports shall also contain a detailed statement setting
forth the services rendered, or to be rendered, by the Managing
Members or their Affiliates and the amount of the fees received.
The Managing Member also shall make available to each Limited
Member, upon request, a copy of any reports that the Company may be
required to file with the Securities and Exchange Commission within
45 days after the close of the period to which such reports relate.
8.6 SPECIAL REPORTS. The Managing Member shall have
prepared, as of the end of each quarter in which a Property is
acquired, a special report of real property acquisitions within the
quarter. Such special reports shall be distributed to the Limited
Members for each quarter in which a Property is acquired until all
proceeds available from the offering of Units are invested or
returned to the Limited Members as provided in Section 4.5. Such
special reports shall describe the Properties acquired and shall
include a description of the geographic location and the market upon
which the Managing Member is relying. The special report shall
include all facts that reasonably appear to materially influence the
value of the Property, including, but not limited to, the date and
amount of the appraised value, the purchase price and terms of the
purchase, the amount of proceeds in the Company that remain
unexpended or uncommitted and any Acquisition Expenses paid by the
Company to the Managing Members or their Affiliates in connection
with real property acquisitions within the quarter.
8.7 TAX RETURNS; TAX INFORMATION. Within 75 days after the
close of each fiscal year, all necessary tax information shall be
transmitted to all Members and to such state securities
commissioners as may be required by the rules and regulations of the
various states.
8.8 BANK ACCOUNTS. Except as otherwise described in the
Prospectus, the Managing Member shall select a bank account or
accounts for the funds of the Company, and all funds of every kind
and nature received by the Company shall be deposited in such
account or accounts. The Managing Member shall designate from time
to time the persons authorized to withdraw funds from such accounts.
The funds of the Company will not be commingled with funds of any
other person or entity.
8.9 TAX ELECTIONS. In the event of a transfer of all or part
of the Company interest of any Member, the Company, in the sole
discretion of the Managing Member, may elect pursuant to Section 754
of the Internal Revenue Code of 1986 (or any successor provisions)
to adjust the basis of the assets of the Company. The Managing
Member shall be the "tax matters Member" for the Company as that
term is defined in Section 6231 of the Internal Revenue Code of
1986, as amended.
8.10 INVESTOR LIST. In addition to the other records
maintained by the Company, the Company shall maintain at all times,
in alphabetical order and on white paper with printing in not less
than 10 point type, a list of Limited Members, including the names,
addresses and business telephone numbers of the Limited Members and
the number of Units held by each, which shall be updated at least
quarterly to reflect changes in the information contained therein.
The list of Limited Members shall be available for inspection by any
Limited Member or such Limited Member's designated agent at the
office of the Company upon request of such Limited Member. In
addition, a copy of the Limited Member list shall be mailed to any
Limited Member requesting the same within ten (10) days of the
receipt of a written request. The Company may charge a reasonable
fee to such Limited Member to cover the costs of reproduction and
postage. The purposes for which such list may be requested by the
Limited Members shall include, without limitation, matters relating
to voting rights of the Limited Members and the exercise of rights
of the Limited Members under federal proxy laws. If the Managing
Member neglects or refuses to exhibit, produce or mail a copy of
the Limited Member list as requested, the Managing Member shall be
liable for the costs, including attorneys' fees, incurred by the
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Limited Member in compelling the production of the list and for the
actual damages suffered by the Limited Member by reason of such
refusal or neglect. It shall be a defense that the actual purpose
and reason for the request for inspection or for a copy of the
Limited Member list is to secure such list or other information for
the purpose of selling such list or copies thereof, or of using the
same for a commercial purpose other than in the interest of the
applicant as a Limited Member relative to the affairs of the
Company. The Managing Member may require that the Limited Member
requesting such list to represent that the list is not requested for
a commercial purpose unrelated to the Limited Member's interest in
the Company. For all such purposes, the acquisition of additional
Units shall be considered a commercial purpose unrelated to the
Limited Member's interest in the Company. The Managing Member may
also require, as a condition to making such list available, (i) that
the list be requested under the signature of the Limited Member of
record rather than a person or entity holding a power of attorney for
such Limited Member; and (ii) whenever the Managing Member has a
reasonable belief that such list will be used to solicit purchases of
Units, that the requesting Limited Member agree to provide materials
to the persons solicited, and to the Managing Member for review and
comment prior to use, generally complying with the disclosure
requirements of Section 14(d) of the Securities Exchange Act of 1934
and Rule 14d-6 promulgated thereunder, including, without limitation,
the price at which the Fund last agreed to repurchase Units and the
price at which Units were last purchased in any secondary trading
service that is published. The remedies set forth in this section
8.10 shall be in addition to, and not by way of limitation of,
remedies available to Limited Members under federal law, or the laws
of any state.
IX. ASSIGNMENT OF LIMITED MEMBER'S INTEREST
The Company interest of a Limited Member shall be represented
by a Certificate of Participation. The form and content of the
Certificate of Participation shall be determined by the Managing
Member. The Company interest of a Limited Member may not be
assigned, pledged, mortgaged, sold or otherwise disposed of, and no
Limited Member shall have the right to substitute an assignee in his
or her place, except as provided in this Article IX.
9.1 LIMITED MEMBERS.
(a) Other than pursuant to a Permitted Transfer, no Limited
Member shall transfer or assign any part of his or her interest
in the Company, and no such transfer or assignment shall be
recognized by the Company but shall be null and void, if such
transfer or assignment, when added to all other transfers or
assignments made during the same fiscal year, other than (A)
Permitted Transfers, (B) Qualified Matching Service Transfers, or
(C) transfers pursuant to the repurchase provisions of section
7.7 of this agreement, would constitute transfers of in excess of
two percent (2%) of Company interests outstanding. The Managing
Member may request such information from a transferring Limited
Member as is necessary to determine whether a transfer is a
Permitted Transfer or a Qualified Matching Service Transfer. The
Managing Member may refuse to affect any transfer if the
transferring Limited Member is unable, or refuses, to demonstrate
that the transfer is a Permitted Transfer or Qualified Matching
Service Transfer or if the Managing Member is not able to verify,
to its satisfaction, that the transfer will qualify for a safe
harbor under Treasury Regulation 1.7704-1(e) or (g).
(b) Except as provided in Section 9.1(a), each Limited Member
may transfer or assign all or part of his or her interest in the
Company as provided in the Limited Liability Company Act;
provided, however, that no transfer or assignment shall be
effective until written notice thereof is received by the
Managing Member and the Managing Member approves such transfer or
assignment. Such approval shall be granted unless the Managing
Member determines that the transfer will cause a violation of the
provisions of this agreement, including the percentage
limitations referred to in Section 9.1(a) above. In any case
that a transfer is not permitted for any reason other than
pursuant to the limitations set forth in section 9.1(a), the
decision to prohibit the transfer shall be supported by an
opinion of counsel. All transfers or assignments of interests in
the Company occurring during any month shall be deemed effective
(i.e., the transferee shall become a Limited Member of record) on
the last day of the calendar month in which written notice
thereof is received by the Managing Member.
(c) No assignee of all or part of the Company interests of
any Limited Member shall have the right to become a substitute
Limited Member unless (i) his or her assignor has stated such
intention in the instrument of assignment, (ii) such assignee
shall pay all expenses in connection with such admission as a
substitute Limited Member, as described in Section 9.2 and (iii)
such the transfer to such assignee has been made in compliance
with Section 9.1(a).
(d) No purported sale, assignment or transfer by a Limited
Member of less than two and one-half Units (two Units for
transfers by Qualified Plans and Individual Retirement Plans)
will be permitted or recognized, except by gift, inheritance,
intra-family transfers, family dissolutions, transfers to
Affiliates or by operation of law.
(e) If a Limited Member dies, his or her executor,
administrator or trustee, or if he or she is adjudged incompetent
or insane, his or her committee guardian or conservator, or if he
or she becomes bankrupt, the receiver or trustee of his or her
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estate, shall have the rights of a Limited Member for the purpose
of settling or managing his or her estate and such power as the
decedent or incompetent possessed to assign all or any part of
his or her Units and to join with the assignee thereof in
satisfying conditions precedent to such assignee becoming a
substitute Limited Member. The death, dissolution or
adjudication of incompetency or bankruptcy of a Limited Member
shall not dissolve the Company.
(f) By executing and adopting this agreement, each Limited
Member hereby consents to the admission of additional or
substitute Limited Members by the Managing Member and to any
assignee of his or her Units becoming a substitute Limited
Member.
9.2 DOCUMENTS AND EXPENSES. As a condition to admission as a
substitute Limited Member, an assignee of all or part of the Company
interest of any Limited Member or the legatee or distributee of all
or any part of the Company interest of any Limited Member shall
execute and acknowledge such instruments, in form and substance
satisfactory to the Managing Member, as the Managing Member shall
deem necessary or advisable to effectuate such admission and to
confirm the agreement of the person being admitted as such
substitute Limited Member to be bound by all of the terms and
provisions of this agreement. Such assignee, legatee or distributee
shall pay all reasonable expenses, not exceeding $100, in connection
with such admission as a substitute Limited Member.
9.3 ACQUIT COMPANY. In the absence of written notice to the
Company of any assignment of a Company interest, any payment to the
assigning Member or his or her executors, administrators or
representatives shall acquit the Company of liability to the extent
of such payment to any other person who may have an interest in such
payment by reason of an assignment by the Member or by reason of
such Member's death or otherwise.
9.4 RESTRICTION ON TRANSFER. Notwithstanding the foregoing
provisions of this Article IX, no sale or exchange of a Company
interest may be made if the interest sought to be sold or exchanged,
when added to the total of all other Company interests sold or
exchanged within the period of 12 consecutive months prior thereto,
would result in the termination of the Company under section 708 of
the Internal Revenue Code of 1986 (or any successor section).
9.5 ENDORSEMENT ON CERTIFICATE. The foregoing provisions
governing the assignment of the Company interest of a Limited Member
shall be indicated by an endorsement on the certificate evidencing
such Limited Member's interest in the Company, in the form as
determined from time to time by the Managing Member.
X. DEATH, WITHDRAWAL, EXPULSION AND REPLACEMENT OF THE MANAGING
MEMBERS
10.1 DEATH. In the event of the death of the Special
Managing Member, the estate of the Special Managing Member shall
assume all of his obligations under this agreement and be
responsible for their discharge. The estate may elect to withdraw
from the Company only upon satisfaction of the conditions in Section
10.2 applicable to the Special Managing Member.
10.2 WITHDRAWAL. The Managing Member may not withdraw from
the Company without first providing 90 days' written notice to the
Limited Members of its intent to so withdraw and providing a
substitute Managing Member to the Company that shall be accepted by
a vote of not less than a majority, by interest, of the Limited
Members (excluding any Limited Company Units held by any Managing
Member for its own account); provided, however, that nothing in this
agreement shall be deemed to prevent the merger, consolidation or
reorganization of the Managing Member into or with a successor
entity controlled by, or under common control with, a Managing
Member, and such successor entity shall be deemed to be the Managing
Member of the Company for all purposes and effects and shall succeed
to and enjoy all rights and benefits and bear all obligations and
burdens conferred or imposed hereunder upon the Managing Member.
The Limited Members shall vote to accept or reject the proposed
substitute Managing Member in person or by proxy at a meeting called
by the Managing Member for such purpose in accordance with Section
11.1 of this agreement.
The Special Managing Member may not withdraw from the Company
prior to December 31, 2000.
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10.3 EXPULSION. A Managing Member shall be expelled without
further action for "cause," which means (1) final judicial
determination or admission of its bankruptcy or insolvency, (2)
withdrawal from the Company without providing a substitute Managing
Member in accordance with Section 10.2 or (3) final judicial
determination that it (i) was grossly negligent in its failure to
perform its obligations under this agreement, (ii) committed a fraud
upon the Members or upon the Company, (iii) committed a felony in
connection with the management of the Company or its business or
(iv) was in material breach of its obligations under this agreement.
This section does not limit the right of the Limited Members to
remove the Managing Members upon a majority vote of the Limited
Members.
10.4 REMOVAL AND REPLACEMENT OF MANAGING MEMBERS. In the
event of (i) the wrongful withdrawal of a Managing Member or the
expulsion of a Managing Member under circumstances that the Company
lacks a Managing Member or (ii) the written proposal of Limited
Members holding 10% or more of the issued and outstanding Units, and
upon providing not less than 10 nor more than 60 days' written
notice by certified mail to all Members, the Limited Members may
call a meeting of the Company for the purpose of removing or
replacing any or all of the Managing Members. At such meetings, any
of the Managing Members may be removed or replaced without cause by
a vote (rendered in person or by proxy) of a majority, by interest,
of the Limited Members (excluding Units held by the Managing Members
for their own accounts).
10.5 PAYMENT FOR REMOVED MANAGING MEMBER'S INTEREST. Upon the
expulsion, withdrawal or removal of a Managing Member, the Company
shall pay to the terminated Managing Member all amounts then accrued
and owing to the terminated Managing Member and an amount equal to
the then present fair market value of the terminated Managing
Member's interest in the Company determined by agreement of the
terminated Managing Member and the Company, or, if they cannot
agree, by arbitration in accordance with the then current rules of
the American Arbitration Association. The expense of arbitration
shall be borne equally by the terminated Managing Member and the
Company. The fair market value of the terminated Managing Member's
interest shall be the amount the terminated Managing Member would
receive upon dissolution and termination of the Company assuming
that such dissolution or termination occurred on the date of the
terminating event and the assets of the Company were sold for their
then fair market value without any compulsion on the part of the
Company to sell such assets. In the case of a voluntary withdrawal,
the withdrawing Managing Member shall be paid the fair market value
of its or his interest by the issuance by the Company of a non-
interest bearing unsecured promissory note providing for payment of
principal from distributions that the withdrawing Managing Member
otherwise would have been entitled to receive under this agreement
had such Managing Member not withdrawn. In the case of an
involuntary termination, the terminated Managing Member shall be
paid the fair market value of its or his interest by the issuance by
the Company of a promissory note with a five year maturity payable
in five equal installments of principal and interest at the
prevailing market rate of interest.
10.6 FAILURE TO ADMIT SUBSTITUTE MANAGING MEMBER. In the
event that a substitute Managing Member has not been appointed and
admitted as provided in Section 10.4 so that there is no Managing
Member acting, the Company shall then be dissolved, terminated and
liquidated.
XI. AMENDMENT OF AGREEMENT AND MEETINGS
11.1 GENERAL. Either Managing Member may, at any time,
propose an amendment to this agreement and shall notify all Members
thereof in writing, together with a statement of the purpose(s) of
the amendment and such other matters as the Managing Member deems
material to the consideration of such amendment. If such proposal
does not adversely affect the rights of the Limited Members, such
proposal shall be considered adopted and this agreement deemed
amended. At any time, Limited Members holding not less than 10% of
the issued and outstanding Units may propose an amendment to this
agreement, or a meeting of Limited Members to consider any other
proposal for which the Limited Members may vote hereunder, including
the sale of all or substantially all of the assets of the Company.
Upon the request in writing to the Managing Member of any person
entitled to call a meeting, or in the event a proposal of a Managing
Member adversely effects the rights of Limited Members, or in the
event of objection by 10% of Limited Members by interest to such a
proposal, the Managing Member shall call a special meeting of all
Members, in each case at a location convenient to Limited Members,
to consider the proposal at the time requested by the person
requesting the meeting which shall be not less than 15 nor more than
60 days after receipt of such request. Written notice of the
meeting shall be given to all Members either personally or by
certified mail not less than 10 nor more than 60 days before the
meeting, but in any case where a meeting is duly called by request
of Limited Members, not more than 10 days after receipt of such
request. Included in the notice shall be a detailed statement of
A-23
the action proposed, including a verbatim statement of the wording
of any resolution or amendment proposed. The notice shall provide
that Limited Members may vote in person or by proxy. The
affirmative vote of a majority, by interest, of the Limited Members
(excluding any Units held by the Managing Members for their own
accounts) shall decide the matter, without the consent of the
Managing Members. In any event, however, no such amendment shall
affect the allocation of economic interests to the Members or alter
the allocation of Company management responsibilities and control
without the approval of each Managing Member and a majority by
interest, of the Limited Members, except as otherwise provided in
Article X.
11.2 ALTERNATIVE TO MEETINGS. As an alternative to voting at
meetings of the Company pursuant to this and other Articles of this
agreement, the Limited Members may consent to and approve by written
action any matter that the Limited Members may consent to and
approve by vote at a meeting. In order to consent to and approve
the matter, the same percentage of Limited Members, by interest,
must sign the written action as is required by vote at a meeting;
provided, however, that written notice is given to all Members at
least 15 days before solicitation of signatures is begun.
XII. DISSOLUTION AND LIQUIDATION
12.1 EVENTS CAUSING DISSOLUTION. The Company shall be
dissolved only upon the occurrence of one or more of the following
events:
(a) the expiration of the term set forth in Section 1.4;
(b) the occurrence of any event that, under the laws of the
jurisdictions governing the Company shall dissolve the
Company;
(c) the bankruptcy of the Company or any of the Managing
Members;
(d) the withdrawal or the expulsion of a Managing Member if a
substitute Managing Member has not been timely admitted
as provided in Article X, with the result that there is no
Managing Member acting;
(e) the decree of court that other circumstances render a
dissolution of the Company equitable or required by law;
(f) the sale or other disposition of all or substantially all
of the assets of the Company; and
(g) at any time by the affirmative vote of a majority, by
interest, of the Limited Members (excluding Units held
by the Managing Members for their own accounts) at a
meeting called in accordance with Section 11.1 of this
agreement.
12.2 CONTINUATION OF BUSINESS. Except as provided in Section
12.3, upon the dissolution of the Company for any reason, the
business of the Company and title to the property of the Company
shall be vested in the Company continuing the business. Upon any
such dissolution no Member, nor his or her legal representatives,
shall have the right to an account of his or her interest as against
the Company continuing the business, and no Member, nor his or her
legal representatives, as against the Company continuing the
business, shall have the right to have the value of his or her
interest as of the date of dissolution ascertained nor have any
right as a creditor or otherwise with respect to the value of his or
her interest.
12.3 LIQUIDATION AND WINDING UP. If dissolution of the
Company should be caused by reason of (a) an event that makes it
unlawful for the business of the Company to be carried on or for the
Members to carry it on in the Company, (b) the bankruptcy of the
Company, (c) the withdrawal or expulsion of a Managing Member and no
substitute Managing Member has been timely admitted as provided in
Article X, with the result that there is no Managing Member acting,
(d) a decree of court that other circumstances render a dissolution
and winding up of the affairs of the Company equitable or required
by law, (e) the sale of all or substantially all of the assets of
the Company, (f) the express will of Limited Members as provided in
Section 12.1(g) above, the Company shall be liquidated and the
Managing Member (or the person or persons selected by a decree of
court to carry out the winding up of the affairs of the Company)
shall wind up the affairs of the Company.
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The Managing Member or the person winding up the affairs of
the Company shall promptly proceed to liquidate the Company. No
distribution upon liquidation in kind of property and assets shall
be made to Limited Members. In settling the accounts of the
Company, the assets and the property of the Company shall be
distributed in the following order of priority:
(a) To the payment of all debts and liabilities of the
Company, including loans by Members that are secured by
mortgages, but excluding any other loans or advances that may
have been made by the Members to the Company, in the order of
priority as provided by law;
(b) To the establishment of any reserves deemed necessary by
the Managing Member or the person winding up the affairs of the
Company for any contingent liabilities or obligations of the
Company;
(c) To the repayment of any unsecured loans or advances that
may have been made by any Members to the Company in the order of
priority as provided by law;
(d) Any remaining balance will be distributed to the Members
pro rata based on each Member's positive capital account balance,
after giving effect to allocations pursuant to Sections 5.1 and
5.3 and after taking into account all capital account adjustments
for the Company taxable year during which liquidation occurs
(other than those made pursuant to this Section 12.3(d)).
XIII. MISCELLANEOUS PROVISIONS
13.1 INTERPRETATION. The terms and provisions of this
agreement shall be governed by and construed in accordance with the
laws of the State of Delaware. All references herein to Articles
and Sections refer to Articles and Sections of this agreement. All
Article and Section headings are for reference purposes only and
shall not affect the interpretation of this agreement. The use of
the masculine gender, for all purposes of this agreement, shall be
deemed to refer to both male and female Members.
13.2 NOTICE. Any notice given in connection with the
business of the Company shall be duly given if mailed, by certified
or registered mail, postage prepaid: if to the Company, to the
principal office of the Company set forth in Section 1.3 or to such
other address as the Company may hereafter designate by notice to
the Members; if to the Managing Member or the Special Managing
Member, to the address set forth in Section 1.3 or such other
address as such Managing Members may hereafter designate by notice
to the Company; if to the Limited Members, to the addresses set
forth in the subscription agreement executed by each Limited Member
or to such other address as such Limited Members may hereafter
designate by notice to the Company.
13.3 SUCCESSORS AND ASSIGNS. Except as herein otherwise
provided to the contrary, this agreement shall be binding upon and
inure to the benefit of the parties hereto and their personal
representatives, assigns and successors.
13.4 COUNTERPARTS. This agreement may be executed in several
counterparts, and all so executed shall constitute one agreement,
binding on all parties hereto, notwithstanding that all of the
parties are not signatory to the original or the same counterpart.
13.5 SEVERABILITY. In the event that any provision of this
agreement shall be held to be invalid, the same shall not affect the
validity of the remainder of this agreement or the validity or the
formation of the Company as a limited Company under the Limited
Liability Company Act.
IN WITNESS WHEREOF, this agreement has been executed as of the
______ day of _____________________1998.
LIMITED MEMBERS MANAGING MEMBERS
I. By AEI Fund Management XXI, Inc., AEI Fund Management XXI, Inc.
A-25
attorney-in-fact Managing Member
By________________________ By____________________________
Robert P. Johnson, President Robert P. Johnson, President
___________________________
Robert P. Johnson,
Special Managing Member
A-26
EXHIBIT B
PRIOR PERFORMANCE TABLES
The information presented in the following tables represents the
historical experience of all public real estate programs organized by
the Manager or their Affiliates during the periods indicated. Limited
Members in the Fund should not assume that they will experience returs
if any, comparable to those experienced by investors in such prior real
estate programs. Investors will have no interest in the assets or
operations of the Managing Members.
Additional information relating to the performance of prior
programs is contained in Part II of the Registratioin Statement, of
which this Prospectus is a part of, that has been filed with the
Securities and Exchange Commission. Such information may be
obtained by contacting Mr. Robert P. Johnson, President, AEI Fund
Management XXI, Inc., 1300 Minnesota World Trade Center, 30 East
Seventh Street, Saint Paul, Minnesota 55101.
The programs included in the following tables have investment
objectives similiar to those of the Partnership, including protection
of capital, distribution of partially "tax sheltered" cash flow
from operations, and capital appreciation.
Table Index Description Page
I Experience in Raising and Investing Funds B-2
II Compensation to Sponsors B-3
III Operating Results of Prior Partnerships B-4
IV Results of Completed Programs B-7
V Sales or Disposals of Properties B-8
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(Unaudited)
The following table provides information at December 31, 1997, as to the
experience of the General Partners and their Affiliates in raising and
investing funds with respect to all prior public programs closed in the
last five years.
AEI AEI
Net Lease Net Lease AEI AEI
Income & Income & Income & Income &
Growth Growth Growth Growth
Fund XIX Fund XX Fund XXI Fund XXII
Dollar Amount Offered $30,000,000 $24,000,000 $24,000,000 $24,000,000
Dollar Amount Raised $21,151,928 $24,000,000 $24,000,000 $ 7,655,996
Percentage of Amount
Raised 100.0% 100.0% 100.0% 100.0%
Less Offering Expenses:
Selling Commissions
and Discounts 7.0 8.0 8.0 8.0
Organizational
Expenses 7.3 5.7 5.6 7.0
Other (a) 4.2 2.2 4.3 2.3
Less Reserves 0.1 0.1 0.1 .1
----------- ----------- ----------- ------------
Percent Available
for Investment 81.4% 84.0% 82.0% 82.6%
=========== =========== =========== ============
Acquisition Costs:
Prepaid Items and
Fees Related
to Purchase of
Property 0.0% 0.0% 0.0% 0.0%
Investment in
Properties (b) 81.4 84.0 73.2(c) 10.0(c)
Acquisition Fees 0.0 0.0 0.0 0.0
----------- ----------- ----------- -----------
Total Acquisition Cost 81.4% 84.0% 73.2% 10.0%
=========== =========== =========== ===========
Percent Leverage 0.0% 0.0% 0.0% 0.0%
Date Offering Began Feb. 91 Jan. 93 Feb. 95 Jan. 97
Length of Offering
(months) 24 24 24 (d)
Months to Invest 90% of
Amount Available for
Investment (measured
from beginning of
offering) 34 38 36 (c)
(a) Represents distributions in excess of net cash flow (return of capital).
(b) Includes cash down payments and capitalized costs and expenses related
to the purchase of properties, including the cost of appraisals,
attorney's fees, expenses of personnel in investigating properties, and
overhead allocated to such activities.
(c) Acquisitions are in process.
(d) Represents subscriptions accepted through December 31, 1997. Offering
had not closed as of December 31, 1997.
B-2
TABLE II
COMPENSATION TO SPONSORS
(Unaudited)
The following table provides information as to the compensation paid to
the General Partners and their Affiliates during the period from February,
1991 to December 31, 1997 for all prior public programs closed in the last
five years.
AEI AEI
Net Lease Net Lease AEI AEI
Income & Income & Income & Income &
Growth Growth Growth Growth
Fund XIX Fund XX Fund XXI Fund XXII
Type of Compensation
Date Offering Commenced Feb. 91 Jan. 93 Feb. 95 Jan. 97
Dollar Amount Raised $21,151,928 $24,000,000 $24,000,000 $ 7,655,996
Amount Paid to Sponsors
From Proceeds of Offering:
Underwriting Fees (a) 407,378 471,307 466,013 157,120
Acquisition Expenses
D purchase option on
property 0 0 0 0
D real estate
commission 0 0 0 0
D expense
reimbursement 931,909(c) 793,843(c) 516,519(c) 87,531(c)
Organization Offering
Expenses 345,490 227,451 359,605 153,494
Dollar Amount of Cash
Generated From
Operations Before
Deducting Payments
to Sponsors 10,317,099 7,164,836 2,968,812 115,975
Amount Paid to Sponsors
From Operations:
Property Management
Fees (b) 0 0 0 0
Partnership
Management Fees (b) 0 0 0 0
Reimbursements 1,623,883 1,099,934 625,158 137,864
Leasing Commissions 0 0 0 0
Participation in Cash
Distributions 98,322 66,085 33,800 5,331
Dollar Amount of Property
Sales and Refinancing
Before Deducting
Payments to Sponsors:
- cash 8,607,297 3,548,896 520,790 0
- notes 2,216,982 0 0 0
Amount Paid to Sponsors
From Property Sales
and Refinancing:
Real Estate
Commissions 0 0 0 0
Incentive Fees 0 0 0 0
Participation in Cash
Distributions 9,537 7,109 3,520 0
(a) Does not include fees paid to AEI Incorporated which were reallowed
to participating dealers.
(b) Although not paid a fixed fee for property management and
partnership management, the General Partners and Affiliates were
reimbursed at their Cost for the provision of such services. Such
reimbursements are reflected under the line item "Amount Paid to
Sponsors From OperationsDReimbursements."
(c) The Partnerships received reimbursements from the lessees in the
form of financing fees, commitment fees and expense reimbursements
to offset these costs. The reimbursements received by Fund XIX,
Fund XX, Fund XXI and Fund XXII totaled $627,692, $355,010, $342,001
and $11,414, respectively.
B-3
<TABLE>
TABLE III
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
The following tables provide information as to the results of all prior
programs closed in the past five years for each year of the five years (or
from inception if formed after January 1, 1992) ended December 31, 1997.
<CAPTION>
AEI NET LEASE INCOME & GROWTH FUND XIX
Years Ended December 31
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Gross Revenues from Operations $ 1,837,921 $ 2,407,235 $ 2,282,282 $ 2,124,542 $ 1,792,599
Profit on Sale of Properties 155,035 431,484 969,054 571,927 77,703
Less:
Operating Expenses 291,635 291,636 292,268 352,591 360,253
Depreciation 194,173 373,799 369,226 340,721 313,146
Real Estate Impairment 0 0 0 0 1,310,484
Minority Interest in Net
Operating Income 58,188 165,801 311,287 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ 1,448,960 $ 2,007,483 $ 2,278,555 $ 2,003,157 $ (113,581)
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 1,210,836 $ 1,470,087 $ 1,206,527 $ 1,500,668 $ 952,997
-from gain on sale 157,420 438,278 933,622 588,768 93,755
=========== =========== =========== =========== ===========
Cash Generated (Deficiency)From Operations $ 1,158,331 $ 2,099,865 $ 1,466,120 $ 1,929,889 $ 1,423,151
Cash Generated From Sales 574,859 1,765,130 5,367,636 1,334,525 675,838
Cash Generated From Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 1,733,190 3,864,995 6,833,756 3,246,414 2,098,989
Less: Cash Distributions to Investors
-from operating cash flow 1,158,331 1,915,568 1,466,120 1,799,923 1,423,151
-from sales and refinancing 0 165,972 419,246 121,458 247,028
-from cash reserves (a) 735,571 0 224,365 0 109,996
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (160,712) 1,783,455 4,724,025 1,325,033 318,814
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (160,712) $ 1,783,455 $ 4,724,025 $ 1,324,787 $ 318,814
=========== =========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 58 69 57 70 45
-from recapture 8 7 23 4 1
Capital Gain (Loss) 0 13 20 24 3
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 69 94 99 90 0
-Return of Capital 21 3 0 0 84
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 8 20 6 12
-Refinancing 0 0 0 0 0
-Operations 55 89 69 84 67
-Cash Reserves (a) 35 0 10 0 5
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 0 100%
</TABLE>
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average unit outstanding.
<TABLE>
B-4
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
<CAPTION>
AEI NET LEASE INCOME & GROWTH FUND XX
Years Ended December 31
1993 1994 1995 1996 1997
<S> <C> <C> <C> <C> <C>
Gross Revenues from Operations $ 139,288 $ 1,046,839 $ 1,852,292 $ 2,359,797 $ 2,003,892
Profit on Sale of Properties 0 0 225,180 87,281 472,575
Less:
Operating Expenses 114,321 297,038 292,122 255,505 354,554
Depreciation 6,008 124,146 251,092 381,794 390,066
Real Estate Impairment 0 0 0 0 626,800
Minority Interest in Net Operating Income 0 0 19,454 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ 18,959 $ 625,655 $ 1,514,804 $ 1,809,779 $ 1,105,047
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 127,265 $ 809,315 $ 1,275,827 $ 1,720,326 $ 1,274,296
-from gain on sale 0 0 223,456 85,640 469,188
=========== =========== =========== =========== ===========
Cash Generated (Deficiency)From Operations $ 126,644 $ 637,370 $ 1,583,637 $ 2,145,303 $ 1,604,421
Cash Generated From Sales 0 0 988,838 461,077 2,098,981
Cash Generated From Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 126,644 637,370 2,572,475 2,606,380 3,703,402
Less: Cash Distributions to Investors
-from operating cash flow 64,800 637,370 1,467,084 2,034,864 1,604,421
-from sales and refinancing 0 0 486,375 100,571 124,011
-from cash reserves (a) 0 216,850 0 0 388,234
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 61,844 (216,850) 619,016 470,945 1,586,736
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 61,844 $ (216,850) $ 619,016 $ 470,945 $ 1,586,736
=========== =========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 28 58 53 72 53
-from recapture 0 0 2 1 4
Capital Gain (Loss) 0 0 7 3 15
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 4 45 63 75 46
-Return of Capital 10 16 18 14 43
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 20 4 5
-Refinancing 0 0 0 0 0
-Operations 14 45 61 85 68
-Cash Reserves (a) 0 16 0 0 16
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 0 98%
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average Unit outstanding.
</TABLE>
<TABLE>
B-5
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
<CAPTION>
AEI INCOME & GROWTH FUND XXI
August 31, 1994
(Operations Commenced) Years Ended December 31
to December 31, 1994 1995 1996 1997
<S> <C> <C> <C> <C>
Gross Revenues from Operations $ 0 $ 263,399 $ 1,341,753 $ 1,513,094
Profit on Sale of Properties 0 0 0 106,551
Less:
Operating Expenses 2,915 144,180 278,563 348,934
Depreciation 0 11,687 150,958 251,272
Real Estate Impairment 0 0 0 580,200
----------- ----------- ----------- -----------
Net Income (Loss)-GAAP Basis $ (2,915) $ 107,532 $ 912,232 $ 439,239
=========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 0 $ 245,581 $ 1,135,292 $ 937,374
-from gain on sale 0 0 0 102,599
=========== =========== =========== ===========
Cash Generated (Deficiency) From Operations $ (14) $ 171,812 $ 1,098,924 $ 966,562
Cash Generated From Sales 0 0 0 520,790
Cash Generated From Refinancing 0 0 0 0
----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing (14) 171,812 1,098,924 1,487,352
Less: Cash Distributions to Investors
-from operating cash flow 0 171,812 1,098,924 966,562
-from sales and refinancing 0 0 0 352,009
-from cash reserves (a) 0 21,611 75,670 720,708
----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (14) (21,611) (75,670) (551,927)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0
----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (14) $ (21,611) $ (75,670) $ (551,927)
=========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 0 35 64 39
-from recapture 0 0 0 0
Capital Gain (Loss) 0 0 0 4
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 0 15 52 18
-Return of Capital 0 13 14 66
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 0 14
-Refinancing 0 0 0 0
-Operations 0 25 62 40
-Cash Reserves (a) 0 3 4 30
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 0 0 99%
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average Unit outstanding.
</TABLE>
B-6
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PARTNERSHIPS
(Unaudited)
AEI INCOME & GROWTH FUND XXII
July 31, 1996 Year Ended
(Operations Commenced) December 31,
to December 31, 1996 1997
Gross Revenues from Operations $ 0 $ 116,807
Profit on Sale of Properties 0 0
Less:
Operating Expenses 357 138,339
Depreciation 0 668
Real Estate Impairment 0 0
----------- -----------
Net Loss - GAAP Basis $ (357) $ (22,200)
=========== ===========
Taxable Income (Loss):
-from operations $ 0 $ 114,913
-from gain on sale 0 0
=========== ===========
Cash Generated (Deficiency)From Operations $ (57) $ 139,614
Cash Generated From Sales 0 0
Cash Generated From Refinancing 0 0
----------- -----------
Cash Generated From Operations,
Sales and Refinancing (57) 139,614
Less: Cash Distributions to Investors
-from operating cash flow 0 77,357
-from sales and refinancing 0 0
-from cash reserves (a) 0 0
----------- -----------
Cash Generated (Deficiency)
After Cash Distributions (57) 62,257
Less: Special Items (Not Including
Sales and Refinancing) 0 0
----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ (57) $ 62,257
=========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 0 30
-from recapture 0 0
Capital Gain (Loss) 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 0 0
-Return of Capital 0 20
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0
-Refinancing 0 0
-Operations 0 20
-Cash Reserves (a) 0 0
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 0 100%
(a) Represents initial capital or cash retained from prior years' cash flow.
(b) Based on an investment of a weighted average Unit outstanding.
B-7
TABLE IV
RESULTS OF COMPLETED PROGRAMS
None of the public partnerships sponsored by the General
Partners or their Affiliates have completed operations.
B-8
<TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
The following table provides information with respect to
sales or disposals of property by prior programs during the past
three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Taco Cabana
Income & Growth Waco,
Fund XIX Texas (b) May 92 Jan. 95 138,351 0 0 0 138,351 0 95,180 95,180 34,648
AEI Real Estate Hardee's
Fund 85-A Sierra Vista,
Arizona July 86 Mar. 95 296,020 0 0 0 296,020 0 580,050 580,050 710,275
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado(b) Dec. 92 Mar. 95 141,542 0 0 0 141,542 0 111,589 111,589 30,721
AEI Net Lease SportsTown
Income & Growth Greensboro,
Fund XIX North
Carolina(c) May 94 Apr. 95 2,942,532 0 341,701 0 3,284,233 0 2,917,284 2,917,284 295,998
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado(b) Dec.92 June 95 299,759 0 0 0 299,759 0 235,846 235,846 71,105
AEI Net Lease Taco Cabana
Income & Growth Waco,
Fund XIX Texas(b) May 92 June 95 131,257 0 0 0 131,257 0 93,637 93,637 39,535
AEI Net Lease Applebee's
Income & Growth Aurora,
Fund XIX Colorado(b) Dec.92 June 95 216,443 0 0 0 216,443 0 173,417 173,417 52,344
AEI Real Estate Cheddar's
Fund 86-A Columbus,
Ohio(d) June 90 July 95 314,826 0 0 0 314,826 0 306,711 306,711 201,737
</TABLE> B-9
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C>
AEI Real Estate Cheddar's
Fund XVIII Columbus,
Ohio (d) June 90 July 95 1,259,320 0 0 0 1,259,320 0 1,306,192 1,306,192 805,116
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 July 95 238,320 0 0 0 238,320 0 185,056 185,056 46,450
AEI Real Estate Fair Muffler
Fund 85-A Ashwaubenon,
Wisconsin Oct. 85 July 95 299,874 0 0 0 299,874 0 230,134 230,134 311,572
AEI Net Lease Black-Eyed Pea
Income & Growth Davie,
Fund XIX Florida Aug. 94 July 95 184,971 0 1,556,982 0 1,741,953 0 1,781,075 1,781,075 209,831
AEI Real Estate Applebee's
Fund 86-A Fort Myers,
Florida Feb. 88 July 95 1,646,608 0 0 0 1,646,608 0 1,179,405 1,179,405 1,152,645
AEI Real Estate Applebee's
Fund XVI Columbia,
South
Carolina(e) May 88 July 95 990,453 0 0 0 990,453 0 723,823 723,823 716,868
AEI Real Estate Applebee's
Fund XVII Columbia,
South
Carolina(e) May 88 July 95 715,545 0 0 0 715,545 0 534,973 534,793 516,452
AEI Net Lease HomeTown Buffet
Income & Growth Albuquerque,
Fund XX New Mexico(b)Sept.93 Aug. 95 365,678 0 0 0 365,678 0 309,413 309,413 70,539
</TABLE> B-10
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real Estate Hardee's
Fund 85-A Wayne,
Nebraska Dec. 85 Aug. 95 474,530 0 0 0 474,530 0 447,944 447,944 619,736
AEI Real Estate Applebee's
Fund XVII Hampton,
Virginia July 88 Aug. 95 1,747,127 0 0 0 1,747,127 0 1,287,072 1,287,072 1,326,976
AEI Real Estate Applebee's
Fund XVIII Memphis,
Tennessee Aug. 89 Sept. 95 1,444,822 0 0 0 1,444,822 0 1,126,919 1,126,919 951,090
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Sept. 95 215,211 0 0 0 215,211 0 163,548 163,548 41,808
AEI Net Lease HomeTown Buffet
Income& Growth Albuquerque,
Fund XX New Mexico(b) Sept.93 Oct. 95 180,622 0 0 0 180,622 0 136,866 136,866 33,862
AEI Net Lease HomeTown Buffet
Income& Growth Albuquerque,
Fund XX New Mexico(b) Sept.93 Oct. 95 270,352 0 0 0 270,352 0 207,742 207,742 51,603
AEIReal Estate Jiffy Lube
Fund XVI Dallas,
Texas(e) Dec. 87 Oct. 95 161,218 0 0 0 161,218 0 154,781 154,781 146,941
AEIReal Estate Jiffy Lube
Fund XVII Dallas,
Texas(e) Mar. 88 Oct. 95 483,653 0 0 0 483,653 0 454,300 454,300 396,126
</TABLE> B-11
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEIReal Estate Jiffy Lube
Fund XVI Garland,
Texas(e) Dec. 87 Oct. 95 322,443 0 0 0 322,443 0 301,884 301,884 277,244
AEIReal Estate Jiffy Lube
Fund XVII Garland,
Texas (e) Feb. 88 Oct. 95 322,442 0 0 0 322,442 0 303,108 303,108 265,759
AEIReal Estate Applebee's
Fund XVII Richmond,
Virginia Sept.88 Oct. 95 1,755,975 149,463 0 0 1,905,438 0 1,375,732 1,375,732 1,291,422
AEIReal Estate Applebee's
Fund XVII Virginia Beach,
Virginia(b) Oct. 88 Nov. 95 1,496,613 0 0 0 1,496,613 0 1,106,638 1,106,638 1,087,649
AEINetLease HomeTown Buffet
Income&Growth Albuquerque,New
FundXIX Mexico(b) Sept.93 Dec. 95 172,186 0 0 0 172,186 0 138,494 138,494 36,594
AEI Net Lease Applebee's
Income &Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Dec. 95 171,714 0 0 0 171,714 0 126,414 126,414 35,449
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky(b) Jun. 93 Dec. 95 172,924 0 0 0 172,924 0 134,587 134,587 40,579
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky(b) Jun. 93 Dec. 95 172,910 0 0 0 172,910 0 134,586 134,586 40,579
</TABLE> B-12
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Lease Auto Max
Income & Growth St. Paul,
Fund 84-A Minnesota May 85 Mar. 96 327,622 0 0 0 327,622 0 302,540 302,540 436,484
AEI Real Estate Super 8
Fund XV Hot Springs,
Arkansas(f) Apr.88 Mar. 96 663,386 0 0 0 663,386 0 581,541 581,541 635,940
AEI Real Estate Super 8
Fund XVI Hot Springs,
Arkansas(f) Apr.88 Mar. 96 663,386 0 0 0 663,386 0 583,653 583,653 635,834
AEI Net Lease HomeTown Buffet
Income &Growth Tucson,
Fund XIX Arizona(b) Jun.93 Apr. 96 201,357 0 0 0 201,357 0 164,251 164,251 55,127
AEI RealEstate Office Building
Fund 86-A Kearney,
Nebraska Dec.86 Apr. 96 329,785 0 0 0 329,785 0 434,623 434,623 236,988
AEI Net Lease Applebee's
Income& Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 Apr. 96 86,495 0 0 0 86,495 0 63,334 63,334 22,161
AEI RealEstate Taco Cabana
Fund XVIII New Braunfels,
Texas May 92 May 96 962,298 0 0 0 962,298 0 784,045 784,045 431,686
AEI Net Lease Applebee's
Income &Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 May 96 216,781 0 0 0 216,781 0 158,335 158,335 56,433
</TABLE> B-13
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net Lease Auto Max
Income& Growth St. Paul,
Fund 84-A Minnesota May 85 May 96 401,778 9,254 0 0 411,032 60,000 340,650 400,650 558,426
AEI Net Lease Applebee's
Income & Growth Temple Terrace,
Fund XIX Florida(b) Oct.93 June 96 87,119 0 0 0 87,119 0 60,501 60,501 21,024
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas(b) July 91 Aug. 96 217,259 0 0 0 217,259 0 158,441 158,441 100,302
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Sept.96 123,933 0 0 0 123,933 0 108,418 108,418 3,925
AEI Real Estate Danny's Family
Fund XVII Car Wash
Phoenix,
Arizona Feb. 89 Sept.96 1,690,844 0 0 0 1,690,844 0 1,688,271 1,688,271 1,544,183
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Sept.96 181,497 0 0 0 181,497 0 152,813 152,813 39,599
AEI Real Estate Taco Cabana
Fund XVIII San Antonio,
Texas,(b) Jul. 91 Oct. 96 173,913 0 0 0 173,913 0 122,467 122,467 80,899
AEI Real Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Oct. 96 147,152 0 0 0 147,152 0 127,551 127,551 5,677
</TABLE> B-14
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C><C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income & Growth Crestview Hills,
Fund XIX Kentucky(b) June 93 Oct. 96 224,036 0 0 0 224,036 0 172,104 172,104 70,701
AEI Net Lease Taco Cabana
Income & Growth Round Rock,
Fund XIX Texas July 94 Nov. 96 303,049 0 660,000 0 963,049 0 784,210 784,210 437,864
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Nov. 96 215,688 0 0 0 215,688 0 152,674 152,674 62,188
AEI Net Lease Arby's/Mrs. Winner's
Income& Growth Smyrna,
Fund XX Georgia(b) May 94 Dec. 96 279,580 0 0 0 279,580 0 240,680 240,680 67,468
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas(b) July 91 Dec. 96 216,663 0 0 0 216,663 0 153,084 153,084 104,707
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Dec. 96 191,781 0 0 0 191,781 0 141,215 141,215 91,618
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Dec. 96 168,333 0 0 0 168,333 0 123,976 123,976 80,435
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Jan. 97 176,383 0 0 0 176,383 0 150,060 150,060 11,427
</TABLE> B-15
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C><C> <C> <C>
AEI Net Lease Applebee's
Income& Growth Temple Terrace,
Fund XIX Florida(b) Oct. 93 Jan. 97 175,838 0 0 0 175,838 0 122,139 122,139 51,877
AEI Net Lease Arby's/Mrs. Winner's
Income &Growth Smyrna,
Fund XX Georgia(b) May 94 Jan. 97 224,838 0 0 0 224,838 0 196,635 196,635 57,179
AEIReal Estate Sizzler
Fund XVI Kings Island,
Ohio(g) Jan. 90 Jan. 97 149,201 0 0 0 149,201 0 468,140 468,140 131,616
AEIReal Estate Sizzler
Fund XVII Kings Island,
Ohio(g) Jan. 90 Jan. 97 315,229 0 0 0 315,229 0 1,048,666 1,048,666 279,192
AEIReal Estate Sizzler
Fund XVIII Kings Island,
Ohio(g) Jan. 90 Jan. 97 19,867 0 0 0 19,867 0 66,093 66,093 17,519
AEIReal Estate Children's World
Fund XV Moreno Valley,
California May 87 Jan. 97 1,301,342 0 0 0 1,301,342 0 963,717 963,717 1,195,705
AEIet Lease Rally's
Income& Growth Brownsville,
Fund XIX Texas July 93 Feb. 97 250,000 0 0 0 250,000 0 281,713 281,713 81,507
AEI Net Lease Rally's
Income& Growth Edinburg,
Fund XIX Texas July 93 Feb. 97 250,000 0 0 0 250,000 0 281,761 281,761 81,528
</TABLE> B-16
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEIReal Estate Automax
Fund XV Minneapolis,
Minnesota June 86 Feb.97 411,993 0 0 0 411,993 0 388,800 388,800 539,623
AEIReal Estate Taco Cabana
Fund XVIII San Antonio,
Texas(b) July 91 Feb.97 192,268 0 0 0 192,268 0 133,503 133,503 95,414
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Mar.97 230,971 0 0 0 230,971 0 175,029 175,029 117,929
AEIReal Estate Champps
Fund XVIII Columbus,
Ohio(b) Aug. 96 Mar.97 220,067 0 0 0 220,067 0 181,887 181,887 10,447
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Mar.97 42,331 0 0 0 42,331 0 36,092 36,092 3,449
AEIReal Estate Applebee's
Fund XVIII Destin,
Florida(b) Nov. 91 Mar.97 231,740 0 0 0 231,740 0 175,028 175,028 118,592
AEIReal Estate Champps
Fund XVIII Columbus,
Ohio(b) Aug. 96 Mar.97 219,568 0 0 0 219,568 0 181,886 181,886 11,039
AEIReal Estate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Mar.97 219,996 0 0 0 219,996 0 187,574 187,574 18,517
</TABLE> B-17
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Apr. 97 185,171 0 0 0 185,171 0 166,517 166,517 53,623
AEI RealEstate Champps
Fund XVIII Columbus,
Ohio(b) Aug. 96 July 97 368,142 0 0 0 368,142 0 304,040 304,040 30,138
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Aug 97 174,495 0 0 0 174,495 0 152,812 152,812 54,721
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida (b) Nov 91 Sept.97 216,157 0 0 0 216,157 0 160,443 160,443 118,263
AEI RealEstate Applebee's
Fund XVIII Destin,
Florida(b) Nov 91 Sept.97 263,568 0 0 0 263,568 0 198,898 198,898 147,315
AEI RealEstate Sizzler
Fund XVIII Fairfield,
Ohio Mar.91 Sept.97 528,476 0 0 0 528,476 0 1,608,265 1,608,265 208,636
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas (b) July 91 Sept.97 267,448 0 0 0 267,448 0 180,533 180,533 143,024
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna
Fund XX Georgia (b) May 94 Sept.97 224,663 0 0 0 224,663 0 180,203 180,203 67,210
</TABLE> B-18
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures<F26>
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b) July 94 Sept.97 135,839 0 0 0 135,839 0 107,517 107,517 37,838
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio (b) Aug. 96 Sept.97 225,622 0 0 0 225,622 0 189,156 189,156 21,417
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas (b) July 91 Oct. 97 226,316 0 0 0 226,316 0 147,978 147,978 118,031
AEI Net Lease Arby's/Mrs. Winner's
Income & Growth Smyrna,
Fund XX Georgia(b) May 94 Oct. 97 169,721 0 0 0 169,721 0 136,955 136,955 51,473
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b0 July 94 Oct. 97 275,421 0 0 0 275,421 0 217,027 217,027 77,008
Net Lease Rio Bravo
Income & Growth St. Paul,
Fund 84-A Minnesota(b) Feb. 85 Oct. 97 177,504 0 0 0 177,504 0 202,961 202,961 267,864
AEI RealEstate Taco Cabana
Fund XVIII San Antonio,
Texas (b) July 91 Oct. 97 226,315 0 0 0 226,315 0 147,977 147,977 118,888
Net Lease Chi-Chi's
Income & Growth Appleton,
Fund 84-A Wisconsin(b) Feb. 85 Nov. 97 276,279 0 0 0 276,279 0 246,174 246,174 398,842
</TABLE> B-19
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI RealEstate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Nov. 97 296,961 0 0 0 296,961 0 237,846 237,846 38,903
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio (b) Aug. 96 Nov. 97 295,168 0 0 0 295,168 0 239,850 239,850 29,608
AEI RealEstate Tractor Supply
Fund XVIII Bristol,
Virginia(b) Apr. 96 Nov. 97 182,816 0 0 0 182,816 0 150,061 150,061 25,256
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio(b) July 94 Dec. 97 227,960 0 0 0 227,960 0 177,891 177,891 66,211
Net Lease Gingham's
Income & Growth St. Charles,
Fund 84-A Missouri(b) July 85 Dec. 97 226,762 0 0 0 226,762 0 232,334 232,334 278,773
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b) July 94 Dec. 97 225,225 0 0 0 225,225 0 175,756 175,756 66,207
AEI Net Lease Applebee's
Income & Growth Middletown,
Fund XX Ohio (b) July 94 Dec. 97 218,596 0 0 0 218,596 0 170,775 170,775 64,386
Net Lease Rio Bravo
Income & Growth St. Paul,
Fund 84-A Minnesota(b) Feb. 85 Dec. 97 271,675 0 0 0 271,675 0 302,919 302,919 404,755
</TABLE> B-20
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Real J.T. McCord's
Estate Fund Irving,
XVI Texas Dec. 87 Dec. 97 741,635 0 0 0 741,635 0 1,147,333 1,147,333 35,207
AEI Net Lease Applebee's
Income & Growth Middletown
Fund XX Ohio(b) July 94 Jan. 98 239,893 0 0 0 239,893 0 177,891 177,891 68,324
AEI Income & Champps
Growth Fund Columbus
XXI Ohio(b) Aug. 96 Jan. 98 227,414 0 0 0 227,414 0 189,156 189,156 26,890
Net Lease Chi-Chi's
Income & Growth Appleton
Fund 84-A Wisconsin(b) Feb. 85 Jan. 98 170,985 0 0 0 170,985 0 153,193 153,193 252,160
AEI Net Lease Champps
Income & Growth Lyndhurst
Fund XX Ohio (b) Apr. 96 Jan. 98 184,032 0 0 0 184,032 0 149,183 149,183 25,949
AEI Net Lease Champps
Income & Growth Columbus,
Fund XXI Ohio(b) Aug. 96 Feb. 98 181,855 0 0 0 181,855 0 132,408 132,408 20,481
AEI Real Estate am/pm
Fund 86-A Mini Market
Carson City,
Nevada Aug. 87 Feb. 98 955,401 0 0 0 955,401 0 779,896 779,896 1,103,787
</TABLE> B-21
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI RealEstate am/pm
Fund XVII Mini Market
Carson City,
Nevada Nov. 88 Feb. 98 850,996 0 0 0 850,996 0 703,871 703,871 872,915
AEI Income & Champps
Growth Fund Columbus,
XXI Ohio (b) Aug. 96 Mar. 98 226,394 0 0 0 226,394 0 165,510 27,455
Net Lease Rio Bravo
Income& Growth St. Paul,
Fund 84-A Minnesota (b) Feb. 85 Apr. 98 198,039 0 0 0 198,039 0 222,627 222,627 302,865
AEI Net Lease Red Line
Income &Growth Burgers
Fund XIX Houston,Texas Feb. 93 Apr. 98 0 0 0 0 0 0 303,629 303,629 104,350
Net Lease Chi-Chi's
Income& Growth Appleton,
Fund 84-A Wisconsin(b) Feb. 85 May 98 123,721 0 0 0 123,721 0 107,267 107,267 180,300
Net Lease Chi-Chi's
Income& Growth Appleton
Fund 84-A Wisconsin (b) Feb. 85 June 98 174,596 0 0 0 174,596 0 149,883 149,883 253,585
AEI RealEstate Tractor Supply
Fund 85-A Maryville,
Tennessee (b) Feb. 96 July 98 136,320 0 0 0 136,320 0 95,494 95,494 24,900
</TABLE> B-22
</PAGE>
<PAGE>
<TABLE>
The following table provides information with respect to sales or
disposals of property by prior programs during the past three years.
<CAPTION>
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and OverExpen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
AEI Income Champps
& Growth Columbus,
Fund XXI Ohio (b) Aug. 96 July 98 227,225 0 0 0 227,225 0 171,422 171,422 34,463
AEI RealEstate Sizzler
Fund 86-A Springboro,
Ohio (d) Aug. 98 July 98 25,000 0 0 0 25,000 0 89,097 89,097 7,608
AEI RealEsate Sizzler
Fund XVIII Springboro,
Ohio (d) Aug. 90 July 98 350,000 0 0 0 350,000 0 1,310,562 1,310,562 120,717
</TABLE>
[FN]
(a) Does not include deduction for partnership general and
administrative expenses not related to the properties.
(b) Sale of less than a majority interest in the property.
(c) The Partnership owned a 92.74194% interest in this property.
(d) This property was owned jointly by AEI Real Estate Funds 86-A and XVIII.
(e) This property was owned jointly by AEI Real Estate Funds XVI
and XVII.
(f) This property was owned jointly by AEI Real Estate Funds XV
and XVI.
(g) This property was owned jointly by AEI Real Estate Funds
XVI, XVII and XVIII.
</FN>
</PAGE> 179
C-1
EXHIBIT C
CERTAIN STATE REQUIREMENTS
The information below sets forth various state law provisions
with respect to financial suitability standards for investors in
certain states. The dealer agreement between AEI Securities and
the investment firms that will solicit purchases of the units
requires that the investment firms diligently make inquiries as
required by law of you to ascertain whether a purchase of the
units is suitable for you. Units will be sold only to investors
who represent, by executing the signature pages attached to this
prospectus, that they meet the suitability standards contained
under the caption "Who May Invest" (at page 7 of this prospectus),
and if applicable, higher standards as set forth in the table
below. The minimum net worth standards in the table exclude the
investor's home, furnishings and automobiles.
IOWA:
The minimum investment for Iowa tax-qualified plans, other
than IRAs and Keoghs, is $2,500.
MISSOURI
Missouri investors must have either (i) a net worth
(excluding home, furniture and automobiles) of at least $60,000
and an annual taxable income of at least $60,000 or (ii)
irrespective of gross income, a net worth of at least $225,000
(determined with the same exclusions.
NEW HAMPSHIRE:
Investors must have (i) a net worth (exclusive of homes, home
furnishings and automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (ii) irrespective of annual
gross income, a net worth of at least $150,000 (determined with
the same exclusions).
PENNSYLVANIA:
The amount of an investor's investment in the Fund may not
exceed 10% of such investor's net worth.
NORTH CAROLINA:
North Carolina investors must have either (i) a net worth
(excluding home, home mortgage, furniture and automobiles) of at
least $60,000 and an annual taxable income of at least $60,000 or
(ii) irrespective of gross income, a net worth of at least
$225,000 (determined with the same exclusions), in each case
without regard to the investment that is proposed.
EXHIBIT D
AEI INCOME & GROWTH FUND 23 LLC
SUBSCRIPTION AGREEMENT
(Including Power of Attorney)
Make Your Check Payable to "Fidelity Bank AEI Fund 23 Escrow"
IMPORTANT REPRESENTATIONS ARE MADE ON THIS FORM. PLEASE
READ CAREFULLY BEFORE SIGNING. PLEASE TYPE OR PRINT.
1. INVESTMENT [ ] Initial Investment [ ] Add-On to Existing Investment
Number of Units Amount of Investment
($1,000 x No. of Units) $
2. OWNERSHIP [ ] Tenants in Common [ ] IRA [ ] Taxable Trust
[ ] Uniform Gift to Minors Act of the State of
[ ] Individual [ ] Community Property [ ] Keogh [ ] Partnership
[ ] Joint Tenants [ ] Other (Explain)
[ ] Pension/Profit Sharing Plan [ ] Non-Taxable Trust Corporation
3. REGISTERED OWNER (Name of Trust, Partnership or Corporation, if
applicable. Give both names if jointly held.)
Last Name(s) First Name(s) Initial(s)
[ ] Mr. [ ] Ms.
[ ] Mr. [ ] Ms.
Mailing Address Street City State Zip Code Phone
Residential Address Street City State Zip Code Phone
4. QUARTERLY DISTRIBUTIONS AUTHORIZATION FOR AUTOMATIC
Please send my distribution checks to the DEPOSITS (ACH) _ Please
following address (Insert "same" if checks include a copy of voided check
are to be sent to mailing address. Insert or savings deposit slip.
name, address, account number and phone I authorize AEI Fund Management,
number if checks are to be sent to a Inc., and Fidelity Bank of Edina,
financial institution.) Minnesota, to initiate variable
entries to my checking or savings
account. This authority will
remain in effect until I notify
AEI in writing to cancel in such
Name and complete address: time as to afford AEI a
reasonable opportunity to act on
the cancellation.
Phone Number
Financial Institution Name and
Address
(Please Print):
Account Type (Circle One):
[ ] Checking [ ] Savings [ ] Other
Account Number:
Office Use Only: Bank Routing No.
Trans. Code
5. DISTRIBUTION REINVESTMENT PLAN (Expires after the offering period.)
Do you wish to participate in the distribution reinvestment plan [ ] Yes [ ] No
(If you elect to participate by checking "Yes," rental income and
other Fund income included in "Net Cash Flow" will not be distributed
to you but instead will be applied to the purchase of additional Units,
or fractional Units, at $1,000 per Unit as long as such purchase continues
to comply with applicable securities laws and the Fund has not
distributed proceeds from sale or refinancing of properties.) UNLESS YOU
DIRECT OTHERWISE, COMMISSIONS OF UP TO 8% AND EXPENSES WILL BE PAID ON
YOUR REINVESTED NET CASH FLOW.
6. INVESTOR REPRESENTATIONS (Each of the following MUST BE INITIALED BY
INVESTOR for this Subscription Agreement to be accepted)
[ ] I have received a copy of the Prospectus of the LLC,
dated (the "Prospectus")*.
[ ] I understand that there will be no public market for the
Units and that it may not be possible to liquidate readily
an investment in the LLC.
[ ] I meet the suitability standards set forth in the Prospectus
under the heading "Who May Invest" and as further specified
in Exhibit C to the Prospectus and am purchasing Units for
my own account.
[ ] I hereby make, constitute and appoint the Managing Member,
or either of them, with full power of substitution, my true
and lawful attorney for the purposes and in the manner
provided in Section 7.5 of the Agreement, which section of
the Agreement is incorporated herein by reference and hereby
made a part hereof.
*Your broker is obligated to provide you with a copy of the
Prospectus five days before you subscribe. If you did not
receive the Prospectus five days in advance, you have the
right to withdraw your subscription until those five days
have elapsed.
NOTE: SIGNATURES AUTHORIZING THIS INVESTMENT MUST APPEAR ON
THE REVERSE SIDE OF THIS FORM.
Please turn over
ANY MISSING SIGNATURES WILL DELAY ORDER PROCESSING.
7. INVESTOR SIGNATURES AND CERTIFICATIONS
IMPORTANT FORM W-9 CERTIFICATION INSTRUCTIONS: YOU MUST CROSS OUT ITEM
(2) BELOW IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON
YOUR TAX RETURN. However, if after being notified by the IRS that you
were subject to backup withholding you received another notification
from the IRS that you are no longer subject to backup withholding, do not
cross out item (2). Under penalties of perjury I certify that:: (1)
The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), AND (2) I am
not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends,
or the IRS has notified me that I am no longer subject to backup
withholding.
IMPORTANT CHECK ONE:
THE INVESTOR IS A UNITED STATES CITIZEN. Check Here [ ]
THE INVESTOR IS A FOREIGN INVESTOR. Check Here [ ]
(Nonresident Alien or Individual, Foreign Corporation,
Foreign Partnership, or Foreign Trust or Estate).
(I/WE ARE AUTHORIZED TO ENTER INTO THIS SUBSCRIPTION AGREEMENT ON BEHALF OF
THE PERSON(s) OR ENTITY(s) LISTED IN 3 ABOVE) NEITHER A BROKER, DEALER,
INVESTMENT ADVISER NOR ANY OF THEIR AGENTS MAY SIGN ON BEHALF OF AN
INVESTOR. (Custodians must sign for custodial accounts. All other forms of
registration must be signed by the investing parties.)
Investor Signature(s) [X] [X]
Print Name & Capacity Print Name & Capacity
Tax ID Number Tax ID Number
Primary
BROKER/DEALER INFORMATION (Registered representative signature required
for processing. Please type or print.)
Broker/Dealer Firm Registered Representative Name
Registered Representative's Office Address
City State Zip Code Phone (including area code)
To substantiate compliance with Appendix F to Article 3, Section 34 of
the NASD's Rules of Fair Practice, the undersigned registered representative
hereby certifies as follows:
1. I have reasonable grounds to believe, based on information obtained from
the Subscriber concerning investment objectives, other investments,
financial situations and needs and other information known to me, that
investment in the Fund is suitable for such Subscriber in light of
income, finnancial position, net worth and other suitability
characteristics.
2. I have discussed with the Subscriber the risks associated with and the
liquidity of an investment in the Fund.
Dated:
Signature Registered Representative
AEI Fund Management XXI, Inc., as Manager AEI Fund Management XXI, Inc.
of the Fund, hereby accepts this
Subscription Agreement this day of By
19 .
ATTEST Its
Return Subscription Agreement to:
AEI Fund Management, Inc.
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, MN 55101
651-227-7333
651-227-7705 (fax)
800-328-3519
CONSENT TO ELECTRONIC DELIVERY OF REPORTS
By initialing one of the boxes below, you will be consenting
to delivery of periodic reports by AEI Income & Growth Fund 23 LLC
to you electronically. These reports would include
<bullet> annual reports that contain audited financial statements;
<bullet> quarterly reports containing unaudited condensed financial
statements;
<bullet> property sales reports; [and
<bullet> your K-1 income tax information].
You have the option of either (1) having these reports sent to the
e-mail address you designate below, or (2) agreeing to download
these reports from our web site once you have been notified by e-
mail that they have been posted. You must have an e-mail address to
use this service.
If you elect to receive these reports electronically, you will
not receive paper copies of the reports in the mail, unless you
later revoke your consent. You may revoke your consent and receive
paper copies at any time by notifying us in writing at:
AEI Securities Incorporated,
1300 Minnesota World Trade Center
30 East Seventh Street
Saint Paul, MN 55101
If you agree to accept reports electronically, please complete
the following enrollment information:
Name of Investor:
E-Mail Address:
(I understand that I must immediately advise the Fund
at the address above if my e-mail address changes)
Form of Delivery (please check one):
Please deliver the full report directly to my e-mail address
above. I understand that the report will be delivered in Word
for Windows 7.0, or in a more current version of Word for
Windows. I understand that if I cannot read this word
processing format, I must immediately inform AEI Income &
Growth Fund 23 LLC at the above address.
Please post the report on your web site, or in a hyperlink
from your web site, and advise me by e-mail to the address
above when it is posted.
Signature(s) X
AEI INCOME & GROWTH FUND 23 LLC
SUBSCRIPTION AGREEMENT INSTRUCTIONS
INVESTOR To purchase Units of the currently effective Limited
INSTRUCTIONS Partnership, complete and sign the Subscription
Agreement and deliver it to your broker, together
with your check. YOUR CHECK SHOULD BE MADE PAYABLE TO:
FIDELITY BANK AEI FUND 23 ESCROW. In order to invest,
it is necessary that all items on the Subscription
Agreement be completed.
1. INVESTMENT Limited Liability Company interests in the Fund are
being offered in units of $1,000. Insert the number of
Units to be purchased, multiply the dollar amount of
the investment ($1,000 x No. of Units). An individual,
partnership, corporation, trust, association or other
legal entity must purchase a minimum of two and one-
half ($2,500) Units. The minimum investment for an
Individual Retirement Account, Keogh Plan or other
Qualified Plan is at least two ($2,000) Units.
According to state law, individuals in Nebraska must
purchase a minimum of five ($5,000) Units.
2. OWNERSHIP Check the appropriate box indicating the manner in
which title is to be held. Please note that the box
checked must be consistent with the number of
signatures appearing in Section 7. (See Instruction
7). In the case of partnerships, corporations,
custodianships or trusts, the box checked must be
consistent with the legal title (registration).
PARTICIPANTS IN IRAS AND KEOGH PLANS SHOULD NOTE THE PURCHASE OF LP UNITS
DOES NOT IN ITSELF CREATE THE PLAN; YOU MUST CREATE THE PLAN THROUGH A
BONAFIDE CUSTODIAN OR TRUSTEE WHO WILL EXECUTE THE SUBSCRIPTION AGREEMENT.
3. REGISTERED Please type or print the exact name (registration)
OWNER that the investor desires on the account. If the
investor is an individual, a partnership or a
corporation, please include in this space the
complete name and title in which the investment
is to be held. If the investor is a trust such as
an IRA or Keogh Plan, please include the name and
address of the trustee and the trust name. In the
case of a trust or custodian investment including
IRAs, Keogh Plans and other trusts or
custodianships, quarterly distributions and
investment correspondence will normally be sent
to the trustee or custodian at the mailing address.
The plan participant will receive correspondence
at home. ALL ACCOUNTS MUST SUPPLY THE INVESTOR'S
RESIDENTIAL ADDRESS (FOR BLUE SKY REGISTRATION
PURPOSES).
4. QUARTERLY After impounds are met, Fidelity Bank will release
DISTRIBUTIONS the interest earned during the impound period to
(Automatic the designated address (distribution reinvestment
deposits does not apply to impound interest).The Partnership
or checks) will then commence distributions of cash available
for distribution to investors. Please insert "same"
if the checks are to be mailed to the mailing
address. Please insert the name and address of the
financial institution as well as the account number,
if checks are to be sent to a bank, savings and loan,
or other financial institution or destination.
For Electronic Direct Deposit through ACH, a voided check or savings
deposit slip is required.
5. DISTRIBUTION Answer the question by checking yes or no if
REINVESTMENT investor elects to participate in the Distribution
Reinvestment Plan.
6. INVESTOR To comply with securities regulations,the investor
REPRESENTATIONS MUST make the representations in this Subscription
Agreement. ALL FOUR SPACES MUST BE INITIALED BY THE
INVESTOR.
7. INVESTOR IRS regulations require our escrow bank to have the
CERTIFICATIONS W-9 SIGNATURES AND certification completed for all
Limited Partners. This certifies that the taxpayer
is not subject to backup withholding. If
certification is not completed, the escrow agent
must legally withhold, and pay to the IRS, 20% of
the taxpayer's escrow interest. Read the Subscription
Agreement carefully for additional W-9 Certification
Instructions. If the investor is a Nonresident Alien
or Individual, Foreign Corporation, Foreign
Partnership or Foreign Trust or Estate, please check
the Foreign Status Certification box. To authorize
the investment, sign in the space(s) provided. If
title is to be held as joint tenancy or tenants in
common, at least two signatures are required. In the
case of community property, only one investor
signature is required (see reverse side for details
on required signatures). ALL INVESTORS AND/OR PLAN
PARTICIPANTS MUST PROVIDE SOCIAL SECURITY NUMBERS.
Trusts, corporations, partnerships, custodians and
estates MUST ADDITIONALLY FURNISH a tax
identification number.
BROKER/DEALER IT IS NECESSARY THAT ALL ITEMS BE FULLY INFORMATION
COMPLETED. INCLUDE REGISTERED REPRESENTATIVE'S NAME
AND BRANCH OFFICE ADDRESS. THE REGISTERED
REPRESENTATIVE MUST SIGN AND DATE WHERE INDICATED
IN ORDER FOR THE APPLICATION TO BE ACCEPTED.
COMPLETE THE REGISTERED REPRESENTATIVE'S TELEPHONE
NUMBER. IN SOME CASES, THE HOME OFFICE MUST ALSO
SIGN THE APPROVAL.
IMPORTANT MISSING SIGNATURES OR INVESTOR REPRESENTATIONS WILL
DELAY ORDER PROCESSING. ORIGINAL SIGNATURES ARE
REQUIRED.
No person has been autorized in
connection with this offering to
give any information or to make any
representation other than those
contained in this Prospectus. This
Prospectus does not constitute an
offer or solicitation in any state
or other jurisdiction to any person 24,000 Units
to whom it is unlawful to make such
offer or solicitation. Neither the
delivery of this Prospectus nor any
sale hereunder shall under any
circumstances create an implication AEI INCOME & GROWTH
that there has been no change in FUND 23 LLC
AEI Fund 23's affairs since the
date hereof. If, however, any
material change in AEI Fund 23's
affairs occurs at any time when
this Prospectus is required to be
delivered, this Prospectus will be
amended or supplemented accordingly. PROSPECTUS
AEI Securities, Inc.
Investors are not to construe
the contents of this prospectus as
legal or tax advice. Each investor
should consult his or her own
counsel, accountant and other
financial advisors (and be
responsible for their fees)
regarding the legal, tax and
investment aspects of this offering.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
Item 27. Exhibits.
EXHIBIT NO. DESCRIPTION
*1.1 Form of Dealer-Manager Agreement
*1.2 Form of Dealer Agreement
*3.1 Certificate of Formation
3.2 Form of Operating Agreement
included as Exhibit A to Prospectus
*5 Opinion of Dorsey & Whitney LLP as to the
legality of the securities being
registered, including consent
8 Opinion of Dorsey & Whitney LLP as to tax
matters, including consent
10 Form of Impoundment Agreement with
Fidelity Bank, Edina, Minnesota
24 Consent of Independent Public Accountants
* Previously Filed
SIGNATURES
In accordance with the requirements of the Securities Act of 1933 the
Registrant certifies that it has reasonable grounds to believe that it meets
the requirements for filing on Form SB-2 and has authorized this Amendment
No. 1 to the Registration Statement to be signed on its behalf by the
undersigned, in the City of St.Paul, State of Minnesota, on January , 1998.
AEI INCOME & GROWTH FUND 23 LLC
By AEI Fund Management XXI, Inc.
Managing Member
By /s/ ROBERT P Johnson
Robert P. Johnson, President
In accordance with the requirements of the Securities Act of 1933, this
Amendment No. 1 to the Registration Statement was signed by the following
persons in the capacities and on the dates stated.
MANAGING MEMBER
AEI Fund Management XXI, Inc. Date
By /s/ ROBERT P JOHNSON Sole Director and January 21, 1999
Robert P. Johnson President (principal
executive officer)
By /s/ MARK E LARSON Chief Financial Officer January 21, 1999
Mark E. Larson and Treasurer (principal
financial and accounting
officer)
INDIVIDUAL Managing Member
By /s/ ROBERT P JONHSON Individual Managing Member January 21, 1999
Robert P. Johnson
AEI INCOME & GROWTH FUND 23 LLC
REGISTRATION STATEMENT
ON FORM SB-2/A
EXHIBITS
Exhibit No. Description Page
*1.1 Form of Dealer-Manager Agreement
*1.2 Form of Dealer Agreement
*3.1 Certificate of Formation
3.2 Form of Operating Agreement
included as Exhibit A to Prospectus
*5 Opinion of Dorsey & Whitney LLP as to
the legality of the securities being
registered, including consent
8 Opinion of Dorsey & Whitney LLP as to
tax matters, including consent
10 Form of Impoundment Agreement with
Fidelity Bank, Edina, Minnesota
24 Consent of Independent Public Accountants
* Previously Filed
AEI Fund Management XXI, Inc.
1300 Minnesota World Trade Center
30 East Seventh Street
St. Paul, Minnesota 55101
Gentlemen:
We have acted as your counsel in connection with the
proposed public offering of up to 24,000 limited liability
company units in AEI Income & Growth Fund 23 LLC (the "Company").
In such capacity we have examined the Registration Statement on
Form SB-2 being filed with the Securities and Exchange Commission
on or about the date hereof (the "Registration Statement"), the
Preliminary Prospectus included in the Registration Statement
(the "Prospectus"), the Operating Agreement included in the
Registration Statement as Exhibit A, and such other additional
instruments and documents as we have deemed necessary or
appropriate for purposes of this opinion. In our examination, we
have assumed the authenticity of original documents, the accuracy
of copies, the genuineness of signatures and the capacity of each
party executing a document to so execute such document.
Our opinion is based upon the facts described in the
Registration Statement and upon facts as they have been
represented to us by you or have been determined by us as of this
date. Any alteration of such facts may adversely affect our
opinion.
Our opinion is based upon existing law and currently
applicable Treasury Department regulations, current published
administrative positions of the Internal Revenue Service (the
"Service") contained in revenue rulings and revenue procedures,
and judicial decisions, all of which are subject to change
prospectively and retroactively. An opinion of counsel is
predicated upon all of the facts and conditions set forth in the
opinion and is based upon counsel's analysis of the statutes,
regulatory interpretations and case law in effect as of the date
of the opinion. It is not a guaranty of the current status of
the law and should not be accepted as a guaranty that a court of
law or an administrative agency will concur in the opinion.
1. Partnership Status
Effective January 1, 1997, the Service substantially revised
the Regulations under Code Section 7701. Under Section 301.7701-
2(b) of the current Regulations, certain specified categories of
business entities are classified as corporations for federal
income tax purposes, as are "associations" under Regulation
Section 301.7701-3. Under Regulation Section 301.7701-2(c), a
partnership means any other type of business entity which has at
least two members.
Under current Regulation Section 301.7701-3, a business
entity which is not classified as a corporation because it
belongs to one of the specified categories of entities (which do
not include a limited liability company, such as AEI Fund 23) (an
"eligible entity") having two or more members can elect to be
classified as an association (and thus taxable as a corporation)
instead of a partnership. Such an entity would then be treated
as a corporation for federal income tax purposes. If an election
is not made as provided in the Regulations, an eligible entity
with two or more members will automatically be classified as a
partnership.
Therefore, assuming AEI Fund 23 will not elect to be
classified as an association under the current Regulations, it is
our opinion that AEI Fund 23 will be classified as a partnership
for federal income tax purposes.
2. Publicly Traded Partnership
The Code defines an entity as a "publicly traded
partnership" if (i) interests in the entity are traded on an
established securities market, or (ii) interests in such entity
are readily tradeable on a secondary market (or the substantial
equivalent thereof). Treasury Regulations issued in November
1995 under Section 7704 of the Code provide that an established
securities market includes an national exchange registered under
the Securities Exchange Act of 1934, or exempted therefrom
because of limited volume, any regional or local exchange or any
inter-dealer quotation system that regularly disseminates firm
buy or sell quotations. The Regulations provide that a
"secondary market" or its "substantial equivalent" exists if
interests in the entity are regularly quoted by any person making
a market in the interests, any person regularly makes available
bid or offer quotes and stands ready to effect buy or sell
transactions at the quoted prices, the holder of a partnership
interest has a readily available regular and ongoing opportunity
to sell or exchange the interest through a public means of
obtaining or providing information of offers to by, sell or
exchange the partnership interest, or there is any other
opportunity to buy, sell or exchange interests in the partnership
in a manner that is comparable to the foregoing.
The Treasury Regulations provide for several "safe harbors"
from the definition of a "publicly traded limited partnership."
Interests in an entity will not be considered readily tradeable
on a secondary market or its substantial equivalent if the
interests traded during the tax year represent two percent or
less of the entity's capital or profits if transfers executed
through a matching service or pursuant to certain redemption and
repurchase agreements are excluded from the calculation.
Generally, transfers of interests by gift, at death, between
family members, as a distribution from a retirement plan, as a
large block, and at original issue, regardless of volume, will be
disregarded for purposes of the safe harbor test above.
The Manager will not list the Units for trading on an
exchange, in the over-the-counter market, or in any inter-dealer
quotation system. Although it is likely that some transfers of
Units will occur, such transfers will be on an individual basis
and will not be negotiated in a time frame comparable to that
which would be available on a secondary market. The Operating
Agreement provides that the Managers may refuse to recognize any
transfer or refuse to repurchase any Units if such transfer or
repurchase, together with all other transfers or repurchases of
Units in the same calendar year other than the exempt transfers
noted above, would exceed five percent of the Units outstanding
at the beginning of such calendar year. The Operating Agreement
also provides that, if the Managers permit a non-exempt transfer
in excess of the test described above, such transfer, together
with all other transfers for such calendar year, but excluding
transfers made through the repurchase provisions or Qualified
Matching Services, cannot exceed two percent (2%) of the Units
outstanding.
Based upon existing interpretations of the Service and the
foregoing provisions of the Operating Agreement, and provided
that any transfers are made in accordance with such
interpretations and provisions, it is our opinion that it is more
likely than not that AEI Fund 23 will not be considered a
publicly traded partnership as contemplated by the Code.
3. Allocations
Regulations under Section 704(b) impose three requirements
for an allocation to be deemed to have economic effect: (1)
capital accounts must be maintained in accordance with the rules
established in the final Regulations; (2) upon liquidation,
liquidating distributions are required in all cases to be made in
accordance with positive capital account balances; and (3) if a
partner has a deficit balance in his or her capital account at
the time of liquidation of the partner's interest in the entity,
he or she must be unconditionally obligated to restore such
negative balance to the partnership. The Regulations further
provide an alternate test for economic effect. If requirements
(1) and (2) above are met and the entity contains a "qualified
income offset," an allocation that does not cause or increase a
deficit balance in a partner's capital account will be deemed to
have economic effect.
The Operating Agreement complies with requirements (1) and
(2) above, and contains a "qualified income offset" provision.
Therefore, assuming that throughout the term of AEI Fund 23, all
the Investors and Managers have positive balances in their
capital accounts (determined after adjusting such accounts for
reasonably expected adjustments of the nature described in
Treasury Regulation 1.704-1(b)(2)(ii)(d)(4), (5) and (6) and
for the share of minimum gain under Treasury Regulation 1.704-
2(g)(1) of each such Investor and Manager), the allocations made
under the Operating Agreement should be deemed to have economic
effect under Section 704(b) and the Treasury Regulations. The
Manager anticipates that the Investors will maintain such a
positive balance (after adjustment as set forth above) in their
capital accounts throughout the term of AEI Fund 23. In the
event the Investors were to have negative balances in their
capital accounts (after adjustment as set forth above), the
Operating Agreement provides that losses will not be allocated to
the Investors.
Under the Treasury Regulations, the economic effect of an
allocation must also be "substantial" in order to be recognized
for tax purposes. An allocation is generally treated as being
"substantial" if there is a reasonable possibility that the
allocation will affect substantially the dollar amounts the
participants will receive from the entity, independent of tax
consequences. However, the economic effect of an allocation is
not substantial if (1) the after-tax economic consequences of at
least one participant may be enhanced by the existence of the
allocation, and (2) there is a strong likelihood that the after-
tax economic consequences of no participant will be substantially
diminished by the existence of the allocation. For purposes of
this determination, tax attributes of the participants that are
unrelated to the entity must be taken into account.
It appears that the allocations provided for in the
Operating Agreement will affect substantially the dollar amounts
the Investors and Managers will receive from AEI Fund 23, and
therefore satisfy the "substantiality" requirement of the
Treasury Regulations. Although we are unable to make a
determination as to the after-tax economic consequences to the
Investors and Managers of the allocations given the inherently
factual nature of this inquiry, we have no reason to believe that
these consequences will result in failure to satisfy the
"substantiality" requirement. Accordingly, it appears that the
allocations provided for in the Operating Agreement will be found
to be substantial under the Treasury Regulations.
It is expected that the debt that AEI Fund 23 may incur in
connection with the acquisition of its properties will be
considered nonrecourse financing under applicable Treasury
Regulations. Deductions with respect to nonrecourse financing
(for example, depreciation on a building financed with
nonrecourse debt) are referred to in the Regulations as
"nonrecourse deductions." To establish substantial economic
effect with respect to nonrecourse deductions, such deductions
must be allocated in accordance with the participants interests
as determined by Regulations Section 1.704-2(e), which requires
among other things that the partnership agreement contain a
provision known as a "minimum gain chargeback." "Minimum gain" is
defined as the amount of gain, if any, that would be realized by
a partnership if it disposed of the property subject to the
liability for no consideration other than the satisfaction of the
liability. Thus, a minimum gain occurs each year the outstanding
nonrecourse indebtedness at the end of the year exceeds the
adjusted tax basis of the property at the end of the year. A
"minimum gain chargeback" provision requires that, if there is a
net decrease in partnership minimum gain for any taxable year,
for that year each partner must be allocated items of partnership
gain and income equal to that partner's share of the net decrease
in partnership minimum gain, computed according to the manner
prescribed in the Regulations. The Operating Agreement for AEI
Fund 23 contains a "minimum gain chargeback" and appears to
otherwise comply with the requirements of Regulations Section
1.704-2(e).
It is our opinion, therefore, as of the date of this
opinion, that, assuming that all the Investors and Managers have
positive balances in their respective capital accounts
(determined after adjusting such capital accounts as noted above)
throughout the term of AEI Fund 23 and that the after-tax
economic consequences of the allocations made pursuant to the
Operating Agreement do not violate the "substantiality"
requirement imposed by the Regulations, it is more likely than
not that the allocations to an Investor, if properly made in
accordance with the Operating Agreement, will have substantial
economic effect within the meaning of Section 704(b) of the Code.
We are unable to render an opinion on the allocation of losses or
deductions where the Investors have negative balances in their
respective capital accounts (adjusted as noted above) given the
absence of an unlimited deficit restoration obligation by any of
the Investors. It is assumed for purposes of this opinion that
the allocations in the Operating Agreement do not, by design or
in practice, provide for allocations to Investors based on their
individual tax situation or status. Because the interpretation
of certain aspects of the Regulations under Section 704(b) is
still uncertain, no assurance can be given that the allocations
contained in the Operating Agreement will not be challenged by
the Service.
5. Passive Activity Income.
Under Section 469 of the Code, losses from a "passive
activity" are deductible only to the extent of the income from
such activity and other passive activities. Passive activity
losses that are not deductible because of inadequate passive
activity income are carried forward and become deductible against
future passive activity income or upon complete liquidation of
the taxpayer's interest in the activity. Credits from passive
activities are, in general, limited to the tax attributable to
income from passive activities. Passive activities include trade
or business activities in which the taxpayer does not materially
participate and presumptively include holders of a limited
liability company interest such as Units in AEI Fund 23.
Accordingly, to the extent losses or deductions from passive
activities of AEI Fund 23, when combined with deductions from all
other passive activities of such Investor, exceed the Investor's
income from passive activities, the excess losses or deductions
will be suspended and carried forward to future years until
applied.
Gross income from interest, dividends, annuities or
royalties not derived in the ordinary course of a trade or
business, expenses allocable to such gross income, and gain or
loss attributable to the disposition of property producing such
gross income or property (other than an interest in a passive
activity) held for investment, are not taken into account in
computing income or loss from passive activity but, instead, are
considered "portfolio income items." If a limited liability
company holds assets producing portfolio income items in addition
to the assets used in its trade or business, the gross income
(and gain or loss) from and expenses allocable to such portfolio
assets are considered to arise from an activity which is separate
from any passive activity engaged in by the limited liability
company. Also, that portion of any gain from the sale of an
interest in such a limited liability company will be considered a
portfolio income item to the extent the underlying assets
determined on an applicable date generate portfolio income items.
Income, gain or loss attributable to an investment of working
capital is treated as a portfolio income item.
The Manager intends to conduct AEI Fund 23's affairs in a
manner so that an Investor's distributive share of Fund income
derived from AEI Fund 23's real estate rental activities will
constitute passive activity income which may be utilized by such
Investor as an offset against passive activity losses. In the
opinion of counsel for AEI Fund 23, and subject to Treasury
Regulations which may be adopted in the future, it is more likely
than not that the real estate rental activities of AEI Fund 23,
from which AEI Fund 23 does not derive the equivalent of a
guaranteed return or portfolio income or other item not allocable
thereto, will constitute passive activities with respect to an
Investor, and therefore that an Investor's distributive share of
Fund income or loss (computed without taking into account
portfolio income items and other non-passive activity items, if
any) will constitute income or loss from passive activities.
Interest income earned on the proceeds of the offering of Units
prior to the investment of such proceeds in real property and
income (or loss) attributable to working capital investments will
be treated as portfolio income items, and losses from passive
activities will not offset an Investor's share of income derived
from such portfolio income items.
This opinion of counsel is based solely upon the facts set
forth herein and in the Prospectus. To the extent that any facts
contained in the Prospectus or in this opinion prove not to be
true it is possible that the conclusion in this opinion might be
changed.
We consent to the filing of this opinion as an exhibit to
the Registration Statement and to the reference to this firm
under the captions "Legal Opinions" and "Experts" in the
Prospectus.
Dated: January 18, 1999
Very truly yours,
/s/ Dorsey & Whitney LLP
DORSEY & WHITNEY LLP
Exhibit 10
AEI INCOME & GROWTH FUND 23 LLC
IMPOUNDMENT AGREEMENT
THIS IMPOUNDMENT AGREEMENT, made and entered into this
day of , 1998, by and among AEI INCOME &
GROWTH FUND 23 LLC, (the "Fund"), AEI Securities Incorporated
("AEI") and Fidelity Bank, Edina, Minnesota (the "Bank");
WITNESSETH THAT:
WHEREAS, the Fund proposes to issue and sell to the
public up to 24,000 units of limited liability company interest
(the "Units"), at a subscription price of $1,000 per Unit, and
has entered into an agreement (the "Dealer-Manager Agreement")
with AEI Securities Incorporated (the "Dealer-Manager") pursuant
to which the Dealer-Manager and various members of the National
Association of Securities Dealers, Inc. (collectively, the
"Dealers") will offer the Units for sale to the public for and on
behalf of the Fund; and
WHEREAS, the Dealer-Manager Agreement provides that all
funds received by Dealers in connection with the sale of Units
shall be transmitted to the Dealer-Manager as processing broker-
dealer and promptly deposited in an escrow account with the Bank
until the offering of Units is terminated or until the minimum
$1,500,000 of subscription proceeds have been obtained; and
WHEREAS, the Fund has applied to the commissioner of
commerce for the State of Minnesota (the "Commissioner") for
registration of the Units for sale to the residents of the State
of Minnesota; and
WHEREAS, as a condition of registration of such
offering under the Securities Laws of the State of Minnesota, the
Commissioner requires that the Fund provide for the impoundment
of the proceeds to be received from such offering of securities;
and
WHEREAS, the Fund, the Bank and AEI desire to enter
into an agreement with respect to the said impoundment of
proceeds; and
NOW, THEREFORE, for and in consideration of the
covenants and agreements set forth below, the parties agree as
follows:
l. APPOINTMENT OF IMPOUNDMENT AGENT; DELIVERY OF FUNDS
TO ESCROW ACCOUNT.
The Fund hereby appoints the Bank as Impoundment Agent
to receive and hold all proceeds from the sale of Units for the
term of this Impoundment Agreement, and to invest the same in
such manner as it shall be directed to in writing by the Fund.
All subscription checks shall be payable to "Fidelity Bank_AEI
Real Estate Escrow." Dealers shall transmit all subscription
checks for Units to the Dealer-Manager by noon of the business
day following receipt of such checks and the Dealer-Manager shall
transmit all such checks, or return unaccepted checks to
subscribers, as soon as practicable thereafter but in any event
by the end of the second business day following receipt of such
checks by the Dealer-Manager.
2. IDENTITY OF SUBSCRIBERS; OWNERSHIP OF FUNDS
DEPOSITED.
The Dealer-Manager shall deliver to the Impoundment
Agent, with each deposit of checks, a list which contains the
names and addresses of all persons who have subscribed for Units,
the amount of money tendered by each subscriber and the date on
which the funds were received from each subscriber. The
Impoundment Agent shall hold all funds received for the
individual account of each subscriber identified by the Dealer-
Manager. The funds, as
well as any interest or income earned thereon, shall remain the
property of the subscribers until released to the Fund as
hereinafter provided, and shall not be subject to any liens by
the Impoundment Agent or judgments or claims against Dealers, the
Dealer-Manager or the Fund.
3. DISBURSEMENT OF FUNDS.
(a) After such time as the Impoundment Agent has
received not less than $1,500,000 in subscription amounts, the
Impoundment Agent shall forthwith notify the Commissioner in
writing of the escrow of such amounts. Upon receipt by the
Impoundment Agent of written authorization from the Commissioner,
said Impoundment Agent, on demand of AFM, shall pay over to the
Fund all or any portion of the impounded funds. If $1,500,000 in
subscription amount is not received by the Impoundment Agent
during the term of this Impoundment Agreement, then, within three
business days after the last day of the term of this Impoundment
Agreement, the Impoundment Agent shall notify the Commissioner in
writing that the conditions of this Impoundment Agreement have
not been satisfied, and shall within a reasonable time, but in no
event more than thirty (30) days after the last day of the term
of this Impoundment Agreement refund to each subscriber the face
amount of payments made in subscription for Units, together with
his or her pro rata share of interest or income, if any, earned
on the funds deposited in escrow, and shall then notify the
Commissioner in writing of such refund.
(b) After receipt by the Impoundment Agent of written
authorization for the initial release of funds hereunder, the
Impoundment Agent shall release to the Fund, from time to time,
any funds deposited pursuant to this Agreement, upon the written
request of the Fund and without any necessity of further
authorization from the Commission. The Fund shall send written
notice of each request for disbursement of funds which shall
specify the subscriptions that have been accepted on behalf of
the Fund, the commissions and nonaccountable expenses payable on
such subscriptions, the subscriptions that have been rejected,
and the subscriptions that have been deposited in escrow but upon
which acceptance by the Fund remains pending. In accordance with
such notice, the Impoundment Agent shall disburse funds:
(i) representing commissions and nonaccountable
expenses on accepted subscriptions_ directly to the
Dealer-Manager;
(ii) representing accepted subscription proceeds net
of commissions and nonaccountable expenses_directly to the
account of the Fund as authorized in such notice;
(iii) representing interest accrued on accepted
subscriptions proceeds_directly to the subscribers; and
(iv) representing rejected subscription proceeds and
interest accrued thereon_directly to the subscribers.
All subscription proceeds upon which acceptance remains pending
shall be held by the Impoundment Agent for disbursement in
accordance with the direction contained in the next succeeding
notice.
4. TERM OF IMPOUNDMENT.
This Impoundment Agreement shall terminate on the 365th
day following the effective date of the registration statement
relating to the Units or on such earlier date as all funds are
released to the Fund as provided in Section 3 above; provided,
however, that if $1,500,000 in subscription amounts have been
received prior to the 365th day and the Fund elects to extend the
offering of Units in accordance with the registration statement
relating thereto, this Impoundment Agreement shall terminate upon
the expiration of such extension (but not, in any event, later
than the 730th day after the effective date). The Fund and the
Dealer-Manager may also terminate this Impoundment Agreement at
any time upon notice to the Impoundment Agent that the Fund has
made a decision to terminate the offer and sale of Units.
6. CONSENT OF COMMISSIONER TO RELEASE FUNDS.
Until the Impoundment Agent has received $1,500,000 in
subscription amounts no funds shall be released to the Fund
hereunder except upon the express written authorization of the
Commissioner. If the Commissioner finds that any conditions of
this Impoundment Agreement have not been satisfied, or that any
provisions of the Minnesota Securities Laws or regulations have
not been complied with, then he may withhold such authorization
for release of funds by the Impoundment Agent to the Fund and may
direct the Impoundment Agent to return the funds to the
subscribers. After the initial release of funds is authorized by
the Commissioner, the Impoundment Agent shall release funds, from
time to time, to the Fund upon written request.
7. FEE OF IMPOUNDMENT AGENT.
The Impoundment Agent shall receive reasonable
compensation for its services as Impoundment Agent. Such
compensation shall be paid by the Fund and shall not be
subtracted from the funds held in escrow by the Impoundment
Agent. The fee agreed upon for services rendered hereunder shall
constitute full compensation for the services of the Impoundment
Agent performed pursuant to this Impoundment Agreement; provided,
however, that if the Impoundment Agent renders any material
services not contemplated by this Impoundment Agreement, the
Impoundment Agent shall be reasonably compensated for such
services.
8. REPRESENTATIONS OF IMPOUNDMENT AGENT. The
Impoundment Agent represents and warrants that:
(a) subscription proceeds deposited on behalf of each
subscriber will be insured by the Federal Deposit Insurance
Corporation to the maximum extent such proceeds would be
insured if deposited in individual accounts for each such
subscriber; and
(b) it will distribute to subscribers within the time
period prescribed by the Internal Revenue Code of 1986, as
amended, reports of all interest income earned on escrowed
funds.
Except as provided in this Section 8, the sole duty of the
Impoundment Agent shall be to receive funds from the sale of the
Units and hold them for release in accordance with the terms of
this Impoundment Agreement.
9. LIABILITY OF IMPOUNDMENT AGENT.
The Impoundment Agent may conclusively rely upon and
shall have no duty to verify any statement, certificate, notice,
request, consent, order or other document believed by it to be
genuine and to have been signed or presented by the proper party
or parties. The Impoundment Agent shall be under no obligation
to institute or defend any action, suit or proceeding in
connection with this Impoundment Agreement unless first
indemnified to its satisfaction by the Fund. The Impoundment
Agent may consult counsel with respect to any question arising
under this Impoundment Agreement, and the Impoundment Agent shall
not be liable for any action taken or omitted in good faith on
advice of such counsel. All funds held by the Impoundment Agent
pursuant to this Impoundment Agreement shall constitute trust
property for the purposes for which they are held.
10. INSPECTION OF RECORDS.
Either the Fund or the Commissioner may, at any time
during regular business hours, inspect the records of the
Impoundment Agent, insofar as they relate to this Impoundment
Agreement, for the purpose of determining that the Impoundment
Agent is acting in compliance with the provisions of this
Impoundment Agreement.
11. BINDING EFFECT AND SUBSTITUTION OF IMPOUNDMENT
AGENT.
The terms and conditions of this Impoundment Agreement
shall be binding upon the parties hereto and their respective
creditors, transferees, successors in interest and assigns,
whether by operation of law or otherwise. If for any reason the
Bank should be unable or unwilling to continue to assume its
duties as Impoundment Agent, nothing in this Impoundment
Agreement shall prevent the Fund from appointing an alternative
Impoundment Agent.
12. ISSUANCE OF CERTIFICATES.
Until the terms of this Agreement have been met and the
funds hereunder released to the Issuer, the Issuer may not issue
any certificates or other evidences of securities, except
subscription agreements.
IN WITNESS WHEREOF, the parties hereto have executed
this Impoundment Agreement on the date first above written.
AEI INCOME & GROWTH FUND 23 LLC
By AEI Fund Management XXI,Inc.
By /s/ Robert P Johnson
Its President
FIDELITY BANK
By /s/ Andrew Feriancek
Its E.V.P
AEI Securities Incorporated
By /s/ Robert P Johnson
Its President
Accepted for filing
Commissioner of Commerce
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the inclusion of our report dated
October 22, 1998 on the balance sheet of AEI Income & Growth Fund
23 Limited Liability Company as of October 22, 1998, and our
report dated November 9, 1998 on the balance sheet of AEI Fund
Management XXI, Inc. as of December 31, 1997 and September 30,
1998 in the Form SB-2 Registration Statement of AEI Income &
Growth Fund 23 Limited Liability Company dated on or about
January 21, 1999 and to the reference to our Firm under the
caption "Experts" in the Prospectus included therein.
/s/ BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Minneapolis, Minnesota
January 21, 1999
