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Registration No.
1940 Act No.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM S-6
A. Exact name of trust: Gen-Net Realty Unit Investment Trust, Corporate and
Government Series
B. Name of depositor: Genesis Financial Group, Inc.
C. Complete address of depositor's principal executive offices:
One Oakland Towne Square, 14th Floor, Southfield, Michigan 48076
D. Name and complete address of agent for service:
John D. Ellsworth, 100 Scoular Building, 2027 Dodge Street, Omaha, Nebraska
68102
E. Title and amount of securities being registered: 7,000 units of beneficial
interest, designated as "Units"
F. Approximate date of proposed sale to the Public:
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.
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Subject to Completion
Dated ____________________, 2000
GEN-NET REALTY UNIT INVESTMENT TRUST
Corporate and Government Series
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THE TRUST. Gen-Net Realty Unit Investment Trust, Corporate and Government
Series (the "Trust") is a Michigan grantor trust consisting of a portfolio of
primarily commercial real estate oriented investments selected to provide the
potential for a high level of current income and capital preservation.
In seeking to achieve its objective -- provide the potential for a high
level of current income and capital preservation -- the Trust's portfolio
consists primarily of contractual investments ("Assignments of Rents") that
provide income from a stream of predictable rental payments generated by long
term leases of commercial real estate to creditworthy tenants consisting of
Fortune 500 corporations, the U.S. Postal Service or federal or state agencies.
Under the terms of the leases, the tenants are responsible for paying the
primary expenses associated with operating the leased properties including real
estate taxes, insurance, repairs, maintenance and monthly property management.
The Trust may also hold in its portfolio from time to time on a short term
basis U.S. Treasuries, corporate bonds rated BBB+ or better, state issued bonds
and money market funds. These various debt instruments are held by the Trust as
cash equivalents and are not, in and of themselves, intended to fulfill the
objective of the Trust which entails providing the potential for a high level of
current income. The Assignments of Rents and the above-described debt
instruments are collectively referred to herein as the Trust's "Securities."
The Trust has a mandatory termination date of December 30, 2004. See
"Summary of Essential Information." There is, of course, no guarantee that the
objective of the Trust will be achieved during the course of its existence and
upon its liquidation.
Each Unit of the Trust represents an undivided fractional interest in all
the Securities deposited in the Trust. The value of the Assignments of Rents,
which constitute the substantial part of the Trust's portfolio, is based on the
original purchase price paid for them on their initial date of deposit into the
Trust. The value of an Assignment of Rents may be reduced if in the judgment of
Genesis Financial Group, Inc. (the "Depositor-Sponsor") an extraordinary
condition, such as a default in the rent payments under the lease, requires a
re-valuation of the Assignment of Rents using a third party appraiser selected
by the Depositor-Sponsor.
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The other Securities comprising the Trust portfolio represent a relatively
small portion of the total funds invested by the Trust. Although deemed by the
Depositor-Sponsor to be unlikely, the value of a Unit would be adversely
affected by the default in any payment of principal or interest due under these
debt instruments or the money-market funds interests deposited in the Trust.
Moreover, a decrease in interest rates will reduce the value of the Securities
held in the Trust, thereby adversely affecting the value of the Units.
During the offering period in which the Trust is offering the Units for
purchase by investors pursuant to this Prospectus, the purchase price of the
Units will not be adjusted regardless of changes in the value of any Securities
held by the Trust.
Upon the liquidation of the Securities held in the Trust's portfolio on the
Trust's Mandatory Termination Date or in the event of an earlier termination of
the Trust, the net proceeds received by the Trust may be greater or less than
the funds invested by the Trust upon its purchase of the portfolio Securities.
See "Risk Factors."
The Depositor-Sponsor expects that, from time to time during the offering
period of up to approximately 365 days from the date of this Prospectus, it will
deposit Securities into the Trust. Such deposits may result in the Trust
experiencing a yield that is either greater or less than the yield originally
anticipated by the Depositor-Sponsor depending on interest rate fluctuations
during the offering period and the terms on which the Depositor-Sponsor is able
to acquire Securities on behalf of the Trust. In addition, during the offering
period and thereafter until all of the net proceeds from this Offering have been
applied towards the purchase of Securities, the percentage of Assignment of
Rents compared with other Securities in the Trust portfolio may vary somewhat
which would cause the aggregate yield on the Trust's portfolio to vary from that
originally contemplated by the Depositor-Sponsor.
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THE UNITS HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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The date of this Prospectus is ______________________________.
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SUMMARY OF ESSENTIAL INFORMATION
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As of the date of this Prospectus - ________________________, 2000
Depositor-Sponsor: Genesis Financial Group, Inc.
One Oakland Towne Square, 14th Floor
Southfield, Michigan 48076
Trustee: Citizens First Savings Bank
555 Water Street
P.O. Box 5012
Port Huron, Michigan 48061-5012
Evaluator: Genesis Financial Group, Inc.
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<S> <C>
Maximum Number of Units in Offering .........................................................7,000
Fractional Undivided Interest in the Trust per Unit
(assuming maximum Units acquired) ................................................0142857
Public Offering Price per Unit .............................................................$5,000
Maximum Sales Charge of 4.5% of Public Offering Price Per Unit (1)............................$225
Estimated Organizational Costs per Unit (assuming maximum Units) (2)...........................$50
Trustee's Annual Fee ..........................................................................
Other Estimated Annual Trust Expenses .........................................................
Mandatory Termination Date ..................................................... December 30, 2004
Income Distribution Date (3)
Date of Initial Deposit of Securities (4)
CUSIP Number ..................................................................................
Fiscal Month-end of Trust.................................................................December
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(1) The sales charge for sales of Units during the offering period is 4.5%
of the Public Offering Price of $5,000 per Unit. There is no deferred sales
charge. There is reduction in the sales charge based on the number of Units
acquired by an investor. There is no waiver of the sales charge for certain
defined categories of investors.
(2) The organizational costs per Unit are based on estimated legal and
accounting fees, printing, filing fees and miscellaneous charges aggregating
approximately $350,000.
(3) The date for the initial income distribution is at the end of the first
full quarter following the initial deposit of Securities with the Trust by the
Depositor-Sponsor.
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(4) The date of the initial deposit of Securities with the Trust will
depend on when the minimum number of Units has been sold in order to distribute
proceeds from escrow, and thereafter the net proceeds made available to the
Depositor-Sponsor are used by it to acquire Securities for the Trust.
WHAT IS GEN-NET REALTY UNIT INVESTMENT TRUST?
Gen-Net Realty Unit Investment Trust, Corporate-Government Series (the
"Trust"), is a grantor trust formed under Michigan law and organized by Genesis
Financial Group, Inc., a Michigan corporation (the "Depositor-Sponsor"). The
Trust was created by the Depositor-Sponsor and one of its officers in April of
2000. Thereafter, an amended and restated trust agreement (the "Indenture")
entered into between the Depositor-Sponsor and Citizens First Savings Bank (the
"Trustee") on _______________________, 2000.
The Trust is intended to consist of a portfolio of investments selected and
purchased on behalf of the Trust by the Depositor-Sponsor. The Depositor-Sponsor
has organized this offering of undivided beneficial interests in the Trust
("Units") in order to obtain funds from the net proceeds of the sale of the
Units which are then used to acquire the investments for the Trust's portfolio.
The portfolio of the Trust's investments will consist primarily of rights
to the rents paid on leases of commercial real estate (the "Leased Property")
that is acquired and owned by the Depositor-Sponsor. The funds used to acquire
the Leased Property come from the net proceeds of the sale of Units. In exchange
for the net proceeds the Depositor-Sponsor grants to the Trust the contractual
right to receive the rents from the leases on the Leased Property for a
specified term of years. These rights are set forth in an assignment of rents
from the Depositor-Sponsor to the Trust ("Assignment of Rents"). An Assignment
of Rents provides for the monthly transfer of a defined sum of rental income
received by the Depositor-Sponsor as the lessor for a set period of time. At the
end of that period, the Assignment of Rents requires that the Depositor-Sponsor
pay the Trust an amount equal to the lesser of the proceeds received by the
Depositor-Sponsor upon the sale or other disposition of the Leased Property or
the amount originally paid by the Trust to the Depositor-Sponsor in order for it
to acquire the Leased Property.
The Indenture also permits the Trust to hold short term investments in the
form of U.S. Treasuries, corporate bonds rated BBB+ or better, state and local
government bonds and money market funds (collectively, together with the
Assignments of Rents, referred to as the "Securities").
The investment objective of the Trust is to provide the potential for a
high level of current income and capital preservation for a set period of time.
Thereafter, the Trust will terminate, liquidate its portfolio of Securities and
distribute the net proceeds on liquidation
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to the Unitholders according to the terms provided in the Indenture. There is no
assurance that the Trust will be able to achieve its objective of a high level
of current income and capital preservation.
The Securities in the Trust portfolio, particularly the Assignments of
Rents, are determined by the Depositor-Sponsor whose principals are experienced
in selecting and negotiating the acquisition of net leased, single-tenant
commercial real estate. With respect to the selection of the other Securities,
the principals of the Depositor-Sponsor will consult with registered securities
brokers in determining which Securities to acquire and timing issues involved in
choosing those Securities. To the extent that the services of securities brokers
are utilized by the Depositor-Sponsor, there are no fees, commissions or other
charges incurred by the Trust except those commissions typically charged in
connection with the purchase or sale of such Securities. The securities brokers
who may be consulted by the principals of the Depositor-Sponsor are
unaffiliated; however, the two parties may from time to time engage in other
securities transactions on behalf of parties other than the Trust.
The Trust will commence holding the Assignments of Rents and other
Securities in its portfolio once (1) the Trust offering has sold the minimum
number of Units required to distribute offering proceeds from escrow to the
Depositor-Sponsor; and (2) the Depositor-Sponsor has identified suitable Leased
Property acquisition prospects, consummated purchases and deposited the
Assignment of Rents and possibly other Securities with the Trust. The Trust will
distribute income generated by the Securities to its Unitholders at the end of
the first full quarter following the initial deposit of Securities with the
Trust by the Depositor-Sponsor and at the end of each quarter thereafter (the
"Income Distribution Date").
WHAT ARE THE OFFERING TERMS?
The Offering commences on the date of this Prospectus and continues for a
period of one year thereafter or until all of the Units being offered pursuant
to the Offering have been purchased by investors or until the Depositor-Sponsor
elects to terminate the Offering, whichever event occurs first.
The Offering consists of the offer and sale of up to a maximum of 7,000
Units at a purchase price of $5,000 per Unit. Prospective purchasers must sign a
subscription agreement (see Exhibit ____) , be determined by the
Depositor-Sponsor and the appropriate distributor to be a qualified investor in
the Trust and pay by check with good funds for the full amount of the Unit(s)
purchased. An investor cannot purchase less than one whole Unit.
The Offering requires that a minimum of $1,400,000 in proceeds from the
subscription of 280 Units be collected and held in escrow before termination of
the offering
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period in order for net proceeds of the Offering to be distributed to the
Depositor-Sponsor in order for it to purchase Securities for the Trust
portfolio. Unless and until the minimum of $1,400,000 in proceeds is collected
from approved investors, all proceeds of the Offering must be held in escrow in
a designated escrow account at Citizens First Savings Bank. The
Depositor-Sponsor, its principals and any affiliated entity may acquire for cash
up to ten (10) of the 80 Units needed in order to permit the disbursement of
offering proceeds from escrow.
The Offering price of $5,000.00 per Unit was determined arbitrarily by the
Depositor-Sponsor and has no relation to any market value since no organized
market for the Units exists, nor is one likely to develop after the completion
of the Offering even though the Units will have been registered publicly and may
be offered for sale by a holder.
Prospective investors should not expect that the Units will be liquid or
necessarily can be redeemed in order to recover any portion of their investment
prior to the Mandatory Termination Date of the Trust on December 30, 2004.
The Units are offered to prospective investors through registered
broker-dealer firms, who are members of the NASD, Inc. These firms are making
the offering on a "best efforts basis," meaning there is no assurance by the
broker-dealer firms that they will be able to cause enough investors to acquire
Units so that the Offering will be fully subscribed. The broker-dealer firms
will be paid a selling commission of four and one-half percent (4.5%) of the
purchase price for each Unit subscribed for and acquired by investors.
WHAT ARE THE RISK FACTORS TO CONSIDER?
An investment in the Units involves certain risks, some of which are
peculiar to the Depositor-Sponsor and others of which are inherent in all
similar real estate investments. In analyzing the offering, prospective
investors should consider carefully, among other factors, the effect, if any, of
the following:
RISKS ASSOCIATED WITH LEVERAGE. On an aggregate basis the Depositor-Sponsor
may borrow up to 75% of the purchase price of the Leased Property. The use of
borrowed funds in the purchase of Leased Property is referred to as "Leverage".
USE OF LEVERAGE, GENERALLY. The effects of utilizing leverage are to
increase the number of Leased Property that may be purchased with the
Depositor-Sponsor's funds available for investment, to increase the potential
for gain, to increase the aggregate amount of depreciation available to the
Depositor-Sponsor. To acquire greater number of investments, the
Depositor-Sponsor would need to utilize greater funds to make debt service
payments resulting from such higher leverage, which could result in less funds
available for distributions to the Unitholders. To the extent that the
Depositor-Sponsor
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uses leverage or increased amounts of leverage in the purchase of its Properties
the potential for gain and risk of loss will be increased accordingly. If the
Depositor-Sponsor defaults on secured indebtedness, the lender may foreclose,
and the Depositor-Sponsor could lose its investment in the Leased Property.
Mortgage market conditions and the policies of the Federal Reserve Board may
make it difficult to obtain mortgages on acceptable terms.
RISKS OF BALLOON PAYMENT OBLIGATIONS. The Depositor-Sponsor will seek
to acquire Leased Property which are subject to mortgage loans which have a term
of not less than ten (10) years, which provide for the amortization of the
entire loan principal, or a substantial portion thereof, prior to maturity, or
which do not require a balloon payment (i.e., a substantial lump sum principal
payment) to be paid within the anticipated holding period for the Leased
Property. Nevertheless, the Depositor-Sponsor may incur borrowing not meeting
the foregoing standards if it is deemed to be in the best interests of the
Depositor-Sponsor. Mortgages with balloon payments involve greater risks than
mortgages whose principal amount is amortized over the term of the loan, since
the ability of the Depositor-Sponsor to repay the outstanding principal amount
at maturity may be dependent upon the Depositor-Sponsor's ability to obtain
adequate refinancing or to sell the Leased Property, which will in turn be
dependent upon economic conditions in general and the value of the underlying
Leased Property in particular. There is no assurance that the Depositor-Sponsor
will be able to refinance any such balloon payment mortgages at maturity.
Further, a significant shrinkage in the value of the underlying Leased Property
could result in a loss of the Property by the Depositor-Sponsor through
foreclosure.
DETERMINATION OF UNIT OFFERING PRICE. The Depositor-Sponsor has
determined the offering price for the Units based on a number of factors. The
purchase price of a Unit does not bear a direct relationship to any single
objective factor or group of objective factors, such as the financial condition
of the Trust or its assets. Accordingly, there is no assurance that the Unit
purchase price reflects the actual value of the Units. There is no assurance
that the Units will have a price determined by market factors.
DILUTION. Investors will pay the same price for Units during the
Offering period of up to one year whether they acquire them before or after the
Depositor-Sponsor has made any investments. If investments previously acquired
by the Depositor-Sponsor have depreciated in value, the value of the Units
purchased by the investor later in the offering will be diluted immediately upon
the purchase of the Units.
INVESTMENT PLAN MAY BE UNDERCAPITALIZED. If the Depositor-Sponsor
raises a minimal amount of proceeds through this Offering, it will be less able
to achieve a planned diversification of commercial real estate Leased Property,
the percentage of the gross offering proceeds applied to Leased Property
acquisition expenses will be higher, and the Depositor-Sponsor may not be able
to fully pursue its investment strategy.
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UNSPECIFIED PROPERTY. The Depositor-Sponsor has not identified any
specific Leased Property in which to invest. Because Properties are not
identified, prospective investors are unable to investigate included Leased
Property. However, this Prospectus will be amended or supplemented at any time a
reasonable probability exists that a specific Leased Property will be acquired
by the Depositor-Sponsor which would result in an additional Assignment of Rents
becoming part of the Trust's portfolio.
RISKS OF PROPERTY LEASED TO A SINGLE TENANT. In leases with single
tenants, the continued viability of the lease will depend on the continued
financial viability of one tenant. If the tenant fails and the lease is
terminated, the Depositor-Sponsor would incur a reduction in cash flow from the
Leased Property and the value of the Leased Property would be decreased. Also,
where two or more Leased Properties have the same tenant, or related tenants,
the continued viability of each Leased Property would depend directly on the
financial viability of a single tenant.
RISKS OF NET LEASES. Net leases frequently provide the tenant greater
discretion in using the Leased Property than ordinary property leases, such as
the right to freely sublease the Leased Property, to make alterations in the
leased premises, and to obtain early termination of the lease under specified
circumstances. Further, net leases are typically for longer lease terms and
thus, there is an increased risk that any rental increase clauses in future
years will fail to result in fair market rental rates during those years.
In the event that a lease is terminated, there can be no assurance that the
Depositor-Sponsor will be able to lease the property for the rent previously
received or would be able to sell the Leased Property without incurring a loss.
The Depositor-Sponsor could also experience delays in enforcing its rights
against defaulting tenants. For example, in the event a defaulting tenant
declared bankruptcy, the Depositor-Sponsor would likely be unable to promptly
recover the Leased Property from the tenant under the bankruptcy proceedings and
there is no assurance that the Depositor-Sponsor would receive rent in such
proceedings sufficient to cover its expenses with respect to the Leased
Property. In the event a tenant does not pay rent, it is likely the
Depositor-Sponsor would not only lose the net cash flow from the Leased Property
but also might need to use cash flow generated by other Leased Property to meet
mortgage payments on the defaulted Property in order to prevent foreclosure.
RISKS OF REAL ESTATE INVESTMENTS. Equity real estate investments are
expected to limit the ability of the Depositor-Sponsor to vary its portfolio
promptly in response to changing economic, financial and investment conditions.
Such investments will be subject to risks such as adverse changes in general
economic conditions or local conditions (for example, excessive building
resulting in an oversupply of existing space or a decrease in employment
reducing the demand for real estate in the area), as well as other factors
affecting real estate values (i.e., rent controls, increasing labor, materials
and energy costs, the attractiveness of the neighborhood, etc.). Equity
investments are also subject to such
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risks as adverse changes in interest rates, the availability of long-term
mortgage funds and additional debt financing, and the ability of the
Depositor-Sponsor to provide for adequate maintenance of its Properties.
AMOUNT OF DIVERSIFICATION. The offering is being made on a "best
efforts" basis, and there is no assurance that the Depositor-Sponsor will be
fully subscribed. The Depositor-Sponsor's potential profitability and its
ability to diversify its acquisitions and investments both geographically and by
number and type of investments purchased will be in part determined by the
amount of funds at its disposal.
RISKS OF INVESTING IN SPECIAL PURPOSE PROPERTIES. The
Depositor-Sponsor may acquire Properties which are specifically suited to the
needs of particular tenants, including office, retail or industrial facilities.
It may be difficult for the Depositor-Sponsor to sell special purpose Leased
Property to persons other than the type of tenant for which the facility was
constructed.
COMPETITION FOR INVESTMENTS. The results of Depositor-Sponsor
operations will depend upon the availability of suitable opportunities for
investment, which in turn depends to a large extent on the type of investment
involved, the condition of the money market, the nature and geographical
location of the Leased Property, competition and other factors, none of which
can be predicted with certainty. The Depositor-Sponsor will be competing for
acceptable investments with other financial institutions, including insurance
companies, pension funds and other institutions, real estate investment trusts
and limited partnerships which have investment objectives similar to those of
the Depositor-Sponsor. Many of these competitors have greater resources than the
Depositor-Sponsor and have greater experience than the principals of the
Depositor-Sponsor.
RISKS OF UNINSURED LOSSES. The Depositor-Sponsor will arrange for
comprehensive insurance, including fire, liability and extended coverage on all
investment properties. However, there are certain types of losses (generally of
a catastrophic nature) which may be either uninsurable or not economically
insurable. These losses generally include those resulting from war, earthquakes
and floods, in addition to punitive damages. If any such disaster occurs and is
not covered by insurance, the Depositor-Sponsor might suffer a loss of capital
invested and any profits which might be anticipated from the Leased Property.
The Depositor-Sponsor may obtain earthquake and flood insurance for its Leased
Property.
RELIANCE ON DEPOSITOR-SPONSOR MANAGEMENT. The Unitholders do not have
any active participation in management of the Depositor-Sponsor or in the
investment of the proceeds of this offering, and, therefore, must rely on the
management, acquisition expertise, and decisions regarding Property investments
provided by the Depositor-Sponsor's officers and employees. None of the
Depositor-Sponsor's Directors and only one of its officers, Gregory S. Barton,
is a full-time employee of the Depositor-Sponsor. The
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Bartons and the Directors of the Depositor-Sponsor have substantial collective
experience in commercial and industrial real estate acquisition and investment
analysis.
LACK OF MARKET FOR THE UNITS. Although the Units are expected to be
freely transferable, there is not expected to be an established public market
for the Units in the foreseeable future and, therefore, the Units are illiquid
and considered to be long-term investments.
DELAY IN INVESTMENT IN REAL ESTATE. Although the Depositor-Sponsor
will be constantly reviewing available Leased Property, there will be a delay
between the time investors purchase their Units and the time the net proceeds of
the offering are invested in real estate interests. A delay in the
Depositor-Sponsor's investment of offering proceeds in real estate would delay
the Trust's receipt of rents from such investment properties and would delay the
time that distributions would otherwise be made to Unitholders.
RISKS FOR IRAS AND INVESTORS SUBJECT TO ERISA. Fiduciaries of a
pension, profit sharing or other employee benefit Plan subject to ERISA should
consider whether the investment in Units of the Depositor-Sponsor satisfies the
diversification requirements of ERISA, whether the investment is prudent in
light of possible limitations on the marketability of the Units, whether the
investment would be an improper delegation of control over or responsibility for
Plan assets and whether such fiduciaries have authority to acquire such Units
under the appropriate governing instrument and Title I of ERISA. Also,
fiduciaries of an Individual Retirement Account ("IRA") should consider that an
IRA may only make investments that are authorized by the appropriate governing
instrument.
RISKS UNDER PROPERTY LEASES. The underlying value of the leases on
Leased Property and the Trust's ability to make distributions to Unitholders may
be adversely affected by the changes in national economic conditions, changes in
local market conditions and neighborhood characteristics, increased competition
from other properties, obsolescence of property, the impact of present or future
environmental legislation and capital improvements, particularly in older
properties, changes in real estate tax rates and other operating expenses,
regulatory and economic impediments to raising rents, adverse changes in
governmental rules and fiscal policies, dependency on management skill, civil
unrest, acts of God, including earthquakes and other natural disasters which may
result in uninsured losses, acts of war, adverse changes in zoning laws, and
other factors which are beyond control of the Lessees of the Properties and the
Depositor-Sponsor.
A default by the lessee will cause the Depositor-Sponsor to experience
delays in enforcing its right as an assignee under an Assignment of Rents
agreement regarding a Property. A default of a lessee may also cause the
Depositor-Sponsor to incur significant costs related to protecting its
investments. In addition, there is no assurance that if the Lessee defaults, the
Depositor-Sponsor will be able to secure a new lessee, or if the
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Depositor-Sponsor does secure a new lessee, that the new property lease will
contain terms as favorable as the terms of the prior lease.
Further, because real estate generally is subject to real property taxes,
the Depositor-Sponsor may be adversely affected by increases or decreases in
property tax rates and assessments or reassessments of the Properties underlying
the Assignment of Rents by taxing authorities. There can be no assurance that
the Depositor-Sponsor will be able to dispose of its underlying real estate
assets when advantageous or necessary.
The leases being acquired by the Depositor-Sponsor may vary significantly.
However, at a minimum with respect to each Federal/State government agency
lease, the landlord is responsible for repairs to structural elements in the
building and all parts of the roof system, repairs required by fire and other
casualties and repairs caused by any construction defect. The failure of the
Depositor-Sponsor to perform such repairs completely and on a timely basis is
ground for default under each lease. In that event, the payments of rent
assigned to the Trust would be in jeopardy.
The leases may provide that the lessees will reimburse the landlord for all
real estate taxes paid on the premises. However, the landlord must have funds
available to pay the taxes on a timely basis. Otherwise, the landlord's failure
to pay the real estate taxes is ground for default under each lease. This could
jeopardize the rental payments to the Trust.
The lessee and the lessor of a Leased Property underlying an Assignment of
Rents must maintain comprehensive insurance on presently owned and subsequently
acquired real property assets, including liability, fire and extended coverage.
However, certain types of losses may be uninsurable or not be economically
insurable as to which the underlying properties are at risk. There can be no
assurance that insurance coverage will be sufficient to pay the full current
market value or current replacement cost of the Leased Property. Various factors
might make it impracticable to use insurance proceeds to replace a facility
after it has been damaged or destroyed. Under such circumstances, the insurance
proceeds received by the Owner might not be adequate to restore its economic
position with respect to such property.
Under various environmental laws, a current or previous owner or operator
of real property may be liable for the costs of removal or redemption of
hazardous or toxic substances on, under or in such property. Such laws often
impose liability whether or not the storage of such substances was in violation
of a tenants lease. In addition, the presence of hazardous or toxic substances,
or the failure to remedial such property properly may adversely affect the
Depositor-Sponsor ability to borrow using such real property as collateral. No
assurance can be given that the Depositor-Sponsor may not be presently liable or
potentially liable for any such costs in connection with real estate assets it
presently owns or subsequently acquires while the Assignment of Rents are held
in the
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Trust. In the case of some post offices, the U.S. Postal Service has the right
at any time during the lease terms to acquire the Leased Property at pre-set
prices. For instance, the leasee is entitled to acquire a property at the
completion of construction of the post office. While the landlord can expect to
receive a profit over the purchase price in that event, the Trust would be
foreclosed from receiving rental stream as expected.
FIXED RENTAL PAYMENTS. The Property Leases provide for a fixed rental
payment over the term of the lease. In this regard, they resemble bond type
interest payments. Because some of the leases do not adjust with inflation, they
are vulnerable to loss of value over time due to rising prices. If the
Depositor-Sponsor offered its Leased Property which is subject to net leases and
the Assignments of Rents therefrom for sale in a climate of rising prices, the
value that they could bring might be substantially less than what the Trust paid
to acquire the Assignments of Rents.
CONFLICTS OF INTEREST. The Depositor-Sponsor and its Affiliates are engaged
in businesses related to the business and objectives for which the Trust has
been organized and may have competing or conflicting interests and objectives.
Potential conflicts of interest include the following: (1) affiliates of the
Depositor-Sponsor will earn fees or profits, both directly and indirectly, in
connection with sales of the Units; (2) the Depositor-Sponsor and its affiliates
may earn profits, upon the acquisition of the rights to rental income via
Assignment of Rents from leases owned by them; and (3) the attorneys,
accountants and other advisors who have rendered services to the Trust may have
also rendered services to the Depositor-Sponsor or its Affiliates, or may be
affiliated with the Depositor-Sponsor.
BANKRUPTCY RELATED RISKS. If the Lessees were to become bankrupt and if the
bankruptcy trustee were to reject a Property Lease with the Owner, payments
needed by the Owner to repay any mortgage loan(s) would stop. Under Section
502(b)(6) of the Federal Bankruptcy Code, a claim by a lessor for damages
resulting from the rejection of the lease of real property in connection with
the bankruptcy proceedings affecting the lessee shall be allowed except to the
extent such claims exceeds:
a. the rent reserved by such lease, without acceleration, for the greater
of one year or fifteen (15%) percent not to exceed three years, of the remaining
term of such lease, following, the earlier of:
i. the date of the filing of the petition, and
ii. the date on which such lessor repossessed, or the lessee
surrendered, the leased property; plus
b. any unpaid rent due under such lease, without acceleration, on the
earlier of such dates.
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In any event, there can be no assurance that the damages for rejection of any
Property Lease would be sufficient to repay any mortgage loan(s). A foreclosure
by a mortgagee could cause the loss of a portion of an investors principal in
the Units.
LIMITED TRANSFERABILITY OF UNITS - MEDIUM TERM NATURE OF INVESTMENT. The
Units have limited transferability. Even though the Depositor-Sponsor will use
its best efforts to effect the sale or transfer of a Unit on behalf of any
Unitholder who may wish to sell a Unit, there is no public trading market for
the Units and none is expected to develop in the future.
Transfers of Units may result in significant adverse tax consequences to
the transferor. Because of the foregoing restrictions on transfer and the
potential adverse consequences of a transfer of a Unit, Unitholders of Units may
not be able to liquidate their investments in the event of emergency or for any
other reason. Also, Units may not be readily acceptable as collateral for a
loan. The purchase of Units should be considered only as a long term investment
and is not suitable for persons who may need to liquidate their investment. All
investment decisions with respect to the selection, acquisition, sale or
liquidation of the Securities will reside in the Depositor-Sponsor. The
Unitholders do not have a right to participate in these decisions. Accordingly,
no person should purchase any of the Units offered hereby unless willing to
entrust all aspects of the investment decisions regarding the Securities to the
Depositor-Sponsor.
LOSS OF VALUE OF SECURITIES. The securities included in the Trust portfolio
other than the Assignment of Rents may lose market value due to fluctuations in
interest rates or reduced creditworthiness of the issuers. This loss of value
may be reflected in the value of a Unit at the Mandatory Termination Date or
upon redemption being less than its purchase price.
LIMITED ROLE OF TRUSTEE. The Trustee has a limited role under the terms and
conditions of the Indenture, such that the Trustee operates on instructions from
the Depositor-Sponsor and holds the Securities as a custodian. The Trustee does
not have the authority under the Indenture to act in a fiduciary capacity. All
investment decisions and decisions with respect to the disposition of funds to
and from the Trust itself are made by the Depositor-Sponsor and not the Trustee.
The Trustee's role in protecting the Trust assets is limited and should not be
exclusively relied upon by any investor.
WHAT ARE THE SECURITIES?
The Trust assets will consist primarily of the Assignments of Rents. These
are contractual instruments that require the Depositor-Sponsor, as the owner and
lessor of commercial real estate leased to certain qualifying tenants, to
transfer to the Trust on a monthly basis the net rental income generated from
the leases. The Assignment of Rents provide for the transfer of the net rental
income to the Trust for a specified period of time.
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The end of the period set forth in the Assignment of Rents is coordinated with
the Mandatory Termination Date for the Trust, but the monthly payments to the
Trust could terminate sooner in the event of a default in the lease payments to
the Depositor-Sponsor or a default by the Depositor-Sponsor under the Assignment
of Rents.
Upon termination of the monthly payments under the Assignment of Rents, the
Depositor-Sponsor is required to sell or make other disposition of the Leased
Property. Within 180 days of the termination, the Depositor-Sponsor must pay to
the Trust an amount equal to the lesser of the Trust's original payment to the
Depositor-Sponsor upon purchasing the Assignment of Rents or the net proceeds
received by the Depositor-Sponsor upon the sale of the Leased Property.
In order for an Assignment of Rents to be deposited with the Trustee, the
Depositor-Sponsor must confirm that the following conditions have been met:
a) The property is leased to a single tenant pursuant to a net lease having
a remaining term of at least five (5) years. A "net lease" is a commercial lease
in which a majority of the costs of operating the Leased Property including real
estate taxes, insurance repairs and maintenance are paid for by the tenant as
part of its monthly rental payment to the landlord. The non-governmental tenant
is typically not responsible for capital costs such as roof replacement,
structural alterations or replacement of the mechanical, electrical or plumbing
systems.
b) The tenant under the lease is either a Fortune 500 company with a BBB+
or better Standard & Poor's or equivalent credit rating or a federal or state
agency or the U.S. Postal Service.
c) The aggregate indebtedness to lenders encumbering the leased property
cannot exceed 75 percent of the purchase price of the Leased Property at the
time it is acquired by the Depositor-Sponsor.
d) After its acquisition, the Depositor-Sponsor must hold fee simple title
in the Leased Property, subject only to the encumbrances referred to above and
any minor restrictions of record.
The Trust is also permitted to hold short term U.S. Treasuries, corporate
bonds rated B+ or better, bonds issued by state and local governments and
money-market funds. These Securities will typically be acquired by the Trust in
preparation for collecting sufficient funds in order for the Depositor-Sponsor
to acquire the Leased Property and thereby generate an Assignment of Rents for
the Trust. The Trust may also acquire short-term Securities in preparation for
making a distribution to the Unitholders. The purpose of these Securities is to
provide a return to the Trust on funds that are not at that time invested in the
Assignments of Rents. The Trust Indenture prohibits the Trust from using
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more than twenty-five percent (25%) of the Trust's assets to acquire any one
security for the Trust portfolio.
HOW ARE THE TRUST'S SECURITIES SELECTED FOR, SUBSTITUTED WITHIN, OR ELIMINATED
FROM THE PORTFOLIO?
The Indenture provides that the Trust's Securities must consist primarily
of Assignments of Rents and, secondarily, certain types of short-term debt
instruments and money market funds. The Assignments of Rents and the other
Securities are selected and acquired using the proceeds from the sale of Units
by the Depositor-Sponsor who then deposits these Securities in the Trust. The
selection criteria used by the Depositor-Sponsor are set forth in this
Prospectus. See "What are the Securities."
The Indenture has no specific requirements for the substitution or
elimination of Securities in the Trust portfolio. Such decisions are
discretionary with the Depositor-Sponsor. The Depositor-Sponsor may instruct the
Trustee to sell one or more Securities in order, in the Depositor-Sponsor's
judgment, to maintain a sound investment position for the Trust portfolio or if
there is a default in a debt Security held by the Trust or if the Leased
Property from which the Assignment of Rents is derived may be losing its tenant
or if a materially better yield can be achieved by substituting a new security
for one currently held by the Trust. There are many other examples which could
justify the Depositor-Sponsor's decision to eliminate one and substitute another
in the Trust's portfolio
WHAT ARE THE DEPOSITOR-SPONSOR'S PROFITS?
The Depositor-Sponsor may elect to receive from the net proceeds of the
Offering an acquisition fee of up to two percent (2%) of the purchase price of
the property required by the Depositor-Sponsor whose rents under the lease on
said property are assigned to the Trust. Whether or not the Depositor-Sponsor
elects to receive all or a portion or none of the two percent (2%) acquisition
fee depends on the effect of the fee on the target yield the Depositor-Sponsor
is seeking to achieve from the particular Assignment of Rents.
The Depositor-Sponsor is entitled to the profits, if any, that may result
after the leased properties are sold following the termination of the Trust
after the mandatory termination date. The Depositor-Sponsor must transfer to the
Trustee the lesser of the net proceeds from the sale of Leased Properties for
which the Trust holds Assignment of Rents or the purchase price paid by the
Trust for the Assignment of Rents. Therefore, when the Leased Properties are
sold and the amounts due the Trust have been paid, if there are net proceeds
from the sale of the leased properties in excess of the purchase amount paid by
the Trust to obtain the Assignments of Rents, the Depositor-Sponsor may elect to
(1) recover the organizational capital it invested in the Trust; and (2) retain
the remainder of any excess as a profit.
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The Depositor-Sponsor will receive a property management fee of four and
one-half percent (4.5%) of the collected rents from the leased properties. This
fee is paid from the rents to the Depositor-Sponsor with the net amount
thereafter paid to the Trust pursuant to the terms of the outstanding
Assignments of Rents.
A sales commission of four-point five percent (4.5%) per Unit may be earned
on each consummated sale of a Unit by the registered broker-dealers who enter
into distribution agreements with the Depositor-Sponsor. One of the potential
distributors of the Units has as one of its registered persons Gregory S.
Barton, who is also an officer of the Depositor-Sponsor.
HOW ARE INCOME AND CAPITAL DISTRIBUTED?
The Trustee will distribute any net income received with respect to any of
the Securities in the Trust on or about the Income Distribution Date to
Unitholders of record on the preceding Income Distribution Record Date. The
initial Income Distribution Date will be the last business day of the calendar
quarter that immediately follows the quarter in which the initial Assignment of
Rents is deposited into the Trust. Thereafter, the Income Distribution Date will
be the last business day of each calendar quarter through the Mandatory
Termination Date which is December 30, 2004. The Income Distribution Record Date
shall be the twentieth day of the month in which there is an Income Distribution
Date.
Distributions of capital may be made by the Trustee to the Unitholders if
(1) the Depositor-Sponsor, in its sole discretion, authorizes the Trustee to
redeem Unit(s) upon the written request of a Unitholder to the Trustee; and (2)
in the event of the termination of the Trust upon the Mandatory Termination Date
or otherwise as provided in the Trust Indenture.
Under regulations issued by the Internal Revenue Service, the Trustee is
required to withhold a specified percentage of any distribution made by the
Trust if the Trustee has not been furnished the Unitholder's tax identification
number in the manner required by such regulations. Any amount so withheld is
transmitted to the Internal Revenue Service and may be recovered by the
Unitholders only when filing a tax return. Under normal circumstances the
Trustee obtains the Unitholder's tax identification number from the selling
broker. However, a Unitholder should examine his or her statements from the
Trustee to make sure that the Trustee has been provided a certified tax
identification number in order to avoid this possible "back-up withholding." In
the event the Trustee has not been previously provided such number, one should
be provided as soon as possible.
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Within a reasonable time after the Trust is terminated, each Unitholder
will, upon surrender of his or her Units for redemption, receive the pro rata
share of the amounts realized upon the disposition of Securities up to 100% of
the initial capital
The Trustee will credit to the Income Account of the Trust any interest or
dividends received on the Securities therein. All other receipts (e.g., return
of capital, etc.) are credited to the Capital Account of the Trust.
The Trust may establish reserves within the Trust for state and local
taxes, if any, and any government charges payable out of the Trust.
WHAT REPORTS WILL UNITHOLDERS RECEIVE?
The Trustee shall furnish Unitholders in connection with each distribution
a statement of the amount of income, if any, and the amount of other receipts,
if any, which are being distributed, expressed in each case as a dollar amount
per Unit. Within a reasonable period of time after the end of each calendar
year, the Trustee shall furnish to each person who at any time during the
calendar year was a Unitholder of the Trust the following information in
reasonable detail: (1) a summary of transactions in the Trust for such year; (2)
any Securities sold during the year and the Securities held at the end of such
year by the Trust; and (3) amounts of income and capital distributed during such
year.
In order to comply with Federal and state tax reporting requirements,
Unitholders will be furnished, upon request to the Trustee, evaluations of the
Securities in the Trust furnished to it by the Evaluator.
HOW IS EVIDENCE OF OWNERSHIP ISSUED AND TRANSFERRED?
The Trustee is authorized to treat as the record owner of Units that person
who is registered as such owner on the books of the Trustee. The person who is
recorded as the initial owner of a Unit on the books of the Trustee is based
solely on the written information supplied by the Depositor-Sponsor as to the
purchaser of the Unit.
The holders of Units issued by the Trust may elect to be issued Unit
Certificates evidencing their interest in the Trust. Unit certificates will be
issued in fully registered form, transferable only on the books of the Trustee
in denominations of one Unit or any multiple thereof, numbered serially.
Otherwise, a holder's interest in the Trust is recorded on the Trustee's books,
but no Unit Certificate is issued. If a Unit Certificate that has been issued is
mutilated, destroyed, stolen or lost, the Trustee will issue a replacement
Certificate upon request. The holder is subject to being charged a fee for the
expenses of the Trustee in connection with the issuance of a replacement
certificate.
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Delivery of Unit Certificates requested is normally made three (3) business
days following receipt of a written request provided the minimum number of Units
have been subscribed and the proceeds from the Offering have been released to
the Depositor-Sponsor, Unit Certificates are transferable by presentation and
surrender to the Trustee properly endorsed or accompanied by a written
instrument or instruments of transfer. A Unit Certificate holder must sign
exactly as his or her name appears on the face of the Unit Certificate with the
guaranteed in a manner as is acceptable to the Trustee. Unit Certificates will
be issued in fully registered form, transferable only on the books of the
Trustee in denominations of one Unit or any multiple thereof, numbered serially.
WHAT IS THE FEDERAL TAX STATUS OF THE TRUST AND TAX TREATMENT OF THE UNITS?
This is a general discussion of certain of the Federal income tax
consequences of the purchase, ownership and disposition of the Units. The
summary is limited to investors who hold the Units as "capital assets"
(generally property held for investment) within the meaning of Section 1221 of
the Internal Revenue Code of 1986, as amended (the "Code"). Unitholders should
consult their tax advisors in determining the Federal, state, local and any
other tax consequences of the purchase, ownership and disposition of Units in
the Trust. The Trust Agreement authorizes the Trust to hold (i) assignments of
rent (ii) certain short term debt investments consisting of U.S. Treasuries,
corporate bonds rated B+ or better, debt obligations of state and local
governments collectively sometimes referred to as "Debt Securities"), and (iii)
interest in money market funds. The assignments of rents represent the lessor's
assignment to the Trust of future rental income to be received pursuant to a
commercial lease. The assignment of rents and the other investments approved for
the Trust are collectively referred to as the "Securities."
In the opinion of counsel for the Depositor-Sponsor under existing law:
1. The Trust is not an association taxable as a corporation for Federal
income tax purposes; each Unitholder will be treated as the owner of a pro rata
portion of each of the assets of the Trust under the Code; and the income of the
Trust will be treated as income of the Unitholders thereof under the Code. Each
Unitholder will be considered to have received his pro rata share of the income
derived from each Security when such income is considered to be received by the
Trust. Each Unitholder will also be required to include in taxable income for
Federal income tax purposes, any original issue discount with respect to his or
her interest applicable to any debt instruments held by the Trust at the same
time and in the same manner as though the Unitholder were the direct owner of
such interest.
2. Each Unitholder will be considered to have received all the rents and
interest paid on his or her pro rata portion of each Security when such rents
and interest are received by the Trust regardless of whether such rents or
interest are used to pay a non-deductible cost of the Trust charge.
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3. Each Unitholder will have a taxable event when the Trust disposes of a
Security (whether by sale, taxable exchange, liquidation, redemption, or
otherwise), or upon the sale or redemption of Units by such Unitholder. The
price a Unitholder pays for this or her Units, generally including sales
charges, is allocated among his or her pro rata proportion of each Security held
by the Trust (in proportion to the Trust's purchase costs thereof) in order to
determine his or her tax basis for his or her pro rata portion of each Security
held by such Trust.
4. A Unitholder's portion of gain, if any, upon the sale or redemption of
Units or the disposition of Securities held by the Trust will generally be
considered a capital gain. A Unitholder's portion of loss, if any, upon the sale
or redemption of Units or the disposition of Securities held by the Trust will
generally be considered a capital loss. Unitholders should consult their tax
advisors regarding the recognition of such capital gains and losses for Federal
income tax purposes.
THE DEBT SECURITIES -- PREMIUM. If a Unitholder's tax basis of his or her
pro rata portion in any Debt Security exceeds the amount payable by the issuer
of the Debt Security with respect to such pro rata interest upon maturity (or,
in certain cases, the call date) of the Debt Security, such excess would be
considered premium which may be amortized by the Unitholder at the Unitholder's
election as provided in Section 171 of the Code. Unitholders should consult
their tax advisors regarding whether such election should be made and the manner
of amortizing premium.
THE DEBT SECURITIES -- MARKET DISCOUNT. If a Unitholder's tax basis in his
or her pro rata portion of Debt Securities is less than the allocable portion of
such Debt Security's stated redemption price at maturity (or, if issued with
original issue discount, the allocable portion of its "revised issue price"),
such difference will constitute market discount unless the amount of market
discount is "de minimis" as specified in the Code. Market discount accrues daily
computed on a straight-line basis, unless the Unitholder elects to calculate
accrued market discount under a constant yield method. Unitholders should
consult their tax advisors as to the amount of market discount which accrues.
Accrued market discount is generally includable in taxable income to the
Unitholders as ordinary income for Federal tax purposes upon the receipt of
serial principal payments on the Debt Securities, on the sale, maturity or
disposition of such Debt Securities by the Trust, and on the sale by a
Unitholder of Units, unless a Unitholder elects to include the accrued market
discount in taxable income as such discount accrues. If a Unitholder does not
elect to annually include accrued market discount in taxable income as it
accrues, deductions for any interest expense incurred by the Unitholder which is
incurred to purchase or carry his or her Units will be reduced by such accrued
market discount. In general, the portion of any interest expense which was not
currently deductible would ultimately be deductible when the accrued market
discount is included in income. Unitholders should consult their tax advisors
regarding whether an election
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should be made to include market discount in income as it accrues and as to the
amount of interest expense which may not be currently deductible.
THE DEBT SECURITIES -- BASIS. The tax basis of a Unitholder with respect to
his or her interest in a Debt Security is increased by the amount of original
issue discount (and market discount, if the Unitholder elects to include market
discount, if any, on the Debt Securities in income as it accrues) thereon
properly included in the Unitholder's gross income as determined for Federal
income tax purposes and reduced by the amount of any amortized premium which the
Unitholder has properly elected to amortize under Section 171 of the Code. A
Unitholder's tax basis in his or her Units will equal his or her tax basis in
his or her pro rata portion of all of the assets of the Trust.
LIMITATIONS ON DEDUCTIBILITY OF THE TRUST'S EXPENSES BY UNITHOLDERS. Each
Unitholder's pro rata share of each expense paid by the Trust is deductible by
the Unitholder to the same extent as though the expense had been paid directly
by such Unitholder. It should be noted that as a result of the Tax Reform Act of
1986, certain miscellaneous itemized deductions, such as investment expenses,
tax return preparation fees and employee business expenses will be deductible by
an individual only to the extent they exceed 2% of such individual's adjusted
gross income. Unitholders may be required to treat some or all of the expenses
of the Trust as miscellaneous itemized deductions subject to this limitation.
Unitholders should consult with their tax advisors regarding limitations on the
deductibility of Trust expenses.
RECOGNITION OF TAXABLE GAIN OR LOSS UPON DISPOSITION OF SECURITIES BY THE
TRUST OR DISPOSITION OF UNITS. As discussed above, Unitholder may recognize
taxable gain (or loss) when a Security is disposed of by the Trust. The Internal
Revenue Service Restructuring and Reform Act of 1998 (the "1998 Tax Act")
provides that for taxpayers other than corporations, net capital gain (which is
defined as net long-term capital gain over net short-term capital loss for the
taxable year) realized from property (with certain exclusions) is subject to a
maximum marginal stated tax rate of 20% (10% in the case of certain taxpayers in
the lowest tax bracket). Capital gain or loss is long-term if the holding period
for the asset is more than one year and is short-term if the holding period for
the asset is one year or less.
If the Unitholder disposes of a Unit, he or she is deemed thereby to have
disposed of his or her entire pro rata interest in all assets of the Trust
including his or her pro rata portion of all the Securities represented by the
Unit. This may result in a portion of the gain, if any, on such sale being
taxable as ordinary income under the market discount rules (assuming no election
was made by the Unitholder to include market discount in income as it accrues)
as previously discussed. The Code includes provisions that treat certain
transactions designed to reduce or eliminate risk of loss and opportunities for
gain (e.g., short sales, offsetting notional principal contracts, futures or
forward contracts, or similar transactions) as constructive sales for purposes
of recognition of gain (but not loss) and for
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purposes of determining the holding period. Unitholders should consult their own
tax advisors with regard to any such constructive sales rules.
COMPUTATION OF THE UNITHOLDER'S TAX BASIS. Initially, a Unitholder's tax
basis in his or her Units will generally equal the price paid by such Unitholder
for his or her Units. The cost of the Units is allocated among the Securities
held in the Trust in accordance with the proportion of the fair market values of
such Securities on the valuation date nearest the date the Units are purchased
in order to determine such Unitholder's tax basis for his or her pro rata
portion of each Security.
FOREIGN INVESTORS. A Unitholder who is a foreign investor (i.e., an
investor other than a U.S. citizen or resident or a U.S. corporation,
partnership, estate or trust) will generally be subject to United States Federal
income taxes, including withholding taxes, on distributions from the Trust
relating to such investor's share of income paid on the assignments of rent.
However, interest income on the Debt Securities, or any gain from the sale or
other disposition of, his or her pro rata interest in any Security or the sale
of his or her Units will not be subject to United States Federal income taxes,
including withholding taxes, provided that certain special conditions are met.
Unitholders and prospective investors should consult with their tax advisors
regarding the potential effect of this provision on their investment in Units.
GENERAL. Each Unitholder will be requested to provide the Unitholder's
taxpayer identification number to the Trustee and to certify that the Unitholder
has not been notified that payments to the Unitholder are subject to back-up
withholding. If the property taxpayer identification number and appropriate
certification are not provided when requested, distributions by the Trust to
such Unitholder (including amounts received upon the redemption of Units) will
be subject to back-up withholding.
At the termination of the Trust, the Trustee will furnish to each Unitholder a
statement containing information relating to the income received by the Trust on
the Securities, the gross proceeds received by the Trust from the disposition of
any Security (resulting from redemption or the sale of any Security) and the
fees and expenses paid by the Trust. The Trustee will also furnish annual
information returns to Unitholders and to the Internal Revenue Service.
Unitholders desiring to purchase Units for tax-deferred plans and IRAs
should consult their broker for details on establishing such accounts. Units may
also be purchased by persons who already have self-directed plans established.
See "Are Investments in the Trust Eligible for Retirement Plans?"
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ARE INVESTMENTS IN THE TRUST ELIGIBLE FOR RETIREMENT PLANS?
Units of the Trust are eligible for purchase by Individual Retirement
Accounts, Keogh Plans, pension funds and other tax-deferred retirement plans.
Generally, the Federal income tax relating to capital gains and income received
in each of the foregoing plans is deferred until distributions are received.
Distributions from such plans are generally treated as ordinary income but may,
in some cases, be eligible for special averaging or tax-deferred rollover
treatment. Investors considering participation in any such plan should review
specific tax laws relating thereto and should consult their attorneys or tax
advisors with respect to the establishment and maintenance of any such plan.
Such plans are offered by brokerage firms and other financial institutions. Fees
and charges with respect to such plans may vary.
HOW MAY UNITS BE REDEEMED OR TRANSFERRED?
The Unitholders are not granted any rights to withdraw or redeem their
investment in the Trust unilaterally. They can make a written request to the
Trustee to redeem all or any portion of their Units. Whether or not the Units
will be redeemed is discretionary with the Depositor-Sponsor. The Trustee shall
only redeem those Units for which it has written authorization from the
Depositor-Sponsor. The Depositor-Sponsor may charge a reasonable fee to a
Unitholder who is permitted to redeem his or her Units to cover the
Depositor-Sponsor's reasonable administrative costs incurred in effecting the
redemption. The Depositor-Sponsor may also deduct from the proceeds due the
redeeming Unitholder the Unitholder's share of any taxes or charges incurred by
the Trustee in connection with the redemption.
The Unitholders have no right to convert their Units into another security.
A Unitholder may transfer his or her Unit(s) to any other party by providing a
written transfer instrument including transfer instructions signed by the
Unitholder and the transferee to the Trustee. Unitholders will not receive
certificates evidencing their Units of beneficial interest in the Trust unless
requested in writing, in which case the Trustee will, upon receiving proper
notification, issue a Unit certificate to the requesting Unitholder. Partial
redemptions of a Unitholder's interest in the trust are permitted in the
discretion of the Depositor-Sponsor.
Prior to termination of the Trust, there is no right of a Unitholder to
receive funds from the Trust in exchange for his/or her Unit(s) or to require
any party to acquire his or her Unit(s).
The Units that are redeemed will be cancelled by the Trustee. The Indenture
grants the Depositor-Sponsor the right to sell additional Units to replace those
that were redeemed.
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The redemption price for Units of the Trust is calculated by using the
exchange or over the counter asked quotations for Trust's traded Securities and
the original purchase cost or an updated independent appraiser valuation, if
applicable, for the Assignment(s) of Rents.
The value determined for an Assignment of Rents is, initially, the price
paid for the Assignment less any transaction costs (e.g., legal fees, real
estate brokerage, recording costs, etc.) associated with the creation and
transfer to the Trust of the Assignment.
The price of Units being redeemed is determined by the most recent
quarterly evaluation of the Trust portfolio. This evaluation is required to be
made by the Depositor-Sponsor and then presented to the Trustee.
HOW MAY THE INDENTURE BE AMENDED OR TERMINATED?
Unitholders do not have any voting rights except as to proposed amendments
to the Indenture. Amendments to the Indenture that propose to change the type of
securities deposited in the Trust as described in this Prospectus and amendments
that propose to reduce the percentage of Unitholder approval required for
changes to the Indenture require the affirmative vote of all Unitholders. All
other proposed amendments require the approval of Unitholders holding more than
50 percent of the Units outstanding. The Unitholders with more than 50 percent
of the Units outstanding may vote to appoint a successor Depositor-Sponsor to
terminate the Trust and to liquidate the Trust Fund.
The Unitholders are not required to be given notice nor is their consent
required of any change in composition of the assets of the Trust provided such
change is still within the categories of Securities described in this
Prospectus. The Unitholders are required to be given notice of any proposed
change to the Units if such change requires an amendment to the Trust Indenture.
For example, if a proposal called for the elimination of Unit certificates for
those Unitholders who request that the Trustee issue to them certificates
evidencing their ownership of Units in the Trust, such a change, because it
would require an amendment to the Trust Indenture, would correspondingly require
prior notice to the Unitholders. On the other hand, a proposal to increase or
decrease the purchase price per Unit to be paid by prospective Unitholders would
not require notice to the Unitholders because it would not involve amendment the
Trust Indenture.
The Unitholders must be given notice (and must vote on) any proposed change
in the Indenture, except where the change is instituted to cure an ambiguity,
defect or inconsistency in the Indenture or where the change will not adversely
affect the interest of the Unitholders. The Unitholders must be given notice of
any party named a successor to the Depositor-Sponsor by the Trustee. The
Unitholders must also be given notice of a change in Trustees by the successor
trustee. The consent of more than 50% of the Unitholders is required in
connection with the naming of a successor to the Depositor-
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Sponsor. The consent of the Unitholders is not required in connection with the
naming of a successor to the Trustee.
WHO IS THE DEPOSITOR-SPONSOR AND WHAT ARE ITS FUNCTIONS?
Genesis Financial Group, Inc., a Michigan corporation which commenced
business in 1994, is the Depositor-Sponsor for the Trust. It has organized and
sponsored other non-public investment unit trusts. It has experience in
identifying single user leased properties and acquiring those properties subject
to net leases with large corporate or government tenants.
The Depositor-Sponsor has contributed capital to or on behalf of the Trust
for its organization and in order to pay various costs incurred in connection
with the offering of the Units. The Depositor-Sponsor is responsible for the
selection and acquisition of leased properties meeting the criteria set forth in
this Prospectus and from which Assignments of Rents are derived which are then
deposited in the Trust. The Depositor-Sponsor has discretion as to the
substitution or elimination of Securities in the Trust portfolio. It has
discretion as to the redemption of Units at the request of Unitholders. It has
discretion to remove and replace the Trustee.
The Depositor-Sponsor is required to repurchase the Assignments of Rents
and liquidate the other Securities at the termination of the Trust. The
repurchase price for an Assignment of Rents is an amount equal to the lesser of
the net amount the Depositor-Sponsor receives from the sale of the Leased
Property to which said Assignment of Rents applies or the amount the
Depositor-Sponsor received upon depositing the Assignment of Rents with the
Trust to become part of the Trust portfolio.
The Indenture provides that the Securities held by the Trustee must be
evaluated by the Depositor-Sponsor when they are deposited with the Trustee and
thereafter at the end of each calendar quarter. If the Securities carry a public
market price, it is the current asked price for purposes of making the
evaluation of such Securities. Other Securities with no public market price,
specifically the Assignment(s) of Rents, are valued at the Unitholders' total
investment in the purchase costs of said Assignment(s) of Rents less any
transaction expenses. The Depositor-Sponsor will use this value until such time
as it determines that a new value should be used based on changed market or
economic conditions, breached lease terms or the like, in which case the
Depositor-Sponsor shall obtain the Assignment of Rents to be paid for by
Depositor-Sponsor without reimbursement from the Trust.
The President and sole shareholder of the Depositor-Sponsor is D. James
Barton. Mr. Barton, age 56 is a lawyer who manages the Depositor-Sponsor's
business with his son, Gregg S. Barton, age 29. The Depositor-Sponsor currently
has two additional employees, a financial analyst and an administrative
assistant.
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WHO IS THE TRUSTEE AND HOW IS IT CHOSEN?
The Trustee is Citizens First Savings Bank of Port Huron, Michigan. The
Trustee is a mutual, state-chartered savings bank organized under the laws of
the State of Michigan and regulated primarily by the State of Michigan.
Under the Indenture the Trustee performs various custodial, record keeping
and notice functions. It generally cannot exercise discretionary decision-making
powers. Such power is given to the Depositor-Sponsor or, in some limited cases,
to the Unitholders themselves.
The Trustee is entitled to fees determined according to a formula or based
on certain functions the Trustee performs. It is also entitled to reimbursement
of direct expenses incurred on behalf of the Trust. Under the Indenture the
Trustee is granted a lien on the Income and Capital Accounts of the Trust, which
is superior to the claims of the Unitholders, for amounts due the Trustee in
fees or for expense reimbursements.
The Depositor-Sponsor has the power to remove the Trustee and replace it
with a new Trustee. In the event of the resignation of a Trustee, the successor
is also appointed by the Depositor-Sponsor. If no successor has been appointed
after 30 days, the withholding Trustee may apply to a court for the appointment
of a successor Trustee. If no successor is appointed through this process, the
Unitholders may vote to terminate the Trust.
TO WHAT EXTENT CAN THE DEPOSITOR-SPONSOR OR THE TRUSTEE BE HELD LIABLE TO
THE UNITHOLDERS?
The Depositor-Sponsor is not liable to the Unitholders for any action it
takes or refrains from taking in good faith pursuant to the Indenture or for any
errors in judgment. The Depositor-Sponsor may be held liable to the Unitholders
for its own willful misfeasance, bad faith or negligence in the performance of
its duties under the Indenture or pursuant to this Prospectus or by reason of a
reckless disregard of those duties.
The Trustee is liable only for its own gross negligence or willful
misfeasance. It is not liable for any act or omission it does or does not do in
good faith and where it believes its conduct is directly authorized or within
the rights and powers conferred to the Trustee under the Indenture.
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CROSS-REFERENCE SHEET
<TABLE>
Form N-8B-2 Item Number Form S-6 Heading in Prospectus
<S><C>
I. ORGANIZATION AND GENERAL INFORMATION
1. (a) Name of Trust Prospectus front cover
(b) Title of securities issues Summary of Essential Information
2. Name and address of depositor Summary of Essential Information
3. Name and address of trustee Summary of Essential Information
4. Name and address of principal underwriters *
5. State of organization of trust What is Gen-Net Realty Unit Investment Trust?
6. Execution and termination of trust agreement General Information
7. Changes of name *
8. Fiscal year General Information
9. Litigation *
II. GENERAL DESCRIPTION OF THE TRUST AND SECURITIES OF THE TRUST
10. (a) Registered or bearer securities What are the Offering Terms?
(b) Cumulative or distributive securities How are Income and Capital Distributed?
(c) Redemption How May Units be Redeemed or Transferred?
(d) Conversion, transfer, etc. How May Units be Redeemed or Transferred:
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(e) Periodic payment plan *
(f) Voting rights How May the Indenture be Amended or Terminated?
(g) Notice of certificateholders How May the Indenture be Amended or Terminated?
(h) Consents required How May the Indenture be Amended or Terminated?
(i) Other provisions Who is the Depositor-Sponsor?
What are its functions?
11. Types of securities comprising units What are the Securities?; What is Gen-Net Realty
Unit Investment Trust?
12. Certain information regarding periodic *
payment certificates
13. (a) Load, fees, expenses, etc. What are the Depositor-Sponsor's Profits; How are
Capital and Income Distributed?
(b) Certain information regarding periodic *
payment certificates
(c) Certain percentages Summary of Essential Information; What are the
Depositor-Sponsor's Profits?
(d) Certain other fees, etc. payable by holders General Information
(e) Certain profits receivable by depositor, General Information; What are the
principal underwriters, trustee or Depositor-Sponsor's Profits?
affiliated persons
(f) Ratio of annual charges to income What are the Offering Terms?
14. Issuance of trust's securities What are the Offering Terms?
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15. Receipt and handling of payments from *
purchasers
16. Acquisition and disposition of underlying What are the Securities?; How are the Trust's
securities Securities Selected for, Substituted within, or
Eliminated from the Portfolio?
17. Withdrawal or redemption How may Units be Redeemed or Transferred?
18. (a) Receipt, custody and disposition of income Unit Investment Trust?; How are Income and Capital
Distributed?
(b) Reinvestment of distributions *
(c) Reserves or special funds *
(d) Schedule of distributions How are Income and Capital Distributed?
19. Records, accounts and reports What Reports Will Unitholders Receive?
20. Certain miscellaneous provisions of trust
agreement
(a) Amendment How May the Indenture be Amended or Terminated?
(b) Termination How May the Indenture be Amended or Terminated?
(c) and (d) Trustee, removal and successor Who is the Depositor-Sponsor and What are its
Functions?; Who is the Trustee and How is it Chosen?
(e) and (f) Depositor, removal and successor How May the Indenture be Amended or Terminated?
21. Loans to security holders *
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22. Limitations on liability To What Extent can the Depositor-Sponsor or the
Trustee of held Liable to Unitholders?
23. Bonding arrangements *
24. Other material provisions of trust agreement *
III. ORGANIZATION, PERSONNEL AND AFFILIATED PERSONS OF DEPOSITOR
25. Organization of depositor Who is the Depositor-Sponsor and What are its
Functions?
26. Fees received by depositor What are the Depositor-Sponsor's Profits?
27. Business of depositor Who is the Depositor-Sponsor and What are its
Functions?
28. Certain information as to officials and Who is the Depositor-Sponsor and What are its
affiliated persons of depositor Functions?
29. Voting securities of depositor *
30. Persons controlling depositor Who is the Depositor-Sponsor and What are its
Functions?
31. Payment by depositor for certain services *
rendered to trust
32. Payment by depositor for certain other *
services rendered to trust
33. Remuneration of employees of depositor for *
certain services rendered to trust
34. Remuneration of other persons for certain *
services rendered to trust
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IV. DISTRIBUTION AND REDEMPTION
35. Distribution of trust's securities by states *
36. Suspension of sales of trust's securities *
37. Revocation of authority to distribute *
38. (a) Method of distribution What are the Offering Terms?
(b) Underwriting agreements *
(c) Selling agreements What are the Offering Terms?
39. (a) Organization of principal underwriters *
(b) N.A.S.D. membership of principal underwriters What are the Offering Terms?
40. Certain fees received by principal *
underwriters
41. (a) Business of principal underwriters *
(b) Branch offices of principal underwriters *
(c) Salesmen of principal underwriters *
42. Ownership of trust's securities by certain *
persons
43. Certain brokerage commissions received by *
principal underwriters
44. (a) Method of valuation Who is the Depositor-Sponsor and What are its
Functions?
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(b) Schedule as to offering price *
(c) Variation in offering price to certain persons *
45. Suspension of redemption rights *
46. (a) Redemption valuation How May Units be Redeemed or Transferred?
(b) Schedule as to redemption price *
47. Maintenance of position in underlying *
securities
V. INFORMATION CONCERNING THE TRUSTEE OR CUSTODIAN
48. Organization and regulation of trustee Who is the Trustee and How is it Chosen?
49. Fees and expenses of trustee Who is the Trustee and How is it Chosen?
50. Trustee's lien Who is the Trustee and How is it Chosen?
VI. INFORMATION CONCERNING THE INSURANCE OF HOLDERS OF SECURITIES
51. Insurance of holders of trust's securities *
VII. POLICY OF REGISTRANT
52. (a) Provisions of trust agreement with respect to How are the Trust's Securities Selected for,
selection or elimination of underlying Substituted within, or Eliminated from the
securities Portfolio?
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(b) Transactions involving elimination of How are the Trust's Securities Selected for,
underlying securities Substituted within, or Eliminated from the
Portfolio?
(c) Policy regarding substitution or elimination How are the Trust's Securities Selected for,
of underlying securities Substituted within, or Eliminated from the
Portfolio?
(d) Fundamental policy not otherwise covered *
53. Tax status of Trust What is the Federal Tax Status of the Trust and Tax
Treatment of the Units?
VIII. FINANCIAL AND STATISTICAL INFORMATION
54. Trustee's securities during last ten years *
55.
56.
57. Certain information regarding periodic *
payments
58. Financial statements To be supplied by amendment
</TABLE>
* Inapplicable, answer negative or not required.
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UNDERTAKING TO FILE REPORTS
Subject to the terms and conditions of Section 15(d) of the Securities
Exchange Act of 1934, the undersigned registrant hereby undertakes to file with
the Securities and Exchange Commission such supplementary and periodic
information, documents and reports as may be prescribed by any rule or
regulation of the Commission heretofore or hereafter duly adopted pursuant to
authority conferred in that section.
CONTENTS OF REGISTRATION STATEMENT
This registration statement comprises the following papers and documents:
The facing sheet.
The prospectus consisting of 25 pages.
The undertaking to file reports.
The signatures.
The cross-reference sheet reconciling information in the Prospectus with
the items of Form N-8B-2.
Written consents of the following persons: The respective written consents
of the Trust's accountants and counsel to use if their names in the Prospectus
shall be filed by pre-effective amendment as exhibits to this Registration
Statement.
The following exhibits:
Exhibit 1.1 - Gen-Net Realty Unit Investment Trust Trust Agreement dated April
2000 (incorporated by reference to Form N-8B2 (File No. ___________________)
filed on behalf of Gen-Net Realty Unit Investment Trust Corporate-Government
Series).
Exhibit 1.2 - Form of Amended and Restated Trust Agreement between Genesis
Financial Group, Inc. and Citizens First Savings Bank as trustee (incorporated
on behalf of Gen-Net Realty Unit Investment Trust Corporate-Government Series).
Exhibit 1.3 - Form of Distribution Agreement (incorporated by reference to Form
N-8B2 (File No. __________________) filed on behalf of Gen-Net Realty Unit
Investment Trust Corporate-Government Series).
Exhibit 1.4 - Form of Escrow Agreement (incorporated by reference to Form
N-8B2 (File No. __________________) filed on behalf of Gen-Net Realty Unit
Investment Trust Corporate-Government Series).
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Exhibit 1.5 - Form of Assignment of Rents and Security Agreement by and between
Genesis Financial Group, Inc., Gen-Net Realty Unit Investment Trust,
Corporate-Government Series and Citizens First Savings Bank as Trustee
(incorporated by reference to Form N-8B2 (File No.______________) filed on
behalf of Gen-Net Realty Unit Investment Trust Corporate-Government Series).
Exhibit 1.6 - Form of Security (incorporated by reference to Form N-8B2 (File
No. ____________) filed on behalf of Gen-Net Realty Unit Investment Trust
Corporate-Government Series).
Exhibit 1.7 - Certificate of Incorporation and by-laws of Genesis Financial
Group, Inc. (incorporated by reference to Form N-8B2 (File No.
_____________________) filed on behalf of Gen-Net Realty Unit Investment Trust
Corporate-Government Series).
Exhibit 1.8 - Code of Ethics - (incorporated by reference to Form N-8B2 (File
No. _____________________) filed on behalf of Gen-Net Realty Unit Investment
Trust Corporate-Government Series).
Exhibit 2 - Option of Counsel (to be filed by pre-effective amendment).
Exhibit 3 - Financial Statements (to be filed by pre-effective amendment).
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant,
Gen-Net Realty Unit Investment Trust, Corporate and Government Series, has duly
caused this registration statement to be signed on its behalf by the undersigned
thereunto duly authorized, and its seal to be hereunto affixed and attested, all
in the City of Southfield, and State of Michigan on the 10th day of May, 2000.
GEN-NET REALTY UNIT INVESTMENT
TRUST, CORPORATE AND GOVERNMENT
SERIES
By Genesis Financial Group, Inc.
Attest: /s/ Gregory S. Barton By: /s/ James Barton
-------------------------- ----------------------------------
Gregory S. Barton D. James Barton, President
Secretary
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