<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 [Fee Required]
For the fiscal year ended December 31, 1998 or
---------------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period to
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Commission file number 0-18407
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Wells Real Estate Fund III, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-1800833
- - ------------------------------- -----------------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road,
Norcross, Georgia 30992
- - --------------------------- -----------------------------------------------
(Address of principal (Zip code)
executive offices)
Registrant's telephone number, including area code (770)449-7800
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of exchange on which registered
- - ------------------------------- -------------------------------------------
NONE NONE
- - ------------------------------- -------------------------------------------
Securities registered pursuant to Section 12(g) of the Act:
CLASS A UNITS
- - --------------------------------------------------------------------------------
(Title of Class)
CLASS B UNITS
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
---- ----
Aggregate market value of the voting stock held
by non-affiliates: Not Applicable
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PART I
ITEM 1. BUSINESS
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General
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Wells Real Estate Fund III, L.P. (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Capital, Inc., a Georgia
corporation, as General Partners. The Partnership was formed on July 31, 1988,
for the purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise managing for investment purposes income-
producing commercial or industrial properties.
On October 24, 1988, the Partnership commenced a public offering of its limited
partnership units pursuant to a Registration Statement filed on Form S-11 under
the Securities Act of 1933. The Partnership terminated its offering on October
23, 1990, and received gross proceeds of $22,206,310 representing subscriptions
from 2,700 Limited Partners, composed of two classes of limited partnership
interests, Class A and Class B limited partnership units.
The Partnership owns interests in properties directly and through equity
ownership in the following joint ventures: (i) the Fund II - Fund III Joint
Venture, (ii) the Fund II, III, VI and VII Joint Venture, and (iii) the Fund III
- - - Fund IV Joint Venture.
As of December 31, 1998, the Partnership owned interest in the following
properties: (i) the Greenville Property, an office building in Greenville,
North Carolina, owned by the Partnership, (ii) The Atrium, an office building
in Houston, Texas, owned by the Fund II - Fund III Joint Venture, (iii) the
Brookwood Grill, a restaurant located in Roswell, Georgia, owned by the Fund II
- - - Fund III Joint Venture, (iv) the Stockbridge Village Shopping Center, a retail
shopping center located in Stockbridge, Georgia, southeast of Atlanta, owned by
the Fund III - Fund IV Joint Venture, (v) the G.E. Office Building located in
Richmond, Virginia, owned by the Fund III - Fund IV Joint Venture, and (vi) an
office/retail center in Roswell, Georgia, owned by the Fund II, III, VI and VII
Joint Venture. All of the foregoing properties were acquired on an all cash
basis.
Employees
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The Partnership has no direct employees. The employees of Wells Capital, Inc.,
a General Partner of the Partnership, perform a full range of real estate
services including leasing and property management, accounting, asset management
and investor relations for the Partnership. See Item 11 - "Compensation of
General Partners and Affiliates" for a summary of the compensation and fees paid
to the General Partners and their affiliates during the fiscal year ended
December 31, 1998.
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Insurance
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Wells Management Company, Inc., an affiliate of the General Partner, carries
comprehensive liability and extended coverage with respect to all the properties
owned directly or indirectly by the Partnership. In the opinion of management
of the registrant, the properties are adequately insured.
Competition
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The Partnership will experience competition for tenants from owners and managers
of competing projects which may include the General Partners and their
affiliates. As a result, the Partnership may be required to provide free rent,
reduced charges for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the Partnership
elects to dispose of its properties, the Partnership will also be in competition
with sellers of similar properties to locate suitable purchasers for its
properties.
ITEM 2. PROPERTIES
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The Partnership owns six properties directly or through its ownership in joint
ventures of which three are office buildings, one a restaurant, one a retail
building and one a retail/office project. The Partnership does not have control
over the operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint ventures is recorded on the equity
method. As of December 31, 1998, these properties were 98.0% occupied, compared
to 96.0% at December 31, 1997, 98.0% at December 31, 1996, and 97.0% at December
31, 1995.
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1998, assuming no exercise of renewal options
or termination rights:
<TABLE>
<CAPTION>
Partnership Percentage of
Share of Total
Number of Annualized Annualized Percentage of Annualized
Year of Lease Leases Square Feet Gross Base Gross Base Total Square Gross Base
Expiration Expiring Expiring Rent(1) Rent(1) Feet Expiring Rent
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 7 14,790 206,393 105,507 5.18% 5.01%
2000(2) 2 44,400 549,060 314,721 15.56% 13.32%
2001(3) 7 34,734 739,446 488,618 12.17% 17.94%
2002(4) 16 50,434 787,242 281,312 17.67% 19.10%
2003 5 129,955 1,623,706 673,919 45.54% 39.40%
2004 0 0 0 0 0.00% 0.00%
2005 0 0 0 0 0.00% 0.00%
2006 1 5,935 122,294 11,031 2.08% 2.97%
2007 0 0 0 0 0.00% 0.00%
2008 1 5,124 93,336 53,500 1.80% 2.26%
- - -----------------------------------------------------------------------------------------------------------------------------------
39 285,372 $4,121,477 $1,928,608 100.00% 100.00%
</TABLE>
3
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(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of General Electric.
(3) Expiration of IBM with 23,322 square feet at the Greenville Property and
the Brookwood Grill with 7,440 square feet.
(4) Expiration of Boeing at The Atrium with 119,040 square feet.
The following describes the properties in which the Partnership owns an interest
as of December 31, 1998:
The Greenville Property/ Fund III
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On June 30, 1990, the Partnership acquired a 2.34 acre tract of land located in
Greenville, North Carolina (the "Greenville Property") for a purchase price of
the land of $576,350, including acquisition expenses for the purpose of
developing, constructing and operating a two-story office building containing
approximately 34,300 rentable square feet. As of December 31, 1998, the
Partnership had expended approximately $3,778,000 for the acquisition,
development and construction of the Greenville Project.
The occupancy rate at the Greenville Property at year end was 92% in 1998 and
1997, 100% in 1996, 1995, and 1994.
The average effective annual rental per square foot at the Greenville Property
was $16.43 for 1998, $16.66 for 1997, $17.40 for 1996, $17.01 for 1995,and
$16.73 for 1994.
One tenant occupies ten percent or more of the rentable square footage -
International Business Machines Corporation ("IBM"), a computer sales and
service corporation.
The Partnership entered into a net lease with IBM for a portion of the first
floor and the entire second floor of the Greenville Property representing
approximately 23,300 rentable square feet or approximately 67% of the Greenville
Project. The initial term of the IBM lease is nine years and ten months and
commenced in April of 1991. IBM has the option to extend the initial term of
the lease for two consecutive five-year periods. The annual base rent payable
under the IBM lease is $462,242, net of all expenses of operation, and is
payable in monthly installments of $38,520.17. The annual base rent will
increase in the sixth year of the initial term of the lease to $478,101 payable
in equal monthly installments of $39,841.75 and will remain constant for each of
the subsequent years in the initial term of the lease. In addition to the base
rent, IBM is required to pay additional rent equal to its share of all operating
expenses during the lease term.
The lease provides IBM with the right of first refusal to purchase the
Greenville Property should the Partnership receive a bona fide offer from the
third party to purchase the Greenville Property during the term of the lease.
IBM also has the right of first refusal to lease all or a portion of any
4
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space which may from time to time become available. The IBM lease also provides
that the Partnership will not lease or consent to any sublease to any entity
which, as a major part of its business engages in sales and services similar to
those of IBM.
The Atrium/Fund II - Fund III Joint Venture
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On April 3, 1989, the Partnership formed a joint venture (the "Fund II - Fund
III Joint Venture") with an existing joint venture (the "Fund II - Fund II-OW
Joint Venture") previously formed between Wells Real Estate Fund II ("Wells Fund
II") and Wells Real Estate Fund II-OW ("Wells Fund II-OW"). Wells Fund II and
Wells Fund II-OW are public limited partnerships affiliated with the Partnership
through common general partners with investment objectives substantially
identical to those of the Partnership.
In April 1989, the Fund II - Fund III Joint Venture acquired a four-story office
building located on a 5.6 acre tract of land adjacent to the Johnson Space
Center in metropolitan Houston, in Nassau Bay, Harris County, Texas, known as
"The Atrium at Nassau Bay" (the "Atrium").
The funds used by the Fund II - Fund III Joint Venture to acquire the Atrium
were derived from capital contributions made to the Fund II - Fund III Joint
Venture by the Fund II - Fund II-OW Joint Venture and the Partnership in the
amounts of $8,327,856 and $2,538,000, respectively, for total initial capital
contributions of $10,865,856. As of December 31, 1998, the Fund II - Fund II-OW
Joint Venture and the Partnership had made total capital contributions to the
Fund II - Fund III Joint Venture of approximately $8,330,000 and $4,448,000,
respectively, for the acquisition and development of the Atrium.
The Atrium was first occupied in 1987 and contains approximately 119,000 net
rentable square feet. Each floor of the Atrium was originally under a separate
lease to Lockheed Engineering and Science Company, Inc., a wholly-owned
subsidiary of the Lockheed Company, each of which leases had terms of
approximately eight years and expired on June 30, 1996, and upon which date
Lockheed vacated the property.
On March 3, 1997, a lease was signed with The Boeing Company for the entire
Atrium building. The lease is for a period of five years with an option to
renew for an additional five year term. The rental rate for the first three
years of the lease term is $12.25 per square foot and $12.50 per square foot for
the final two years of initial lease term. The rate for the optional five year
term will be determined based upon then current market rates. Upon 150 day
prior written notice, Boeing has the right to cancel its lease in the event that
NASA or another prime contractor were to cancel or substantially reduce its
contract. In addition, there is a no-cause cancellation provision at the end of
the first three year period. If this no-cause cancellation is exercised, Boeing
would be required to pay unamortized, up-front tenant improvement costs. The
lease also provides that tenant will pay certain operating expenses in excess of
$5.50 per square foot on an annual basis.
Boeing began the move-in phase of its occupancy on April 15, 1997, and occupied
The Atrium and began paying rent on May 15, 1997. The total cost of completing
the required tenant improvements and outside broker commissions of approximately
$1.4 million was funded out of reserves and cash
5
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flows of the Partnership, Wells Fund II and Wells Fund II-OW. As of December 31,
1998, the Partnership had contributed approximately $659,810, Fund II had
contributed approximately $387,752, Wells Fund II OW had contributed
approximately $21,744, and Fund II Fund III Joint Venture had contributed
$330,694 to fund the tenant improvements and outside broker commissions
required. The ownership percentages in The Atrium have been adjusted as a result
of these additional capital contributions, and as of December 31, 1998, the Fund
II, Fund II-OW Joint Venture holds an equity interest of approximately 61%, and
the Partnership holds an equity interest of approximately 39% in the Atrium
Project.
The Brookwood Grill Property/Fund II - Fund III Joint Venture
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On January 31, 1990, the Fund II - Fund II-OW Joint Venture acquired a 5.8 acre
tract of undeveloped real property at the intersection of Warsaw Road and
Holcomb Bridge Road in Roswell, Fulton County, Georgia (the "Holcomb Bridge
Road Property"). The Fund II - Fund II-OW Joint Venture paid $1,848,561,
including acquisition expenses, for the 5.8 acre tract of undeveloped property.
On September 20, 1991, the Fund II - Fund II-OW Joint Venture contributed
approximately 1.5 acres of the Holcomb Bridge Road Property (the "Brookwood
Grill Property"), along with its interest as landlord under the lease agreement
referred to below, as a capital contribution to the Fund II - Fund III Joint
Venture. As of September 20, 1991, the Fund II - Fund II-OW Joint Venture had
expended approximately $2,128,000 for the land acquisition and development of
the Brookwood Grill Property.
As of September 20, 1991, a lease agreement was entered into with the Brookwood
Grill of Roswell, Inc. for the development of approximately 1.5 acres and the
construction of a 7,440 square foot restaurant. This Roswell site, which opened
early in March 1992, is the second location in the Atlanta area for what is
anticipated as a southeastern chain of restaurants similar in concept to
Houston's, Ruby Tuesday, and Friday's. This chain is principally owned by David
Rowe, an Atlanta real estate developer of Kroger shopping centers, and several
operating partners formerly with Houston's. The terms of the lease call for an
initial term of 9 years and 11 months, with two additional 10-year option
periods. The agreement calls for a base rental of $217,006 per year for Years 1
through 5, with a 15% increase for the remainder of the initial term. Rental
rates for all option periods will be based on the prevailing market values and
rates for those periods. The Fund II - Fund III Joint Venture has expended
approximately $1,100,000 for the development and construction of the restaurant
building together with parking areas, driveways, landscaping and other
improvements. In addition to the base rent described above, the tenant is
required to pay "additional rent" in amounts equal to a 12% per annum return on
all amounts expended for such improvements.
The occupancy rate for the Brookwood Grill, a sole tenant, was 100% as of
December 31,1998, 1997, 1996, 1995, and 1994. The average effective annual
rental per square foot at the Brookwood Grill is $30.26 for 1998 and 1997,
$30.29 for 1996, $30.21 for 1995, 1994 and 1993.
6
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As of December 31, 1998, the Partnership and Fund II - Fund II-OW Joint Venture
had made total contributions to the Fund II - Fund III Joint Venture of
approximately $2,128,000 and $1,330,000, respectively, for the acquisition and
development of the Brookwood Grill. The Fund II - Fund II-OW Joint Venture holds
an approximately 62% equity interest in the Brookwood Grill Property, and the
Partnership holds an approximately 38% equity interest in the project.
On January 10, 1995, the remaining 4.3 undeveloped acres of land comprising the
Holcomb Bridge Road Property was contributed to a new joint venture, Fund II,
III, VI and VII Associates by Fund II - Fund III Joint Venture. This property
is described below.
Holcomb Bridge Road Property/Fund II, III, VI and VII Associates
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On January 10, 1995, Fund II - Fund III Joint Venture, Wells Real Estate Fund VI
, L.P. ("Wells Fund VI"), a Georgia public limited partnership having Leo F.
Wells, III and Wells Partners, L.P., a Georgia limited partnership, as general
partners, and Wells Real Estate Fund VII, L.P. ("Wells Fund VII"), a Georgia
public limited partnership having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners, entered into a Joint Venture
Agreement known as Fund II, III, VI and VII Associates ("Fund II, III, VI and
VII Joint Venture"). Wells Partners, L.P. is a private limited partnership
having Wells Capital, Inc., a General Partner of the Partnership, as its sole
general partner. The investment objectives of Wells Fund VI and Wells Fund VII
are substantially identical to those of the Partnership.
In January 1995, the Fund II - Fund III Joint Venture contributed to the Fund
II-III-VI-VII Joint Venture approximately 4.3 acres of land at the intersection
of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia (the
"Holcomb Bridge Road Property") including land improvements. Development is
substantially complete on two buildings containing a total of approximately
49,500 square feet. Fifteen tenants occupied the Holcomb Bridge Property as of
December 31, 1998 and 1997 for an occupancy rate of 94% and 63% for 1996. The
average effective annual rental per square foot was $17.41 for 1998, $13.71 for
1997 and $9.87 for 1996.
As of December 31, 1998, Fund II and Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
24.1%, Wells Fund VI had contributed $1,817,179 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,496,604 for an
equity interest of approximately 49.0%. The total cost to develop the Holcomb
Bridge Road Property is currently estimated to be approximately $5,478,649,
excluding land. The Partnership is not obligated to provide any additional
funding for the Holcomb Bridge Road Property.
7
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Fund III - Fund IV Joint Venture
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On March 27, 1991, the Partnership and Wells Real Estate Fund IV, L.P. ("Wells
Fund IV"), a Georgia public limited partnership having Leo F. Wells, III and
Wells Partners, L.P. as General Partners, entered into a Joint Venture Agreement
known as Fund III and Fund IV Associates (the "Fund III - Fund IV Joint
Venture"). As set forth above, Wells Partners, L.P. is a private limited
partnership having Wells Capital, Inc., a General Partner of the Partnership, as
its sole general partner. The investment objectives of the Joint Venture are
substantially identical to those of the Partnership. The Partnership holds an
approximate 57.3% equity interest in the Fund III - Fund IV Joint Venture which
owns and operates a multi-tenant retail center and an office building described
below. As of December 31, 1998, the Partnership had contributed $8,119,603 and
Wells Fund IV had contributed $6,131,677 for total contributions of $14,251,280
to the Fund III - Fund IV Joint Venture for the acquisition and development of
the two properties as described below.
The Stockbridge Village Shopping Center/Fund III and Fund IV Joint Venture
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On April 4, 1991, the Fund III - Fund IV Joint Venture purchased 13.62 acres of
real property located in Clayton County, Georgia, for the purchase price of
$3,057,729 including acquisition costs, for the purpose of developing,
constructing and operating a shopping center known as the Stockbridge Village
Shopping Center ("Stockbridge Property"). The Stockbridge Property consists of a
multi-tenant shopping center containing approximately 112,891 square feet of
which approximately 64,097 square feet is occupied by the Kroger Company, a
retail grocery chain. The lease with the Kroger Company is for an initial term
of 20 years commencing November 14, 1991, with an option to extend for four
consecutive five-year periods. The annual base rent payable under the Kroger
lease during the initial term is $492,692. The remaining 48,794 square feet is
composed of 12 separate retail spaces and 3 free-standing buildings. The
occupancy rate at year end for the Stockbridge Property was 100% in 1998, 93% in
1997, 1996 and 1995, and 97% in 1994. The average effective annual rental per
square foot at the Stockbridge Property was $10.82 for 1998, $9.86 for 1997,
$9.59 for 1996, $10.16 for 1995, $10.26 for 1994.
As of December 31, 1998, the Partnership had contributed a total of $4,515,042
and Wells Fund IV had contributed a total of $5,047,132 to fund the total cost
of approximately $9,562,000 for the acquisition and development of the
Stockbridge Property.
The G.E. Building/Fund III - Fund IV Joint Venture
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The G.E. Building is a two-story office building containing approximately 43,000
square feet located in Richmond, Virginia which was acquired by the Fund III -
Fund IV Joint Venture on July 1, 1992 for a purchase price of $4,687,600.
The entire G.E. Building is currently under a net lease to General Electric
("G.E."), a corporate office for the lighting division. The annual base rent
payable is currently $530,742 with annual base increases of 2%. The G.E. lease
expires March 31, 2000, with an option to extend the lease
8
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for one additional five-year period. The occupancy rate at year end for the G.E.
Building was 100% for the years ended December 31, 1998, 1997, 1996, 1995, and
1994. The average effective annual rental per square foot at the G.E. Building
is $12.26 for 1998, $12.27 for 1997, 1996, 1995, and 1994. As of December 31,
1998, a total of $4,689,106 had been incurred for the acquisition of the G.E.
Building. Of this amount, Wells Fund IV contributed $1,084,545 and the
Partnership contributed $3,604,561 to the Fund III - Fund IV Joint Venture.
ITEM 3. LEGAL PROCEEDINGS
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Litigation was instituted in the Superior Court of Gwinnett County, Georgia on
January 13, 1997 against the Partnership, Wells Real Estate Fund II, L.P.
("Wells Fund II"), Wells Capital, Inc. and Leo F. Wells, III, who are the
general partners of the Partnership and Wells Fund II, in connection with a
request by a limited partner in the Partnership and Wells Fund II for a list of
the names, addresses and ownership interests of the limited partners which to
date the defendants have refused to furnish to the plaintiff. The case is
styled Gramercy Park Investments L.P. v. Wells Real Estate Fund II, Wells Real
-----------------------------------------------------------------------
Estate Fund III, L.P., Wells Capital, Inc. and Leo F. Wells, III. The
- - -----------------------------------------------------------------
plaintiff, which is a limited partner in both the Partnership and Wells Fund II,
alleged that it was entitled to copies of the limited partner lists under
applicable provisions of Georgia partnership law and the partnership agreements
of the Partnership and Wells Fund II so that plaintiff could make an offer to
purchase up to 4.9% of the partnership units in each fund. The plaintiff sought
an order directing the defendants to furnish to the plaintiff a current list of
the names, addresses and ownership interests of the limited partners in the
Partnership and Wells Fund II, as well as an award of certain damages, including
its costs and attorneys' fees and such other relief as the court would deem just
and proper. On February 26, 1997, the Court denied the plaintiff's request for
an immediate order requiring defendants to furnish the lists to the plaintiff
and instead ordered expedited discovery to be completed by March 31, 1997.
Ultimately, the Court secured an agreement between the plaintiff and defendant,
which detailed the conditions and circumstances under which copies of limited
partner lists would be made available for use by the plaintiff (via a third-
party mailing service, as specified by the agreement) and conditions under which
an offer would be made by the plaintiff to the limited partners. The agreement
detailed time deadlines for actions by both the defendant and the plaintiff.
The time deadline for the actual making of offers to the limited partners was
not met by the plaintiff. The list of investor names has been returned to the
defendant by the third-party mailing service, and this legal proceeding appears
to be terminated at this time.
9
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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No matters were submitted to a vote of the Limited Partners during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY
- - -------------------------------------------------------------
HOLDER MATTERS
---------------
As of February 28, 1999, the Partnership had 19,635,965 outstanding Class A
Units held by a total of 2,319 Limited Partners and 2,544,540 outstanding Class
B Units held by a total of 202 Limited Partners. The capital contribution per
unit is $1.00. There is no established public trading market for the
Partnership's limited partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership Agreement, the
General Partners have the right to prohibit transfers of units.
The General Partners have estimated the investment value of properties held by
the Partnership as of December 31, 1998 to be $1.08 per Class A unit and $1.58
per Class B unit based on market conditions existing in early December, 1998.
This value was confirmed as reasonable by an independent MAI appraiser, David L.
Beal Company, although no actual MAI appraisal was performed due to the
inordinate expense involved with such an undertaking. The valuation does not
include any fractional interest valuation.
Class A Unit holders are entitled to an annual 8% non-cumulative distribution
preference over Class B Unit holders as to distributions from Net Cash From
Operations, as defined in the Partnership Agreement to mean Cash Flow, less
adequate cash reserves for other obligations of the Partnership for which there
is no provision, but are initially allocated none of the depreciation,
amortization, cost recovery and interest expense. These items are allocated to
Class B Unit holders until their capital account balances have been reduced to
zero.
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Net Cash From Operations to the Limited Partners is distributed on a quarterly
basis unless Limited Partners elect to have their cash distributions paid
monthly. Cash distributions made to the Limited Partners during the two most
recent fiscal years were as follows:
<TABLE>
<CAPTION>
Per Class A Per Class A Per Class B
Unit Unit Unit
Distribution for Total Cash Investment Return of Return of General
Quarter Ended Distributed Income Capital Capital Partner
- - ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
March 31, 1997 $ 0 $0.00 $0.00 $0.00 $0.00
June 30, 1997 $ 0 $0.00 $0.00 $0.00 $0.00
September 30, 1997 $349,938 $0.02 $0.00 $0.00 $0.00
December 31, 1997 $394,712 $0.02 $0.00 $0.00 $0.00
March, 31, 1998 $372,249 $0.02 $0.00 $0.00 $0.00
June 30, 1998 $392,720 $0.02 $0.00 $0.00 $0.00
September 30, 1998 $393,035 $0.02 $0.00 $0.00 $0.00
December 31, 1998 $494,774 $0.02 $0.00 $0.02 $0.00
</TABLE>
The fourth quarter distribution was accrued for accounting purposes in 1998, and
was not actually paid to the Limited Partners holding Class A units until
February 1999. The General Partners anticipate that cash distributions to
Limited Partners holding Class A units will continue in 1999 at a level at least
comparable with 1998 cash distributions; however, there is no guarantee of this.
11
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ITEM 6. SELECTED FINANCIAL DATA.
- - ---------------------------------
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1998, 1997, 1996, 1995, and 1994:
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
- - ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Total Assets $15,900,936 $16,791,667 $17,114,963 $18,059,571 $18,561,131
Total Revenues 1,099,102 850,058 1,155,615 1,587,267 1572,895
Net Income 649,007 385,224 731,244 1,143,704 1,130,464
Net Income
allocated to
General Partners 0 0 0 15,205 0
Net Income
allocated to Class
A Limited Partners 608,058 385,224 731,244 1,104,316 1,608,929
Net Income (Loss)
allocated to Class
B Limited Partners 40,949 0 0 24,183 (478,465)
Net Income
per Class A Limited
Partner Unit .03 .02 .04 .06 .08
Net Income (Loss) per
Class B Limited
Partner Unit .02 .00 .00 .01 (.19)
Cash Distributions to
Investors--
Investment Income
Class A Units: .08 .04 .07 .08 .08
Return of Capital
Class A Units: .00 .00 .00 .00 .00
Return of Capital
Class B Units: .02 .00 .00 .08 .02
Cash Distribution to
General Partners .00 .00 .00 15,205 .00
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
- - -------------------------------------------------------------------------
RESULTS OF OPERATION
--------------------
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and the accompanying financial statements of the
Partnership and notes thereto. This Report contains forward-looking statements,
within the meaning of Section 27A of the Securities Act of 1933 and 21E of the
Securities Exchange Act of 1934, including discussion and analysis of the
financial condition of the Partnership, anticipated capital expenditures
required to complete certain projects, amounts of cash distributions anticipated
to be distributed to Limited
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Partners in the future and certain other matters. Readers of this Report should
be aware that there are various factors that could cause actual results to
differ materially from any forward-looking statement made in this Report, which
include construction costs which may exceed estimates, construction delays,
lease-up risks, inability to obtain new tenants upon the expiration of existing
leases, and the potential need to fund tenant improvements or other capital
expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions
- - ---------------------------------------------------------
General
- - -------
Gross revenues of the Partnership were $1,099,102 for the fiscal year ended
December 31, 1998, as compared to $850,058 for the fiscal year ended December
31, 1997, and $1,155,615 for the fiscal year ended December 31, 1996. The
increase for 1998 and 1997 is due primarily to an increase in equity in income
of joint venture and the decrease for 1997 over 1996 is primarily due to the
loss of equity from the joint venture. These changes in the equity in joint
ventures is due primarily to the termination of the Lockheed lease at The Atrium
on June 30, 1996 and the occupancy of Boeing at The Atrium in May, 1997.
Expenses of the Partnership were $450,095 for the fiscal year ended December 31,
1998, as compared to $464,834 for the fiscal year ended December 31, 1997 and
$424,371 for the fiscal year ended December 31, 1996. Operating expenses
decreased significantly for the period ended December 31, 1998 due to additional
tenant reimbursements of approximately $63,000 during the third quarter of 1998
offset by extraordinary roof and parking lot repairs. In 1997, operating
expenses increased over 1996 due primarily to a change in estimate related
timing differences in common area maintenance billings to tenants. In 1996, the
increase in depreciation was offset by a decrease in operating expenses.
Net income of the Partnership was $649,007 for the fiscal year ended December
31, 1998, as compared to $385,224 for the fiscal year ended December 31, 1997,
and $731,244 for the fiscal year ended December 31, 1996. The increase in net
income for 1998 over 1997 is due primarily to increased equity in income of
joint ventures, due to a full year of rental income at the Atrium Property. The
decrease in net income for 1997 as compared to 1996 and 1995 is due primarily to
the loss of rental income from the Joint Ventures, due to the vacancy at the
Atrium Property and increased depreciation expenses in 1996 and 1997, as noted
above.
The Partnership's cash distributions to the Limited Partners holding Class A
Units were $0.08 per unit for the fiscal year ended December 31, 1998, and $0.04
for 1997 and $0.07 for 1996. Cash distributions to the Limited Partners holding
Class B Units were $0.02 for 1998. There were no cash distributions in 1997 and
1996 to the Limited Partners holding Class B Units.
In March 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard ("SFAS") No. 121, "Accounting for the impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed of", which is
effective for fiscal years beginning after December 15, 1995. SFAS No. 121
established standards for determining when impairment
13
<PAGE>
losses on long-lived assets have occurred and how impairment losses should be
measured. The joint venture adopted SFAS No. 121, effective January 1, 1995. The
impact of adopting SFAS No. 121 was not material to the financial statements of
the joint ventures.
Property Operations
- - -------------------
As of December 31, 1998, the Partnership's ownership interest in the Greenville
Property is 100%, Fund II - Fund III Joint Venture is 39% and Fund III - Fund IV
Joint Venture is 57%.
As of December 31, 1998, the Partnership owned interests in the following
properties:
The Greenville Property/Fund III
- - --------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-----------------------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental Income $562,951 $571,555 $586,466
Other Income 350 0 0
-------- -------- --------
563,301 571,555 586,466
-------- -------- --------
Expenses:
Depreciation 160,038 158,308 158,308
Management and
leasing expenses 81,424 71,075 85,366
Other operating expenses 115,693 145,667 99,334
------- ------- -------
357,155 375,050 343,008
------- ------- -------
Net income $206,146 $196,505 $243,458
======== ======== =======
Occupied % 92% 92% 100%
Partnership Ownership % 100% 100% 100%
Cash Generated to the
Partnership $396,626 $380,298 $411,469
Net Income Allocated to
the Partnership $206,146 $196,505 $243,458
</TABLE>
Rental income decreased for the period ended December 31, 1998, as compared to
the same period in 1997 and 1996, due to a decline in occupancy from 100% in
1996 to 92% in 1998 and 1997. Operating expenses decreased significantly from
$145,667 in 1997 to $115,693 in 1998 due to additional tenant reimbursements of
approximately $63,000 during the third quarter of 1998.
The real estate taxes were $29,228 for 1998, $27,945 for 1997,and $27,479 for
1996.
14
<PAGE>
The Partnership's ownership percentage remained constant at 100% for 1998, 1997
and 1996.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
The Atrium/Fund II - Fund III Joint Venture
- - -------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
----------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ------------------
<S> <C> <C> <C>
Revenues:
Rental Income $1,470,144 $ 924,769 $1,048,583
Interest Income 0 2,617 24,188
Other Income 13,280 8,638 0
---------- --------- ----------
1,483,424 936,024 1,072,771
---------- --------- ----------
Expenses:
Depreciation 866,778 795,829 674,479
Management and
leasing expenses 186,102 111,576 71,381
Other operating expenses 713,955 841,456 158,405
---------- --------- ----------
1,766,835 1,748,861 904,265
---------- --------- ----------
Net (loss) income $ (283,411) $(812,837) $ 168,506
========== ========= ==========
Occupied % 100.00% 100.00% 0.00%
Partnership Ownership % 38.72% 38.72% 34.40%
Cash distributed to the
Partnership $ 256,165 $ 85,283 $ 209,185
Net (loss) income allocated
Partnership $ (109,680) $(303,212) $ 57,966
</TABLE>
Rental revenue increased from $924,769 in 1997 to $1,470,144 in 1998 primarily
due to Atrium leased space to Boeing Company in May 1997. Other income increased
in 1998 due to a one-time adjustment for unused credits on the original tenant
build-out of The Atrium and a $5,000 reimbursement for the sale of office system
components which were unusable by the new tenant. Depreciation and management
and leasing expenses and other operating expenses have increased in 1998
compared to 1997 due to the depreciation of tenant improvements made for the
Boeing Company and amortization of the leasing commission paid to acquire the
Boeing lease.
The real estate taxes were $148,006 for 1998, $140,366 for 1997, and $150,105
for 1996.
15
<PAGE>
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 1. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
The Brookwood Grill Property/Fund II - Fund III Joint Venture
- - -------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
-------------------------------------------------------------------
1998 1997 1996
--------------------- --------------------- ---------------------
<S> <C> <C> <C>
Revenues:
Rental Income $225,100 $225,106 $225,359
Equity in Income (Loss)
of Joint Venture 78,791 27,213 (19,378)
-------- -------- --------
303,891 252,319 205,981
-------- -------- --------
Expenses:
Depreciation 54,012 54,014 54,014
Management and
leasing expenses 23,349 28,464 27,004
Other operating expenses (24,632) 23,887 109,478
-------- -------- --------
52,727 106,365 190,496
-------- -------- --------
Net income $251,162 $145,954 $ 15,485
======== ======== ========
Occupied % 100.00% 100.00% 100.00%
Partnership Ownership % in the
Fund II Fund III Joint Venture 38.00% 38.00% 38.00%
Cash distributed to the
Partnership $163,576 $115,125 $ 40,154
Income allocated to the
Partnership $ 94,562 $ 54,952 $ 5,830
</TABLE>
Although rental income remained relatively stable, total revenues increased for
1998, as compared to 1997, due to the increased equity income from the Fund II
III, VI, VII Joint Venture, as the Holcomb Bridge Property become 100% occupied.
Operating expenses decreased in 1998, compared to 1997, due primarily to a
change in the rental agreement of billing water reimbursements to the tenant
which will result in the tenant being charged for a greater share of the total
bill.
Real estate taxes were $16,270 for 1998, $25,711 for 1997 and $33,494 for
1996.
16
<PAGE>
The Stockbridge Village Shopping Center/Fund III - Fund IV Joint Venture
- - ------------------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
------------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental Income $1,222,417 $1,113,238 $1,082,428
Interest Income 9,368 12,308 13,024
---------- ---------- ----------
1,231,785 1,125,546 1,095,452
---------- ---------- ----------
Expenses:
Depreciation 346,144 338,989 338,989
Management and
leasing expenses 114,581 107,578 98,442
Other operating expenses 83,952 68,797 90,187
---------- ---------- ----------
544,677 515,364 527,618
---------- ---------- ----------
Net income $ 687,108 $ 610,182 $ 567,834
========== ========== ==========
Occupied % 100% 93% 93%
Partnership Ownership % in the
Fund III Fund IV Joint Venture 57.3% 57.3% 57.3%
Cash Generated to the
Partnership $ 566,769 $ 560,166 $ 546,625
Net Income Allocated to
the Partnership $ 393,827 $ 349,736 $ 325,463
</TABLE>
Rental income increased to $1,222,417 for 1998 as compared to $1,113,238 in 1997
and $1,082,428 in 1996 due primarily to increased occupancy in 1998 and
increased rental rates. Expenses of the property varied from $527,618 in 1996
and $515,364 in 1997 and $544,677 in 1998. Other operating expenses decreased
in 1997 as compared to 1996 due primarily to savings in painting expense, but
increased in 1998 due primarily to parking lot repairs. Net income of the
property varied from $687,108 for 1998 to $610,182 for 1997 as compared to
$567,834 for 1996.
Real estate taxes were $110,891 for 1998, $98,138 for 1997, and $104,795 for
1996.
The Partnership's ownership percentage in the Fund III - Fund IV Joint Venture
remained constant at 57.3% for 1998, 1997 and 1996.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
17
<PAGE>
The G.E. Building/Fund III and Fund IV Joint Venture
- - ----------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended December 31
------------------------------
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Revenues:
Rental Income $527,425 $527,425 $527,425
-------- -------- --------
Expenses:
Depreciation 196,220 196,220 196,220
Management and
leasing expenses 40,300 38,435 39,860
Other operating expenses 18,876 3,708 8,731
-------- -------- --------
255,396 238,363 244,811
-------- -------- --------
Net income $272,029 $289,062 $282,614
======== ======== ========
Occupied % 100% 100% 100%
Partnership Ownership % in the
Fund III Fund IV Joint Venture 57.3% 57.3% 57.3%
Cash Generated to the
Partnership $281,937 $284,890 $275,251
Net Income Allocated to the
Partnership $155,918 $165,680 $161,985
</TABLE>
Rental income remained constant for 1998, 1997, and 1996. Total expenses
decreased to $238,363 in 1997 from $244,811 in 1996 but increased to $255,396 in
1998 due primarily to roof repairs.
The Partnership's ownership percentage in the Fund III - Fund IV Joint Venture
remained constant at 57.3% for 1998, 1997, and 1996.
Under the terms of the lease, G.E. pays the real estate taxes directly.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 2. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
18
<PAGE>
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- - ----------------------------------------------------------------
<TABLE>
<CAPTION>
For the Year Ended For the Year Ended Nine Months Ended
December 31, 1998 December 31, 1997 December 31, 1996
---------------------- ---------------------- ----------------------
<S> <C> <C> <C>
Revenues:
Rental Income $862,360 $679,268 $255,062
-------- -------- --------
Expenses:
Depreciation 376,290 325,974 181,798
Management & leasing expenses 97,701 48,962 28,832
Other operating expenses 60,799 195,567 101,600
-------- -------- --------
534,790 570,503 312,230
-------- -------- --------
Net income (loss) $327,570 $108,765 $(57,168)
======== ======== ========
Occupied % 94% 94% 63%
Partnership's Ownership % in the
Fund II, III, VI, VII Joint Venture 9.02% 9.10% 9.50%
Cash distribution to the
Fund II-Fund III Joint Venture $179,198 $109,242 $ 19,494
Net income (loss) allocated to the
Fund II-Fund III Joint Venture $ 78,791 $ 27,313 $(19,378)
</TABLE>
Since the Holcomb Bridge Road Property was under construction and not occupied
until first quarter, 1996, comparative income and expense figures for the years
ending December 31, 1997 and 1996 are not available.
Rental income increased in 1998 compared to 1997 due primarily to increased
tenant occupancy late in the 4th quarter at the property. Operating expenses
decrease in 1998 compared to 1997, due primarily to decreased property taxes and
water/sewer reimbursement paid by Fulton County Water.
As of December 31, 1998, the Fund II - Fund III Joint Venture contributed
$1,729,116 in land and land improvements for an equity interest of approximately
24.2%, Wells Fund VI had contributed $1,817,179 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,489,170 for an
equity interest of approximately 48.9% in the Fund II, III, VI, VII Joint
Venture. The total cost to develop the Holcomb Bridge Road Property is
currently estimated to be approximately $5,372,649, excluding land.
Real estate taxes were $52,162 for 1998, $85,230 for 1997 and $37,191 for 1996.
19
<PAGE>
The Partnership's ownership percentage in the Fund II, III, VI, VII Joint
Venture decreased to 9.02% in 1998, as compared to 9.1% in 1997, due to
additional funding by Wells Fund VI and Well Fund VII.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on the
property, tenants, etc., see Item 2, Properties, page 3.
Liquidity and Capital Resources
- - -------------------------------
During its offering, which terminated on October 23, 1990, the Partnership
raised a total of $22,206,310 in capital through the sale of 22,206,310 Units.
No additional Units will be sold by the Partnership. From the original funds
raised, the Partnership has invested a total of $17,983,843 in properties, paid
$1,554,442 in acquisition and advisory fees, $2,664,668 in selling commissions
and organization and offering expenses, and is maintaining a working capital
reserve of $3,357.
Since the Partnership is an investment partnership formed for the purpose of
acquiring, owning and operating income-producing real property and has invested
all of its funds available for investment, it is unlikely that the Partnership
will acquire interests in any additional properties, and the Partnership's
capital resources are anticipated to remain relatively stable over the holding
period of its investments.
Pursuant to the terms of the Partnership Agreement, the Partnership is required
to maintain working capital reserves in an amount equal to the cash operating
expenses required to operate the Partnership for a six-month period not to be
reduced below 1% of Limited Partners' capital contributions. As set forth
above, in order to fund a portion of the tenant improvements at The Atrium, the
General Partners have used $218,706 of the Partnership's working capital
reserves to reduce the balance below this minimum amount, rather than funding
the tenant improvements out of operating cash flow, which would have the effect
of reducing cash flow distributions to Limited Partners. It is anticipated that
future rental revenues associated with the Boeing lease will be allocated to
restore the Partnership's minimum working capital reserve levels over time in
the future.
The Partnership's net cash provided by operating activities increased in 1998 to
$333,229 from $264,289 in 1997 and decreased in 1997 to $264,289 from $359,388
in 1996. The increase in 1998 over 1997 is due primarily to lower operating
costs at Greenville and collection of accounts receivable, primarily due to the
occupancy increases at Boeing at the Atrium, who occupied the building in mid-
May of 1997, and the Holcomb Bridge Road Property in Roswell, Georgia. The
decrease in 1997 was due to a decrease in net income, primarily due to increased
operating costs and decreased payables due at year-end.
Cash and cash equivalents decreased in 1998 as compared to 1997 and in 1997 as
compared to 1996.
20
<PAGE>
The Partnership's distributions paid and payable through the fourth quarter of
1998 have been paid from net cash from operations and a return of capital. The
Partnership anticipates that distributions will continue to be paid on a
quarterly basis from Net Cash from Operations.
The Partnership is unaware of any demands, commitments, events or capital
expenditures other than that which is required for the normal operations of its
properties that will result in the Partnership's liquidity increasing or
decreasing in any material way.
Inflation
- - ---------
Real estate has not been affected significantly by inflation in the past three
years due to the relatively low inflation rate. There are provisions in the
majority of tenant leases executed by the Partnership to protect the Partnership
from the impact of inflation. These leases contain common area maintenance
charges (CAM charges), real estate tax and insurance reimbursements on a per
square foot basis, or in some cases, annual reimbursements of operating expenses
above a certain per square foot allowance. These provisions should reduce the
Partnership's exposure to increases in costs and operating expenses resulting
from inflation. In addition, a number of the Partnership's leases are for terms
of less than five years which may permit the Partnership to replace existing
leases with new leases at higher base rental rates if the existing leases are
below market rate. There is no assurance, however, that the Partnership would
be able to replace existing leases with new leases at higher base rentals.
Year 2000 Compliance
- - --------------------
The Partnership is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations. A full
assessment of Year 2000 compliance issues was begun in late 1997 and is expected
to be completed by March 31, 1999. Renovations and replacements of equipment
have been and are being made as warranted as the assessment progresses. The
costs incurred by the Partnership and its affiliates thus far for renovations
and replacements have been immaterial. Some testing of systems has begun and
all testing is expected to be complete by June 30, 1999.
As to the status of the Partnership's information technology systems, it is
presently believed that all major systems and software packages with the
exception of the accounting and property management package are Year 2000
compliant. The Partnership's affiliated entities are purchasing the upgrade for
the accounting and property management package system; however, it is not slated
to be available until the end of the first quarter of 1999. At the present
time, it is believed that all major non-information technology systems are Year
2000 compliant. The cost to upgrade any non-compliant systems is believed to be
immaterial.
The Partnership is in the process of confirming with the Partnership's vendors,
including third-party service providers such as banks, that their systems will
be Year 2000 compliant. Based on the information received thus far, the primary
third-party service providers with which the Partnership has relationships have
confirmed their Year 2000 readiness.
21
<PAGE>
The Partnership relies on computers and operating systems provided by equipment
manufacturers, and also on application software designed for use with its
accounting, property management and investment portfolio tracking. The
Partnership has preliminarily determined that any costs, problems or
uncertainties associated with the potential consequences of Year 2000 issues are
not expected to have a material impact on the future operations or financial
condition of the Partnership. The Partnership will perform due diligence as to
the Year 2000 readiness of each property owned by the Partnership and each
property contemplated for purchase by the Partnership.
The Partnership's reliance on embedded computer systems (i.e., microcontrollers)
is limited to facilities related matters, such as office security systems and
environmental control systems.
The Partnership is currently formulating contingency plans to cover any areas of
concern. Alternate means of operating the business are being developed in the
unlikely circumstance that the computer and phone systems are rendered
inoperable. An off-site facility from which the Partnership could operate is
being sought as well as alternate means of communication with key third-party
vendors. A written plan is being developed for testing and dispensation to each
staff member of the Advisor of the Partnership.
Management believes that the Partnership's risk of Year 2000 problems is
minimal. In the unlikely event there is a problem, the worst case scenarios
would include the risks that the elevator or security systems within the
Partnership's properties would fail or the key third-party vendors upon which
the Partnership relies would be unable to provide accurate investor information.
In the event that the elevator shuts down, the Partnership has devised a plan
for each building whereby the tenants will use the stairs until the elevators
are fixed. In the event that the security system shuts down, the Partnership
has devised a plan for each building to hire temporary on-site security guards.
In the event that a third-party vendor has Year 2000 problems relating to
investor information, the Partnership intends to perform a full system back-up
of all investor information as of December 31, 1999 so that the Partnership will
have accurate hard-copy investor information.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- - -----------------------------------------------------
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14(a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- - ----------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
There were no disagreements with the Partnership's accountants or other
reportable events during 1998.
22
<PAGE>
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP
- - -----------------------------------------------
Wells Capital, Inc. Wells Capital, Inc. ("Capital") is a Georgia corporation
- - -------------------
formed in April 1984. The executive offices of Capital are located at 3885
Holcomb Bridge Road, Norcross, Georgia 30092. Leo F. Wells, III is the sole
Director and the President of Capital.
Leo F. Wells, III. Mr. Wells is a resident of Atlanta, Georgia, is 55 years of
- - -----------------
age and holds a Bachelor of Business Administration Degree in Economics from the
University of Georgia. Mr. Wells is the President and sole Director of Capital.
Mr. Wells is the President of Wells & Associates, Inc., a real estate brokerage
and investment company formed in 1976 and incorporated in 1978, for which he
serves as principal broker. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property management company he
founded in 1983. In addition, Mr. Wells is the President and Chairman of the
Board of Wells Investment Securities, Inc., Wells & Associates, Inc., and Wells
Management Company, Inc., which are affiliates of the General Partners. From
1980 to February 1985, Mr. Wells served as Vice-President of Hill-Johnson, Inc.,
a Georgia corporation engaged in the construction business. From 1973 to 1976,
he was associated with Sax Gaskin Real Estate Company and from 1970 to 1973, he
was a real estate salesman and property manager for Roy D. Warren & Company, an
Atlanta real estate company.
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
- - -----------------------------------------------------------
The following table summarizes the compensation and fees paid to the General
Partners and their affiliates during the year ended December 31, 1997:
<TABLE>
<CAPTION>
( A ) ( B ) ( C )
Name of Individual or Number in Capacities in which served Form
Group of Compensation Cash Compensation
- - ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Wells Management Company, Inc. Property Manager-Management and $183,589 (1)
Leasing Fees
Wells Capital, Inc. General Partner -- Partnership
Cash Flow Distributions -0-
Leo F. Wells, III General Partner -- Partnership
Cash Flow Distributions -0-
</TABLE>
(1) The majority of these fees are not paid directly by the Partnership but are
paid by the joint venture entities which own properties for which the
property management and leasing services relate and include management and
leasing fees which were accrued for accounting purposes in 1998 but not
actually paid until January, 1999.
23
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
- - -----------------------------------------------------------------------------
No Limited Partner is known by the Partnership to own beneficially more than 5%
of the outstanding units of the Partnership.
Set forth below is the security ownership of management as of February 28, 1999:
<TABLE>
<S> <C> <C> <C>
(2) (3)
(1) Name and Address of Amount and Nature of (4)
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- - ---------------------- ---------------------- ------------------------ ----------------------
Class A Units Leo F. Wells, III 11,158.79 Units Less than 1%
(IRA, 401 (k) and
Profit Sharing)
Class B Units Leo F. Wells, III 1,750.00 Units Less than 1%
(401 (k))
</TABLE>
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- - -------------------------------------------------------------
The compensation and fees paid or to be paid by the Partnership to the General
Partners and their affiliates in connection with the operation of the
Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale Proceeds
- - -------------------------------------------------------
The General Partners receive a subordinated participation in net cash flow from
operations equal to 10% of net cash flow after the Limited Partners have
received preferential distributions equal to 8% of their adjusted capital
contribution. For the year ended December 31, 1998, the General Partners
received no cash distributions. The General Partners also receive a
subordinated participation in net sale proceeds and net financing proceeds equal
to 15% of residual proceeds available for distribution after the Limited
Partners have received a return of their adjusted capital contribution plus a
12% cumulative return on their adjusted capital contribution. The General
Partners received no distribution from net sales proceeds.
24
<PAGE>
Property Management and Leasing Fees
- - ------------------------------------
Wells Management Company, Inc., an affiliate of the General Partners, will
receive compensation for supervising the management of the Partnership
properties equal to 6% (3% management and 3% leasing) of rental income. For the
year ended December 31, 1998, Wells Management Company, Inc. received $183,589
in management and leasing fees. In no event will such fees exceed the sum of
(i) 6% of the gross receipts of each property, plus (ii) a separate one-time fee
for initial rent-up or leasing-up of development properties in an amount not to
exceed the fee customarily charged in arm's-length transactions by others
rendering similar services in the same geographic area for similar properties.
With respect to properties leased on a net basis for a period of ten years or
longer, property management fees will not exceed 1% of gross revenues from such
leases, plus a one-time initial leasing fee of 3% of the gross revenues which
are payable over the first five years of the term of such net leases.
Real Estate Commissions
- - -----------------------
In connection with the sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding the lesser of (A) 50% of
the commissions customarily charged by other brokers in arm's-length
transactions involving comparable properties in the same geographic area or (B)
3% of the gross sales price of the property, and provided that payments of such
commissions will be made only after Limited Partners have received prior
distributions totaling 100% of their capital contributions plus a 6% cumulative
return on their adjusted capital contributions. During 1998, no real estate
commissions were paid to the General Partners.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
- - ------------------------------------------------------
REPORTS ON FORM 8-K
-------------------
(a)1. The Financial Statements are contained on pages F-2 through F-32 of this
Annual Report on Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a)2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of this
Annual Report on Form 10-K.
(a)3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1998.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
26
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 26th day of March,
1999.
Wells Real Estate Fund III
(Registrant)
By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III
Individual General Partner and as President
and Chief Financial Officer of Wells
Capital, Inc., the Corporate General Partner
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following person on behalf of the registrant and in
the capacity as and on the date indicated.
Signature Title
- - --------- -----
/s/Leo F. Wells, III Individual General Partner, March 26, 1999
- - -------------------- President and Sole Director of
Leo F. Wells, III Wells Capital, Inc., the
Corporate General Partner
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO
SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other meeting of
security holders has been sent to security holders.
27
<PAGE>
INDEX TO THE FINANCIAL STATEMENTS
Financial Statements Page
- - ------------------------------------------------------ ----
Independent Auditors' Reports F2
Balance Sheets as of December 31, 1998 and 1997 F3
Statements of Income for the Years ended
December 31, 1998, 1997, and 1996 F4
Statements of Partners' Capital for the Years ended
December 31, 1998, 1997, and 1996 F5
Statements of Cash Flows for the Years ended
December 31, 1998, 1997, and 1996 F6
Notes to Financial Statements for December 31, 1998,
1997, and 1996 F7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund III, L.P.:
We have audited the accompanying balance sheets of Wells Real Estate Fund III,
L.P. (a Georgia public limited partnership) as of December 31, 1998 and 1997 and
the related statements of income, partners' capital, and cash flows for each of
the three years in the period ended December 31, 1998. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on those
financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund III,
L.P. as of December 31, 1998 and 1997 and the results of its operations and its
cash flows for each of the three years in the period ended December 31, 1998 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1998 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 27, 1999
F-2
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----------- -----------
REAL ESTATE ASSETS, at cost:
Land $ 576,350 $ 576,350
Building and improvements, less accumulated depreciation of $931,559 and
$771,521 at December 31, 1998 and 1997, respectively 2,668,658 2,794,080
----------- -----------
Total real estate assets 3,245,008 3,370,430
INVESTMENT IN JOINT VENTURES 12,132,961 12,807,576
CASH AND CASH EQUIVALENTS 156,648 216,961
DUE FROM AFFILIATES 334,162 316,089
ACCOUNTS RECEIVABLE 8,000 62,621
PREPAID EXPENSES AND OTHER ASSETS 24,157 17,990
----------- -----------
Total assets $15,900,936 $16,791,667
=========== ===========
</TABLE>
LIABILITIES AND PARTNERS' CAPITAL
<TABLE>
<CAPTION>
LIABILITIES:
<S> <C> <C>
Accounts payable and accrued expenses $ 13,362 $ 7,535
Partnership distributions payable 458,724 396,991
Due to affiliates 7,966 3,436
----------- -----------
Total liabilities 480,052 407,962
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A 15,420,884 16,383,705
Class B 0 0
----------- -----------
Total partners' capital 15,420,884 16,383,705
----------- -----------
Total liabilities and partners' capital $15,900,936 $16,791,667
=========== ===========
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- -------- ----------
<S> <C> <C> <C>
REVENUES:
Rental income $ 562,951 $571,555 $ 586,466
Equity in income of joint ventures 534,627 267,156 551,244
Interest income 1,524 11,347 17,905
---------- -------- ----------
1,099,102 850,058 1,155,615
---------- -------- ----------
EXPENSES:
Depreciation 160,038 158,308 158,308
Operating costs, net of reimbursements 72,816 125,810 73,206
Partnership administration 74,328 57,312 70,005
Management and leasing fees 81,424 71,075 85,366
Legal and accounting 22,742 42,562 32,332
Bad debt expense 31,188 0 0
Computer costs 7,559 9,767 5,154
---------- -------- ----------
450,095 464,834 424,371
---------- -------- ----------
NET INCOME $ 649,007 $385,224 $ 731,244
========== ======== ==========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 608,058 $385,224 $ 731,244
========== ======== ==========
NET INCOME ALLOCATED TO CLASS B LIMITED PARTNERS $ 40,949 $ 0 $ 0
========== ======== ==========
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 0.03 $ 0.02 $ 0.04
========== ======== ==========
NET INCOME PER CLASS B LIMITED PARTNER UNIT $ 0.02 $ 0.00 $ 0.00
========== ======== ==========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 0.08 $ 0.04 $ 0.07
========== ======== ==========
CASH DISTRIBUTION PER CLASS B LIMITED PARTNER UNIT $ 0.02 $ 0.00 $ 0.00
========== ======== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Limited Partners Total
Class A Class A Class B Class B General Partners'
Units Amount Units Amount Partners Capital
---------- ----------- --------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 19,635,965 $17,430,457 2,544,540 $ 0 $0 $17,430,457
Net income 0 731,244 0 0 0 731,244
Partnership distributions 0 (1,418,570) 0 0 0 (1,418,570)
---------- ----------- --------- -------- -------- -----------
BALANCE, December 31, 1996 19,635,965 16,743,131 2,544,540 0 0 16,743,131
Net income 0 385,224 0 0 0 385,224
Partnership distributions 0 (744,650) 0 0 0 (744,650)
---------- ----------- --------- -------- -------- -----------
BALANCE, December 31, 1997 19,635,965 16,383,705 2,544,540 0 0 16,383,705
Net income 0 608,058 0 40,949 0 649,007
Partnership distributions 0 (1,570,879) 0 (40,949) 0 (1,611,828)
---------- ----------- --------- -------- -------- -----------
BALANCE, December 31, 1998 19,635,965 $15,420,884 2,544,540 $ 0 $0 $15,420,884
========== =========== ========= ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 649,007 $ 385,224 $ 731,244
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in income of joint ventures (534,627) (267,156) (551,244)
Depreciation 160,038 158,308 158,308
Changes in assets and liabilities:
Accounts receivable 54,621 5,169 (6,949)
Prepaid expenses and other assets (6,167) 6,110 4,996
Accounts payable and accrued expenses 5,827 (15,406) 17,906
Due to affiliates 4,530 (7,960) 5,127
Total adjustments (315,778) (120,935) (371,856)
Net cash provided by operating activities 333,229 264,289 359,388
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (34,616) 0 0
Investment in joint ventures (59,205) (659,810) 0
Distributions received from joint ventures 1,250,374 942,318 1,194,488
Net cash provided by investing activities 1,156,553 282,508 1,194,488
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings (1,056,213) (267,191) (170,157)
Distributions to partners from accumulated earnings (493,882) (404,963) (1,541,728)
Net cash used in financing activities (1,550,095) (672,154) (1,711,885)
NET DECREASE IN CASH AND CASH EQUIVALENTS (60,313) (125,357) (158,009)
CASH AND CASH EQUIVALENTS, beginning of year 216,961 342,318 500,327
CASH AND CASH EQUIVALENTS, end of year $ 156,648 $ 216,961 $ 342,318
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998, 1997, AND 1996
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Wells Real Estate Fund III, L.P. (the "Partnership") is a public limited
partnership organized on July 31, 1988, under the laws of the state of
Georgia. The general partners are Leo F. Wells, III and Wells Capital, Inc.
(the "Company"). The Partnership has two classes of limited partnership
interests, Class A and Class B units. Limited partners may vote to, among
other things, (a) amend the partnership agreement, subject to certain
limitations, (b) change the business purpose or investment objectives of the
Partnership, and (c) remove a general partner. A majority vote on any of the
above described matters will bind the Partnership without the concurrence of
the general partners. Each limited partnership unit has equal voting rights,
regardless of class.
The Partnership was formed to acquire and operate commercial real properties,
including properties which are either to be developed, currently under
development or construction, newly constructed, or have operating histories.
The Partnership directly owns an office building in Greenville, North
Carolina. In addition, the Partnership owns an interest in the following
properties through joint ventures between the Partnership and other Wells
Real Estate Funds: (i) The Atrium of Nassau Bay ("The Atrium"), a four-story
office building located in metropolitan Houston, Texas, (ii) the Brookwood
Grill, a restaurant located in Roswell, Georgia, (iii) the Stockbridge
Village Shopping Center, a retail shopping center located in Stockbridge,
Georgia, southeast of Atlanta, Georgia, (iv) the G.E. Lighting National
Customer Center, a two-story office building located in Richmond, Virginia,
and (v) an office/retail center in Roswell, Georgia.
Use of Estimates and Factors Affecting the Partnership
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
The carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Partnership's future operations and the ability to realize the
investment in its assets will be dependent on the Partnership's ability to
maintain rental rates, occupancy, and an appropriate level of
F-7
<PAGE>
operating expenses in future years. Management believes that the steps it
is taking will enable the Partnership to realize its investment in its
assets.
Income Taxes
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective share of
profits and losses in their individual income tax returns.
Distribution of Net Cash From Operations
Cash available for distribution is distributed on a cumulative noncompounded
basis to limited partners quarterly. In accordance with the partnership
agreement, distributions are paid first to limited partners holding Class A
units until they have received an 8% per annum return on their adjusted
capital contributions, as defined. Cash available for distribution is then
distributed to limited partners holding Class B units until they have
received an 8% per annum return on their adjusted capital contributions, as
defined. If any cash available for distribution remains, the general
partners receive an amount equal to 10% of total net cash from operations
distributed. Thereafter, amounts are distributed 10% to the general partners
and 90% to the limited partners.
Distribution of Sales Proceeds
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners until all limited partners have received 100% of
their adjusted capital contributions, as defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received by
the limited partners holding Class A units
. To all limited partners until they receive a cumulative 12% per annum
return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to their
respective cumulative distributions, as defined
. To all general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 85% to the limited partners and 15% to the general
partners
Allocation of Net Income, Net Loss, and Gain on Sale
Net income is defined as net income recognized by the Partnership, excluding
deductions for depreciation and amortization. Net income, as defined, of the
Partnership will be allocated each year in the same proportions that net cash
from operations is distributed to
F-8
<PAGE>
the partners. To the extent the Partnership's net income in any year exceeds
net cash from operations, it will be allocated 99% to the limited partners
and 1% to the general partners.
Net loss, depreciation, and amortization deductions for each fiscal year will
be allocated as follows: (a) 99% to the limited partners holding Class B
units and 1% to the general partners until their capital accounts are reduced
to zero, (b) then to any partner having a positive balance in his capital
account in an amount not to exceed such positive balance, and (c) thereafter
to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable, (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement; (b) allocations to partners having
negative accounts until all negative capital accounts have been restored to
zero; and (c) allocations to Class B limited partners in amounts equal to
deductions for depreciation and amortization previously allocated to them
with respect to the specific partnership property sold, but not in excess of
the amount of gain on sale recognized by the Partnership with respect to the
sale of such property.
Real Estate Assets
Real estate assets held by the Partnership directly or through investments in
affiliated joint ventures are stated at cost less accumulated depreciation.
Major improvements and betterments are capitalized when they extend the
useful life of the related asset. All repairs and maintenance are expensed
as incurred.
Management continually monitors events and changes in circumstances that
could indicate carrying amounts of real estate assets may not be recoverable.
When events or changes in circumstances are present that indicate the
carrying amounts of real estate assets may not be recoverable, management
assesses the recoverability of real estate assets by determining whether the
carrying value of such real estate assets will be recovered through the
future cash flows expected from the use of the asset and its eventual
disposition. Management has determined that there has been no impairment in
the carrying value of real estate assets held by the Partnership or its
affiliated joint ventures as of December 31, 1998.
Depreciation for buildings and improvements is calculated using the straight-
line method over 25 years.
Revenue Recognition
All leases on real estate assets held by the Partnership are classified as
operating leases, and the related rental income is recognized on a straight-
line basis over the terms of the respective leases.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on a
straight-line basis over the terms of the related lease.
F-9
<PAGE>
Investment in Joint Ventures
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in joint ventures are recorded using the equity method of
accounting. The joint ventures follow the same significant accounting
policies as the Partnership.
Cash available for distribution and allocations of profit and loss to the
Partnership by the joint ventures are made in accordance with the terms of
the individual joint venture agreements. Generally, these items are
allocated in proportion to the partners' respective ownership interests.
Cash is paid from the joint ventures to the Partnership quarterly.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market accounts.
Per Unit Data
Net income per unit with respect to the Partnership for the years ended
December 31, 1998, 1997, and 1996 is computed based on the average number of
units outstanding during the period.
Reclassifications
Certain prior year items have been reclassified to conform with current year
financial statement presentation.
2. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1998 and 1997 represents the
Partnership's share of cash to be distributed from its joint venture
investments for the fourth quarters of 1998 and 1997, respectively, as
follows:
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Fund III and IV Associates $233,680 $226,757
Fund II and III Associates--The Atrium 53,054 58,454
Fund II and III Associates--Brookwood Grill 47,428 30,878
-------- --------
$334,162 $316,089
======== ========
</TABLE>
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the
Partnership's properties, the Partnership will generally pay Wells Management
management and leasing fees equal to (a) 3% of the gross
F-10
<PAGE>
revenues for management and 3% of the gross revenues for leasing (aggregate
maximum of 6%) plus a separate fee for the one-time initial lease-up of newly
constructed properties in an amount not to exceed the fee customarily charged
in arm's-length transactions by others rendering similar services in the same
geographic area for similar properties or (b) in the case of commercial
properties which are leased on a long-term net basis (ten or more years), 1%
of the gross revenues except for initial leasing fees equal to 3% of the
gross revenues over the first five years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, both directly and at the joint venture level, of $183,589, $194,174,
and $189,023 for the years ended December 31, 1998, 1997, and 1996,
respectively, which were paid to Wells Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners in the capacity as general partners of other Wells Real Estate Funds
may be in competition with the Partnership for tenants in similar geographic
markets.
3. INVESTMENT IN JOINT VENTURES
The Partnership's investment and percentage ownership in the joint ventures
at December 31, 1998 and 1997 are summarized as follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ---------------------------
Amount Percent Amount Percent
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Fund III and IV Associates $ 7,330,542 57% $ 7,570,298 57%
Fund II and III Associates--The Atrium 3,569,416 37 3,935,261 39
Fund II and III Associates--Brookwood Grill 1,233,003 38 1,302,017 38
----------- -----------
$12,132,961 $12,807,576
=========== ===========
</TABLE>
F-11
<PAGE>
The following is a rollforward of the Partnership's investment in joint
ventures for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Investment in joint ventures, beginning of year $12,807,576 $12,926,074
Equity in income of joint ventures 534,627 267,156
Contributions to joint ventures 59,205 659,810
Distributions from joint ventures (1,268,447) (1,045,464)
----------- -----------
Investment in joint ventures, end of year $12,132,961 $12,807,576
=========== ===========
</TABLE>
Fund II and III Associates
On April 3, 1989, the Partnership entered into a joint venture agreement with
the Fund II and II-OW joint venture The new joint venture, Fund II and III
Associates, was formed for the purpose of investing in commercial real
properties. In April 1989, Fund II and III Associates acquired The Atrium.
In 1991, the Fund II and II-OW joint venture contributed its interest in a
parcel of land known as the 880 Property located in Roswell, Georgia, to Fund
II and III Associates. The property is a 5.8 acre tract of land. A
restaurant was developed on 1.5 acres and is currently operating as the
Brookwood Grill restaurant ("Fund II and III Associates--Brookwood Grill").
The remaining 4.3 acres of the 880 Property were transferred at cost to the
Fund II, III, VI, and VII Associates joint venture during 1995. Fund II and
III Associates' investment in this transferred parcel of the 880 Property was
$1,507,807 and $1,608,215 at December 31, 1998 and 1997, respectively, which
represented a 24% interest for each year.
The Atrium was fully occupied from inception through June 1996, at which time
the previous tenant's lease expired. In March 1997, a lease was signed with
a new tenant for the entire building and the new tenant began paying rent in
May 1997. The lease term is for five years with an option to renew for an
additional five years. There is no-cause cancellation provision at the end
of the first three-year period. If this no-cause cancellation is exercised,
the tenant would be required to pay unamortized, up-front tenant improvement
costs. The cost of completing the required tenant improvements and outside
broker commissions was funded out of reserves and contributions by the
Partnership and Fund II and II-OW.
F-12
<PAGE>
Following are the financial statements for Fund II and III Associates--The
Atrium:
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
Assets
<TABLE>
<CAPTION>
1998 1997
---------- -----------
<S> <C> <C>
Real estate assets, at cost:
Land $1,504,743 $ 1,504,743
Building and improvements, less accumulated depreciation of
$5,433,962 in 1998 and $4,567,184 in 1997 7,938,061 8,804,839
---------- -----------
Total real estate assets 9,442,804 10,309,582
Cash and cash equivalents 128,882 281,285
Accounts receivable 18,114 18,950
Prepaid expenses and other assets 302,888 392,633
---------- -----------
Total assets $9,892,688 $11,002,450
========== ===========
</TABLE>
Liabilities and Partners' Capital
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Accounts payable $ 4,587 $ 151,366
Partnership distributions payable 137,224 151,044
Due to affiliates 0 3,829
---------- -----------
Total liabilities 141,811 306,239
---------- -----------
Partners' capital:
Fund II and II-OW 6,181,461 6,760,950
Wells Real Estate Fund III 3,569,416 3,935,261
---------- -----------
Total partners' capital 9,750,877 10,696,211
---------- -----------
Total liabilities and partners' capital $9,892,688 $11,002,450
========== ===========
</TABLE>
F-13
<PAGE>
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF (LOSS) INCOME
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $1,470,144 $ 924,769 $1,048,583
Interest income 0 2,617 24,188
Other income 13,280 8,638 0
---------- ---------- ----------
1,483,424 936,024 1,072,771
---------- ---------- ----------
Expenses:
Depreciation 866,778 795,829 674,479
Operating costs,
net of reimbursements 699,550 614,932 85,183
Management and leasing fees 186,102 111,576 71,381
Property administration 11,095 27,325 59,934
Legal and accounting 3,310 17,408 11,878
Computer costs 0 107 1,410
Loss on real estate assets 0 181,684 0
---------- ---------- ----------
1,766,835 1,748,861 904,265
---------- ---------- ----------
Net (loss) income $ (283,411) $ (812,837) $ 168,506
========== ========== ==========
Net (loss) income allocated
to Fund II and II-OW $ (173,731) $ (509,625) $ 110,540
========== ========== ==========
Net (loss) income allocated
to Wells Real Estate Fund III $ (109,680) $ (303,212) $ 57,966
========== ========== ==========
</TABLE>
F-14
<PAGE>
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
---------- ---------- -----------
<S> <C> <C> <C>
Balance, December 31, 1995 $7,273,932 $3,815,165 $11,089,097
Net income 110,540 57,966 168,506
Partnership distributions (398,911) (209,185) (608,096)
---------- ---------- -----------
Balance, December 31, 1996 6,985,561 3,663,946 10,649,507
Net loss (509,625) (303,212) (812,837)
Partnership contributions 409,495 659,810 1,069,305
Partnership distributions (124,481) (85,283) (209,764)
---------- ---------- -----------
Balance, December 31, 1997 6,760,950 3,935,261 10,696,211
Net loss (173,731) (109,680) (283,411)
Partnership distributions (405,758) (256,165) (661,923)
---------- ---------- -----------
Balance, December 31, 1998 $6,181,461 $3,569,416 $ 9,750,877
========== ========== ===========
</TABLE>
F-15
<PAGE>
FUND II AND III ASSOCIATES--THE ATRIUM
(A GEORGIA JOINT VENTURE)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Cash flows from operating activities:
Net (loss) income $(283,411) $ (812,837) $ 168,506
--------- ---------- ---------
Adjustments to reconcile net (loss) income to net cash provided
by (used in) operating activities:
Depreciation 866,778 795,829 674,479
Loss on real estate assets 0 181,684 0
Changes in assets and liabilities:
Accounts receivable 836 (18,950) 113,362
Prepaid expenses and other assets 89,745 (357,417) 0
Accounts payable (146,779) (37,394) (338,991)
Due to affiliates (3,829) 3,829 (6,802)
--------- ---------- ---------
Total adjustments 806,751 567,581 442,048
--------- ---------- ---------
Net cash provided by (used in) operating activities 523,340 (245,256) 610,554
--------- ---------- ---------
Cash flows from investing activities:
Investment in real estate assets 0 (932,156) (35,038)
--------- ---------- ---------
Cash flows from financing activities:
Contributions from joint venture partners 0 1,069,305 0
Distributions to joint venture partners (675,743) (58,720) (973,577)
--------- ---------- ---------
Net cash (used in) provided by financing activities (675,743) 1,010,585 (973,577)
--------- ---------- ---------
Net decrease in cash and cash equivalents (152,403) (166,827) (398,061)
--------- ---------- ---------
Cash and cash equivalents, beginning of year 281,285 448,112 846,173
--------- ---------- ---------
Cash and cash equivalents, end of year $ 128,882 $ 281,285 $ 448,112
========= ========== =========
</TABLE>
F-16
<PAGE>
Following are the financial statements for Fund II and III Associates--
Brookwood Grill:
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
---------- ----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 745,223 $ 745,223
Building and improvements, less accumulated depreciation of
$329,731 in 1998 and $275,717 in 1997 943,082 997,096
---------- ----------
Total real estate assets 1,688,305 1,742,319
Investment in joint venture 1,507,807 1,608,215
Cash and cash equivalents 73,956 54,321
Due from affiliate 50,479 32,092
Accounts receivable 67,018 89,757
Prepaid expenses and other assets 17,480 23,048
---------- ----------
Total assets $3,405,045 $3,549,752
========== ==========
</TABLE>
Liabilities and Partners' Capital
<TABLE>
<CAPTION>
Liabilities:
<S> <C> <C>
Accounts payable $ 1,200 $ 3,879
Due to affiliate 3,894 5,381
Partnership distributions payable 124,772 82,012
---------- ----------
Total liabilities 129,866 91,272
---------- ----------
Partners' capital:
Fund II and II-OW 2,042,176 2,156,463
Wells Real Estate Fund III 1,233,003 1,302,017
---------- ----------
Total partners' capital 3,275,179 3,458,480
---------- ----------
Total liabilities and partners' capital $3,405,045 $3,549,752
========== ==========
</TABLE>
F-17
<PAGE>
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
-------- -------- --------
Revenues:
Rental income $225,100 $225,106 $225,359
Equity in income (loss) of
joint venture 78,791 27,213 (19,378)
-------- -------- --------
303,891 252,319 205,981
-------- -------- --------
Expenses:
Operating costs, net of reimbursements (31,540) 15,233 92,450
Depreciation 54,014 54,014 54,014
Management and leasing fees 23,348 28,464 27,004
Property administration 3,708 3,875 12,454
Legal and accounting 3,200 4,672 3,164
Computer costs 0 107 1,410
-------- -------- --------
52,730 106,365 190,496
-------- -------- --------
Net income $251,161 $145,954 $ 15,485
======== ======== ========
Net income allocated to Fund II and II-OW $156,599 $ 91,002 $ 9,655
======== ======== ========
Net income allocated to Wells Real Estate Fund III $ 94,562 $ 54,952 $ 5,830
======== ======== ========
</TABLE>
F-18
<PAGE>
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
---------- ---------- ----------
Balance, December 31, 1995 $2,312,957 $1,396,514 $3,709,471
Net income 9,655 5,830 15,485
Partnership distributions (66,498) (40,154) (106,652)
---------- ---------- ----------
Balance, December 31, 1996 2,256,114 1,362,190 3,618,304
Net income 91,002 54,952 145,954
Partnership distributions (190,653) (115,125) (305,778)
---------- ---------- ----------
Balance, December 31, 1997 2,156,463 1,302,017 3,458,480
Net income 156,599 94,562 251,161
Partnership distributions (270,886) (163,576) (434,462)
---------- ---------- ----------
Balance, December 31, 1998 $2,042,176 $1,233,003 $3,275,179
========== ========== ==========
</TABLE>
F-19
<PAGE>
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
--------- --------- ---------
Cash flows from operating activities:
Net income $ 251,161 $ 145,954 $ 15,485
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 54,014 54,014 54,014
Equity in (income) loss of joint venture (78,791) (27,213) 19,378
Changes in assets and liabilities:
Accounts receivable 22,739 24,229 (9,262)
Prepaid expenses and other assets 5,568 5,568 5,568
Accounts payable (2,679) (16,161) 18,860
Due to affiliates (1,487) (1,163) 465
--------- --------- ---------
Total adjustments (636) 39,274 89,023
--------- --------- ---------
Net cash provided by operating activities 250,525 185,228 104,508
--------- --------- ---------
Cash flows from investing activities:
Distributions received from joint venture 160,812 89,622 7,022
--------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (391,702) (229,631) (136,320)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 19,635 45,219 (24,790)
Cash and cash equivalents, beginning of year 54,321 9,102 33,892
--------- --------- ---------
Cash and cash equivalents, end of year $ 73,956 $ 54,321 $ 9,102
========= ========= =========
</TABLE>
Fund II, III, VI, and VII Associates
On January 1, 1995, the Fund II and III Associates joint venture entered into
a joint venture agreement with Wells Real Estate Fund VI, L.P. ("Fund VI")
and Wells Real Estate Fund VII, L.P. ("Fund VII"). The joint venture, Fund
II, III, VI, and VII Associates, was formed for the purpose of acquiring,
developing, operating, and selling real properties. During 1995, Fund II and
III Associates contributed a 4.3-acre tract of land from its 880 Property to
the Fund II, III, VI, and VII Associates joint venture. During 1996, 1997,
and 1998, Fund VI and Fund VII made contributions to the joint venture.
Ownership percentage interests were recompleted accordingly. Development was
substantially completed in 1996 on two retail and office buildings containing
a total of approximately 49,500 square feet.
F-20
<PAGE>
The following are the financial statements for Fund II, III, VI, and VII
Associates:
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
<S> <C> <C>
1998 1997
----------- -----------
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated depreciation of
$884,062 in 1998 and $507,772 in 1997 4,773,062 5,025,276
Construction in progress 41,263 59,564
----------- -----------
Total real estate assets 6,139,567 6,410,082
Cash and cash equivalents 308,788 219,391
Accounts receivable 111,460 54,524
Prepaid expenses and other assets 233,965 269,568
----------- -----------
Total assets $6,793,780 $6,953,565
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 192,072 $ 170,776
Partnership distributions payable 209,716 131,907
----------- -----------
401,788 302,683
----------- -----------
Partners' capital:
Fund II and III Associates 1,507,807 1,608,215
Wells Real Estate Fund VI 1,682,380 1,789,811
Wells Real Estate Fund VII 3,201,805 3,252,856
----------- -----------
Total partners' capital 6,391,992 6,650,882
----------- -----------
Total liabilities and partners' capital $6,793,780 $6,953,565
=========== ===========
</TABLE>
F-21
<PAGE>
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Income (Loss)
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
Revenues:
<S> <C> <C> <C>
Rental income $872,978 $679,268 $255,062
Other income 36,000 0 0
-------- -------- --------
908,978 679,268 255,062
-------- -------- --------
Expenses:
Depreciation 376,290 325,974 181,798
Operating costs,
net of reimbursements 85,983 122,261 75,018
Management and leasing fees 97,701 99,834 28,832
Legal and accounting 6,509 4,885 14,928
Property administration 14,926 17,321 10,286
Computer costs 0 228 1,368
-------- -------- --------
581,409 570,503 312,230
-------- -------- --------
Net income (loss) $327,569 $108,765 $(57,168)
======== ======== ========
Net income (loss) allocated
to Fund II and III Associates $ 78,791 $ 27,213 $(19,378)
======== ======== ========
Net income (loss) allocated
to Wells Real Estate Fund VI $ 87,914 $ 28,409 $(10,193)
======== ======== ========
Net income (loss) allocated
to Wells Real Estate Fund VII $160,864 $ 53,143 $(27,597)
======== ======== ========
</TABLE>
F-22
<PAGE>
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Fund II Wells Wells Real Total
and III Real Estate Estate Partners'
Associates Fund VI Fund VII Capital
---------- ---------- ---------- ----------
Balance, December 31, 1995 $1,729,116 $1,028,210 $2,521,739 $5,279,065
Partnership contributions 0 761,259 835,646 1,596,905
Partnership distributions (19,494) (19,329) (37,237) (76,060)
Net loss (19,378) (10,193) (27,597) (57,168)
---------- ---------- ---------- ----------
Balance, December 31, 1996 1,690,244 1,759,947 3,292,551 6,742,742
Partnership contributions 0 116,675 121,576 238,251
Partnership distributions (109,242) (115,220) (214,414) (438,876)
Net income 27,213 28,409 53,143 108,765
---------- ---------- ---------- ----------
Balance, December 31, 1997 1,608,215 1,789,811 3,252,856 6,650,882
Partnership contributions 0 4,600 154,049 158,649
Partnership distributions (179,199) (199,945) (365,964) (745,108)
Net income 78,791 87,914 160,864 327,569
---------- ---------- ---------- ----------
Balance, December 31, 1998 $1,507,807 $1,682,380 $3,201,805 $6,391,992
========== ========== ========== ==========
</TABLE>
F-23
<PAGE>
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
Cash flows from operating activities:
Net income (loss) $327,569 $ 108,765 $ (57,168)
-------- --------- -----------
Adjustments to reconcile net income
(loss) to net cash provided by operating
activities:
Changes in assets and liabilities:
Depreciation 376,290 325,974 181,798
Accounts receivable (56,936) 12,810 (67,334)
Prepaid expenses and other assets 35,603 (123,748) (104,792)
Accounts payable and
accrued expenses 21,296 (34,194) 88,532
-------- --------- -----------
Total adjustments 376,253 180,842 98,204
-------- --------- -----------
Net cash provided by
operating activities 703,822 289,607 41,036
-------- --------- -----------
Cash flows from investing activities:
Decrease in construction payables 0 0 (358,467)
Investment in real estate (102,122) (620,059) (1,736,082)
-------- --------- -----------
Net cash used in investing
activities (102,122) (620,059) (2,094,549)
-------- --------- -----------
Cash flows from financing activities:
Contributions from joint
venture partners 154,996 230,699 1,434,308
Distributions to joint
venture partners (667,299) (356,559) (26,470)
-------- --------- -----------
Net cash (used in) provided
by financing activities (512,303) (125,860) 1,407,838
-------- --------- -----------
Net increase (decrease) in cash and
cash equivalents 89,397 (456,312) (645,675)
Cash and cash equivalents, beginning of year 219,391 675,703 1,321,378
-------- --------- -----------
Cash and cash equivalents, end of year $308,788 $219,391 $ 675,703
======== ========= ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed $ 3,653 $ 7,552 $ 162,597
======== ========= ===========
</TABLE>
Fund III and IV Associates
On March 27, 1991, the Partnership entered into a joint venture with Wells
Real Estate Fund IV, L.P. The joint venture, Fund III and IV Associates, was
formed for the purpose of developing, constructing, and operating the
Stockbridge Village Shopping Center in Stockbridge, Georgia. In addition, in
July 1992, Fund III and IV Associates purchased the G.E. Lighting National
Customer Center in Richmond, Virginia.
F-24
<PAGE>
The following are the financial statements for Fund III and IV Associates:
Fund III and IV Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
----------- -----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 3,331,775 $ 3,331,775
Building and improvements, less accumulated depreciation of
$2,870,627 in 1998 and $2,328,264 in 1997 9,320,016 9,750,996
----------- -----------
Total real estate assets 12,651,791 13,082,771
Cash and cash equivalents 336,958 306,194
Accounts receivable 173,633 207,223
Prepaid expenses and other assets 74,533 42,905
----------- -----------
Total assets $13,236,915 $13,639,093
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 38,139 $ 36,172
Partnership distributions payable 407,701 388,117
Due to affiliates 1,512 6,939
----------- ----------
Total liabilities 447,352 431,228
----------- ----------
Partners' capital:
Wells Real Estate Fund III 7,330,542 7,570,298
Wells Real Estate Fund IV 5,459,021 5,637,567
----------- -----------
Total partners' capital 12,789,563 13,207,865
----------- -----------
Total liabilities and partners' capital $13,236,915 $13,639,093
=========== ===========
</TABLE>
F-25
<PAGE>
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $1,749,842 $1,640,663 $1,609,853
Interest income 9,368 12,308 13,024
---------- ---------- ----------
1,759,210 1,652,971 1,622,877
---------- ---------- ----------
Expenses:
Depreciation 542,363 535,209 535,209
Management and leasing fees 154,881 146,013 138,302
Operating costs, net of reimbursements 62,863 36,973 60,043
Property administration 27,546 21,735 23,054
Legal and accounting 12,420 13,797 11,191
Computer costs 0 0 4,569
Amortization of organization costs 0 0 61
--------- --------- ----------
800,073 753,727 772,429
--------- --------- ----------
Net income $ 959,137 $ 899,244 $ 850,448
========= ========= ==========
Net income allocated to Wells
Real Estate Fund III $ 549,745 $ 515,416 $ 487,448
========= ========= ==========
Net income allocated to Wells
Real Estate Fund IV $ 409,392 $ 383,828 $ 363,000
========= ========== ==========
</TABLE>
F-26
<PAGE>
Fund III And IV Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
<S> <C> <C> <C>
Wells Real Wells Real Total
Estate Estate Partners'
Fund III Fund IV Capital
---------- ---------- -----------
Balance, December 31, 1995 $8,234,366 $6,132,096 $14,366,462
Net income 487,448 363,000 850,448
Partnership distributions (821,876) (612,048) (1,433,924)
---------- ---------- -----------
Balance, December 31, 1996 7,899,938 5,883,048 13,782,986
Net income 515,416 383,828 899,244
Partnership distributions (845,056) (629,309) (1,474,365)
---------- ---------- -----------
Balance, December 31, 1997 7,570,298 5,637,567 13,207,865
Net income 549,745 409,392 959,137
Partnership contributions 59,205 44,090 103,295
Partnership distributions (848,706) (632,028) (1,480,734)
---------- ---------- -----------
Balance, December 31, 1998 $7,330,542 $5,459,021 $12,789,563
========== ========== ============
</TABLE>
F-27
<PAGE>
Fund III and IV Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
1998 1997 1996
---- ---- ----
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 959,137 $ 899,244 $ 850,448
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 542,363 535,209 535,209
Changes in assets and liabilities:
Accounts receivable 33,590 40,344 46,711
Prepaid expenses and other assets (31,628) (6,674) 18,111
Accounts payable 1,967 (3,550) 6,501
Due to affiliates (5,427) 921 (1,133)
----------- ----------- -----------
Total adjustments 540,865 566,250 605,399
----------- ----------- -----------
Net cash provided by operating activities 1,500,002 1,465,494 1,455,847
----------- ----------- -----------
Cash flows from investing activities:
Investment in real estate (111,383) 0 (1,976)
----------- ----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 103,295 0 0
Distributions to joint venture partners (1,461,150) (1,457,201) (1,406,873)
----------- ----------- -----------
Net cash used in financing activities (1,357,855) (1,457,201) (1,406,873)
----------- ----------- -----------
Net increase in cash and cash equivalents 30,764 8,293 46,998
Cash and cash equivalents, beginning of year 306,194 297,901 250,903
----------- ----------- -----------
Cash and cash equivalents, end of year $ 336,958 $ 306,194 $ 297,901
=========== =========== ===========
</TABLE>
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1998, 1997, and 1996 is calculated as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
---------- -------- ----------
Financial statement net income $ 649,007 $385,224 $ 731,244
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess of amounts
for income tax purposes 353,230 320,502 261,953
Rental income recognized for income tax purposes in excess of amounts for
financial reporting purposes 45,896 9,634 68,420
Expenses deductible when paid for income tax purposes, accrued for financial
reporting purposes (1,014) (6,871) 4,219
Fixed asset retirement in excess of amounts for income tax purposes 0 (7,064) 0
Other 960 6,213 0
---------- -------- ----------
Income tax basis net income $1,048,079 $707,638 $1,065,836
========== ======== ==========
</TABLE>
F-28
<PAGE>
The Partnership's income tax basis partners' capital at December 31, 1998,
1997, and 1996 is computed as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1998 1997 1996
----------- ----------- -----------
Financial statement partners' capital $15,420,884 $16,383,705 $16,743,131
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 996,852 643,622 323,120
Capitalization of syndication costs for income tax purposes, which are
accounted for as cost of capital for financial reporting purposes 2,624,555 2,624,555 2,624,555
Accumulated rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes (238,040) (283,936) (293,570)
Accumulated expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 120,387 121,401 128,272
Partnership's distribution payable 458,724 396,991 324,495
Other (1,731) (2,691) (1,840)
----------- ----------- -----------
Income tax basis partners' capital $19,381,631 $19,883,647 $19,848,163
=========== =========== ===========
</TABLE>
5. RENTAL INCOME
The future minimum rental income due from the Partnership's direct investment
in real estate or its respective ownership interest in joint ventures under
noncancelable operating leases at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $2,207,855
2000 1,935,161
2001 1,481,156
2002 798,538
2003 374,722
Thereafter 3,063,880
----------
$9,861,312
==========
</TABLE>
Three significant tenants contributed approximately 33%, 16%, and 17% of
revenues, which is either included as rental income in the accompanying
statements of income or in the calculation of equity in income of joint
ventures for the year ended December 31, 1998. In addition, two significant
tenants will contribute approximately 43% and 19% of future minimum rental
income.
F-29
<PAGE>
The future minimum rental income due Fund II and III Associates--The Atrium
under noncancelable operating leases at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $1,458,240
2000 1,478,080
2001 1,488,000
2002 496,000
----------
$4,920,320
==========
</TABLE>
One tenant at the Atrium contributed 100% of rental income for the year ended
December 31, 1998 and will contribute 100% of future minimum rental income.
The future minimum rental income due Fund II and III Associates--Brookwood
Grill under noncancelable operating leases at December 31, 1998 is as
follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $249,550
2000 249,550
2001 249,550
2002 20,796
--------
$769,446
========
</TABLE>
One tenant contributed 100% of rental income for the year ended December 31,
1998 and will contribute 100% of future minimum rental income.
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 733,044
2000 701,474
2001 654,767
2002 335,261
2003 121,668
Thereafter 263,613
----------
$2,809,827
==========
</TABLE>
Four significant tenants contributed approximately 15%, 14%, 13%, and 12% of
rental income for the year ended December 31, 1998. In addition, two
significant tenants will contribute approximately 31% and 14% of future
minimum rental income.
F-30
<PAGE>
The future minimum rental income due Fund III and IV Associates under
noncancelable operating leases at December 31, 1998 is as follows:
<TABLE>
<CAPTION>
Year ending December 31:
<S> <C>
1999 $ 1,784,575
2000 1,318,671
2001 1,157,062
2002 937,583
2003 634,323
Thereafter 5,303,155
-----------
$11,135,369
===========
</TABLE>
Two significant tenants contributed approximately 30% and 28% of rental
income for the year ended December 31, 1998. In addition, one significant
tenant will contribute approximately 66% of future minimum rental income.
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1998 and 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1998 Quarters Ended
---------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues $255,657 $285,440 $270,116 $287,889
Net income 145,730 162,589 185,563 155,125
Net income allocated to Class A limited partners 145,730 162,589 185,563 114,176
Net income allocated to Class B limited partners 0 0 0 40,949
Net income per Class A limited partner unit $ 0.01 $ 0.01 $ 0.01 $ 0.00
Net income per Class B limited partner unit 0.00 0.00 0.00 0.02
Cash distribution per Class A limited partner unit 0.02 0.02 0.02 0.02
Cash distribution per Class B limited partner unit 0.00 0.00 0.00 0.02
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
1997 Quarters Ended
---------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues $199,709 $196,951 $281,182 $172,216
Net income 64,405 75,417 168,471 76,931
Net income allocated to Class A limited partners 64,405 75,417 168,471 76,931
Net income per Class A limited partner unit $ 0.00 $ 0.00 $ 0.01 $ 0.01
Cash distribution per Class A limited partner unit 0.00 0.00 0.02 0.02
</TABLE>
F-31
<PAGE>
7. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-32
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Initial Cost
-------------------------- Costs of
Buildings and Capitalized
Description Encumbrances Land Improvements Improvements
- - ---------------------------------------------- ------------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
THE ATRIUM AT NASSAU BAY (a) None $1,367,000 $10,983,000 $ 2,526,766
GREENVILLE PROJECT (b) None 529,977 0 3,646,588
880 PROPERTY--BROOKWOOD GRILL (c) None 523,319 0 1,494,717
STOCKBRIDGE VILLAGE (d) None 2,551,645 0 7,860,501
G.E. LIGHTING NATIONAL CUSTOMER CENTER (e) None 529,546 4,158,223 422,504
880 PROPERTY (f) None 1,325,242 0 5,698,385
----------- ------------ ------------
Total $6,826,729 $15,141,223 $21,649,461
=========== ============ ============
Gross Amount at Which Carried at December 31, 1998
-------------------------------------------------------------------
Buildings and Construction
Description Land Improvements in Progress Total
- - ---------------------------------------------- ------------- ----------- ------------ ----------
THE ATRIUM AT NASSAU BAY (a) $1,504,743 $13,372,023 $ 0 $14,876,766
GREENVILLE PROJECT (b) 576,350 3,600,215 0 4,176,565
880 PROPERTY--BROOKWOOD GRILL (c) 745,223 1,272,813 0 2,018,036
STOCKBRIDGE VILLAGE (d) 2,758,193 7,653,953 0 10,412,146
G.E. LIGHTING NATIONAL CUSTOMER CENTER (e) 573,582 4,536,691 0 5,110,273
880 PROPERTY (f) 1,325,242 5,657,122 41,263 7,023,627
---------- ----------- ------------ ------------
Total $7,483,333 $36,092,817 $41,263 $43,617,413
========== =========== ============ ============
Life on Which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired Is Computed(g)
- - ---------------------------------------------- ------------- ----------- ------------ -------------
THE ATRIUM AT NASSAU BAY (a) $ 5,433,962 1988 04/03/89 12 to 25 years
GREENVILLE PROJECT (b) 931,558 1990 06/30/90 20 to 25 years
880 PROPERTY--BROOKWOOD GRILL (c) 329,729 1991 05/27/91 20 to 25 years
STOCKBRIDGE VILLAGE (d) 1,872,337 1991 04/04/91 20 to 25 years
G.E. LIGHTING NATIONAL CUSTOMER CENTER (e) 998,291 1991 07/01/92 20 to 25 years
880 PROPERTY (f) 884,062 1996 01/31/90 20 to 25 years
=========== =========== ============ ============
Total $10,449,939
</TABLE>
(a) The Atrium at Nassau Bay is a four-story office building
located in Houston, Texas. It is owned by Fund II and
III Associates. The Partnership owned a 37% interest in
Fund II and III Associates as of December 31, 1998.
(b) The Greenville Project is a two-story office building
located in Greenville, North Carolina, owned entirely by
the Partnership.
(c) The 880 Property--Brookwood Grill is a 7,440-square-foot
restaurant located in Fulton County, Georgia. It is
owned by a joint venture, Fund II and III Associates.
The Partnership owned a 38% interest in the 880
Property--Brookwood Grill as of December 31, 1998.
(d) Stockbridge Village is a 13.62-acre retail shopping
center located in Stockbridge, Georgia. It is owned by
Fund III and IV Associates. The Partnership owned a 57%
interest in Fund III and IV Associates as of December
31, 1998.
(e) The G.E. Lighting National Customer Center is a 43,000-
square-foot office building located in Richmond,
Virginia. It is owned by Fund III and IV Associates.
The Partnership owned a 57% interest in Fund III and IV
Associates as of December 31, 1998.
(f) The 880 Property is a 4.3-acre tract of real property
under development in Fulton County, Georgia. It is
owned by Fund II, III, VI, and VII Associates. The
Partnership owned a 9% interest in Fund II, III, VI, and
VII Associates as of December 31, 1998.
(g) Depreciation lives used for buildings were 40 years
through September 1995, changed to 25 years thereafter.
Depreciation lives used for land improvements are 12 to
20 years.
S-1
<PAGE>
WELLS REAL ESTATE FUND III, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
----------- ------------
<S> <C> <C>
BALANCE AT DECEMBER 31, 1996 $42,081,600 $ 6,662,165
1997 additions 1,546,767 1,869,334
1997 deductions (262,725) (81,041)
----------- ------------
BALANCE AT DECEMBER 31, 1997 43,365,642 8,450,458
1998 additions 251,771 1,999,481
----------- ------------
BALANCE AT DECEMBER 31, 1998 $43,617,413 $10,449,939
=========== ============
</TABLE>
S-2
<PAGE>
EXHIBIT INDEX
-------------
(Wells Real Estate Fund III, L.P.)
The following documents are filed as exhibits to this report. Those exhibits
previously filed and incorporated herein by reference are identified below by an
asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
Exhibit Sequential
Number Description of Document Page Number
- - --------- -------------------------------------------- -------------
*4(a) Agreement of Limited Partnership of N/A
Wells Real Estate Fund III, L.P.
(Registration Statement of Wells Real
Estate Fund III, L.P., Exhibit B to the
Prospectus, File No. 33-24063)
*4(b) Amendment to Agreement of Limited N/A
Partnership of Wells Real Estate
Fund III, L.P. (Exhibit 4(a) to
Post-Effective Amendment No. 1 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No.
33-24063)
*4(c) Second Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit 4(a)
to Post-Effective Amendment No. 5
to Registration Statement of Wells
Real Estate Fund III, L.P., File No.
33-24063)
*4(d) Third Amendment to Agreement of N/A
Limited Partnership of Wells Real
Estate Fund III, L.P. (Exhibit to
Post-Effective Amendment No. 7 to
Registration Statement of Wells Real
Estate Fund III, L.P., File No.
33-24063)
<PAGE>
Exhibit Sequential
Number Description of Document Page Number
- - --------- -------------------------------------------- -------------
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(b) Leasing and Tenant Coordination Agreement N/A
between Registrant and Wells Management
Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(c) Purchase Agreement for the Acquisition N/A
of the Atrium at Nassau Bay dated
March 1, 1989 (Exhibit 10(i) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(d) Joint Venture Agreement of Fund II and N/A
Fund III Associates dated March 1,
1989 (Exhibit to Post-Effective
Amendment No. 2 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(e) First Amendment to Joint Venture Agreement N/A
of Fund II and Fund III Associates dated
April 1, 1989 (Exhibit 10(k) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1990,
File No. 0-16518)
*10(f) Leases with Lockheed Engineering and N/A
Sciences Company, Inc. (Exhibit 10(l)
to Form 10-K of Wells Real Estate Fund
II for the fiscal year ended
December 31, 1990, File No. 0-16518)
<PAGE>
Exhibit Sequential
Number Description of Document Page Number
- - --------- -------------------------------------------- -------------
*10(g) Custodial Agency Agreement between N/A
Registrant and Citizens and Southern
Trust Company (Georgia), National
Association dated January 1, 1990
(Exhibit to Post-Effective
Amendment No. 5 to Registration
Statement of Wells Real Estate Fund
III, L.P., File No. 33-24063)
*10(h) Purchase Agreement for the Acquisition N/A
of the Greenville Property dated
April 10, 1990 (Exhibit to Form 10-K of
Wells Real Estate Fund III, L.P. for the
fiscal year ended December 31, 1990, File
No. 0-18407)
*10(i) Development Agreement with ADEVCO N/A
Corporation dated June 15, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(j) Construction Contract with McDevitt N/A
& Street Company dated May 31, 1990 (Exhibit
to Form 10-K of Wells Real Estate Fund III,
L.P. for the fiscal year ended December 31,
1990, File No. 0-18407)
*10(k) Lease with International Business N/A
Machines Corporation dated May 15,
1990 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1990, File No. 0-18407)
*10(l) Amended and Restated Joint Venture N/A
Agreement of Fund II and Fund III Associates
(Exhibit 10(o) to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1991, File No. 0-16518)
<PAGE>
Exhibit Sequential
Number Description of Document Page Number
- - --------- -------------------------------------------- -------------
*10(m) Land and Building Lease Agreement between N/A
Fund II and Fund II-OW and Brookwood Grill
of Roswell, Inc. (Exhibit 10(p) to Form
10-K of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991, File
No. 0-16518)
*10(n) Assignment and Assumption of Lease dated N/A
September 20, 1991 between Fund II and
Fund II-OW and Fund II and Fund III
Associates (Exhibit 10(q) to Form 10-K
of Wells Real Estate Fund II for the
fiscal year ended December 31, 1991,
File No. 0-16518)
*10(o) Fund III and Fund IV Associates Joint N/A
Venture Agreement dated March 27, 1991
(Exhibit 10(g) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(p) Agreement of Purchase and Sale dated N/A
October 31, 1990 between 675 Industrial
Park, Ltd. and The Vlass-Fotos Group, Inc.
(Exhibit 10(h) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
*10(q) Lease dated January 31, 1991 between The N/A
Vlass-Fotos Group, Inc. and The Kroger Co.
(Exhibit 10(i) to Post-Effective Amendment
No. 1 to Registration Statement of Wells
Real Estate Fund IV, L.P. and Wells Real
Estate Fund V, L.P., File No. 33-37830)
<PAGE>
Exhibit Sequential
Number Description of Document Page Number
- - --------- -------------------------------------------- -------------
*10(r) Lease Agreement dated January 31, 1991 N/A
between The Vlass-Fotos Group, Inc. and
The Kroger Co. (Exhibit 10(j) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(s) First Amendment to Lease dated April 3, N/A
1991 between The Vlass-Fotos Group, Inc.
and The Kroger Co. (Exhibit 10(k) to Post-
Effective Amendment No. 1 to Registration
Statement of Wells Real Estate Fund IV,
L.P. and Wells Real Estate Fund V, L.P.,
File No. 33-37830)
*10(t) First Amendment to Lease Agreement dated N/A
April 3, 1991 between The Vlass-Fotos
Group, Inc. and The Kroger Co. (Exhibit
10(l) to Post-Effective Amendment No. 1
to Registration Statement of Wells Real
Estate Fund IV, L.P. and Wells Real Estate
Fund V, L.P., File No. 33-37830)
*10(u) Development Agreement dated April 4, 1991 N/A
between Fund III and Fund IV Associates
and The Vlass-Fotos Group, Inc. (Exhibit
10(m) to Post-Effective Amendment No. 1 to
Registration Statement of Wells Real Estate
Fund IV, L.P. and Wells Real Estate Fund V,
L.P., File No. 33-37830)
*10(v) First Amendment to Joint Venture Agreement N/A
of Fund III and IV Associates dated July 1,
1992 (Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal year
ended December 31, 1992, File No. 0-18407)
<PAGE>
Exhibit Sequential
Number Description of Document Page Number
- - --------- -------------------------------------------- -------------
*10(w) Agreement for the Purchase and Sale of N/A
Property between Rowe Properties-Markel,
L.P. and Fund III and Fund IV Associates
and Addendum to Agreement for the Purchase
and Sale of Property (Exhibit to Form 10-K
of Wells Real Estate Fund III, L.P. for
the fiscal year ended December 31, 1992,
File No. 0-18407)
*10(x) Office Lease with G.E. Lighting, Rider N/A
No. 1 to Lease, Addendum of Lease, Second
Addendum of Lease, Third Amendment of Lease
and Fourth Amendment to Office Lease (Exhibit to
Form 10-K of Wells Real Estate Fund III, L.P.
for the fiscal year ended December 31, 1992,
File No. 0-18407)
*10(y) Amended and Restated Custodial Agency N/A
Agreement between Wells Real Estate
Fund III, L.P. and NationsBank of
Georgia, N.A. dated April 1, 1994
(Exhibit to Form 10-K of Wells Real
Estate Fund III, L.P. for the fiscal
year ended December 31, 1994, File No. 0-18407)
*10(z) Joint Venture Agreement of Fund II, III, N/A
VI and VII Associates (Exhibit to Form
10-K of Wells Real Estate Fund VI, L.P.
for the fiscal year ended December 31,
1995, File No. 0-23656)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 156,648
<SECURITIES> 12,132,961
<RECEIVABLES> 334,162
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 32,157
<PP&E> 4,176,566
<DEPRECIATION> 931,558
<TOTAL-ASSETS> 15,900,936
<CURRENT-LIABILITIES> 480,053
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 15,420,883
<TOTAL-LIABILITY-AND-EQUITY> 15,900,936
<SALES> 0
<TOTAL-REVENUES> 1,099,102
<CGS> 450,095
<TOTAL-COSTS> 450,095
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 649,007
<INCOME-TAX> 649,007
<INCOME-CONTINUING> 649,007
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 649,007
<EPS-PRIMARY> .03
<EPS-DILUTED> 0
</TABLE>
