As filed with the Securities Exchange Commission on August 21, 2007
File No. 333-125266
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
POST-EFFECTIVE AMENDMENT NO. 8 TO
FORM SB-2
REGISTRATION STATEMENT
Under the Securities Act of 1933
AEI INCOME & GROWTH FUND 26 LLC
(Name of small business issuer in its charter)
Delaware 6500 41-2173048
(State of other (Primary Standard (IRS Employer
jurisdiction Industrial Identification
of incorporation) Classification Number)
Code Number)
30 East Seventh Street Robert P. Johnson Copies to:
Suite 1300 30 East Seventh Street Thomas O. Martin
St. Paul, Minnesota 55101 Suite 1300 Dorsey & Whitney LLP
(651) 227-7333 or St. Paul, Minnesota 55101 50 South Sixth Street
(800) 328-3519 (651) 227-7333 or Suite 1500
(Address and telephone (800) 328-3519 Minneapolis, Minnesota
number of principal (Name, address, including 55402-1498
executive offices and zip code
intended principal place and telephone number of
of business) agent for service of
process)
The Registrant hereby amends this Registration Statement on such
date or dates as may be necessary to delay its effective date
until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the Registration Statement shall
become effective on such date as the Commission, acting pursuant
to said Section 8(a), may determine.
AEI INCOME & GROWTH FUND 26
LIMITED LIABILITY COMPANY
10,000,000 Limited Liability Company Units
($10 Per Unit)
SUPPLEMENT NO. 8
DATED August __, 2007
This Supplement is distributed only with the Prospectus dated
October 20, 2005 and must be read in conjunction therewith.
IMPORTANT NOTE ON COMPLETION OF
SUBSCRIPTION AGREEMENT
Our Subscription Agreement requires you to fill in the date of
the most current supplement in the "Investor Representations"
section (question number 7 on page two). If there is a sticker
supplement on page 2 or 3 of this Supplement, you should use the
date of the latest sticker supplement in the Subscription
Agreement. If there is no sticker supplement on page 2 or 3, you
should use August __, 2007 (the date of this Supplement). If you
do not complete the Subscription Agreement with the correct
supplement date, your order will be delayed until we can confirm
you have received the most current supplement.
AEI SECURITIES, INC.
1300 Wells Fargo Place
30 East 7th Street
St. Paul, Minnesota 55101
(651) 227-7333
(800) 328-3519
FAX (651) 227-7705
This page reserved for Sticker Supplements
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This page reserved for Sticker Supplements
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THIS SUPPLEMENT
We are distributing this supplement to update information
that is contained in the prospectus dated October 20, 2005 of AEI
Income & Growth Fund 26 LLC. We are distributing this supplement
only with the prospectus, which provides detailed information
related to AEI Fund 26. In particular, this supplement provides
more information on the following topics:
Current Status-Release From Escrow 5
Repurchase of Units 5
Property 5
Selected Financial Data 9
Management's Discussion and Analysis 9
Financial Statements of the LLC at December 31,
2006 and 2005 and for the Periods Then Ended 14
Financial Statements of the LLC at June 30,
2007 and 2006 and for the Periods Then Ended 29
Balance Sheet of the Managing Member at
December 31, 2006 and 2005 36
Exhibit B - Prior Performance Tables B-1
If you have received this supplement, you should also have
received a copy of the prospectus. You should carefully review
the prospectus for a detailed description of an investment in AEI
Fund 26, including information relating to our management, our
investment objectives and the risks of the investment.
We encourage you to read the "Risks" described on Pages 8
to 13 of the prospectus. We believe the most significant risks
include the following:
You will not be able to evaluate our properties before
they are acquired;
You will be required to rely on our managers for all
facets of our operations, including selection, operation
and sale of our properties;
As an investor, you will have the right to vote only on a
limited number of matters;
We will make substantial payments to our managers
regardless of whether we are profitable;
Because there will be no market for the units and
restrictions will be placed on their transfer you may be
unable to resell the units except at a substantial
discount from your purchase price;
Our managers will operate under a number of conflicts of
interest;
We are not a mutual fund or investment company and are
not regulated under the Federal Investment Company Act.
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CURRENT STATUS
Release from Escrow
The prospectus indicated that AEI Fund 26 would not be
capitalized, and all subscription funds would be held in escrow,
until we had received subscriptions for 150,000 units
($1,500,000). We obtained subscriptions for the 150,000 units
required for release of escrow proceeds and the escrow proceeds
were released on April 3, 2006. We have commenced the normal
operation of investigating the acquisition of properties and
have, through the date of this supplement, acquired five
properties. See "Property." Pending investment in properties,
subscription proceeds have been invested in a short-term money
market account. See "Management's Discussion and Analysis."
At June 30, 2007, we had accepted subscriptions for
1,365,973.7 units for aggregate proceeds of $13,659,737. Our
managers have determined to extend the offering of units to the
earlier of the sale of all units or October 19, 2007.
REPURCHASE OF UNITS
We have amended the operating agreement to allow a grantor
trust to present its units to AEI Fund 26 for repurchase at 100%
of the net value per unit upon the death of the grantor of the
trust. The terms and conditions that apply to this situation are
identical to those that apply to the repurchase of units upon the
death of an investor, who is a natural person.
PROPERTY
We have committed that we will acquire only commercial,
net leased properties and that most of those properties will be
leased to corporate tenants in the chain restaurant and retail
segments of the real estate market. Before we would commit to
purchase properties of another character, such as a multi-tenant,
residential or other form of non-commercial property, we would
present such proposed acquisition to our limited members for
approval.
We describe below all of the properties we have purchased
since our formation and any properties that we have an
outstanding commitment to purchase through the date of this
supplement. The properties are leased to various tenants through
triple net leases, which are classified as operating leases.
Under a triple net lease, the tenant is responsible for all real
estate taxes, insurance, maintenance, repairs and operating
expenses of the property. The only exceptions are under the
leases for the Sports Authority and Advance Auto Parts stores, we
are responsible for repairs to the structural components of the
building, except for the roof, which is the tenant's
responsibility. In addition, under the lease for the Starbucks
store, we are responsible for repairs to the structural
components of the building, roof, parking lot, sidewalks and
driveways. Since each property is leased to a single tenant on a
long-term basis under a triple net lease that transfers
substantially all of the operating costs to the tenant, we
believe that financial information about the tenants or
guarantors of each lease is more relevant than financial
statements of the property.
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Sports Authority (formerly Gart Sports) - Wichita, Kansas.
In order to facilitate the purchase of our first property, AEI
Fund Management XVII, Inc. (AFMX), an affiliate of our managers,
purchased a 40% interest in a Sports Authority store in Wichita,
Kansas for $2,230,753 from an unrelated third party. On April 3,
2006, we purchased a 29.5% interest in the property from AFMX. In
May and June 2006, we purchased the remaining 10.5% interest from
AFMX. The price we paid was equal to the price paid by AFMX plus
the expenses incurred to transfer ownership of the property to
us, which were minimal. During the period the property was owned
by AFMX, the property generated net income of $6,199, which was
paid to us. There was no benefit arising out of the transaction
to our managers or their affiliates apart from compensation
otherwise permitted by our operating agreement.
The property is leased to TSA Stores, Inc. under a lease
agreement with a remaining primary term of 11 years. The lease
may be renewed by the tenant for up to three consecutive terms of
five years each. The lease requires initial annual rent of
$186,059, which was increased by 10% on March 1, 2007 and is
scheduled to increased by 10% every five years thereafter. The
remaining interest in the property was purchased by AEI Income
& Growth Fund 25 LLC, an affiliate of AEI Fund 26.
The store was constructed in 1996 and renovated in 2001
and is a 52,259 square foot building situated on approximately
5.6 acres at 6959 E. 21st Street North on the northeast side of
Wichita. The Bradley Fair shopping center is nearby, drawing
traffic into the area with its blend of stores and restaurants
situated in an upscale lakeside location. The population within a
five-mile radius is approximately 153,000, with an average
household income of more than $58,000.
TSA Stores, Inc. is a wholly owned subsidiary of The
Sports Authority, Inc. (TSA), which has guaranteed the lease.
TSA, headquartered in Englewood, Colorado, is one of the nation's
largest full-line sporting goods retailers. The company offers a
comprehensive high-quality assortment of brand name sporting
apparel and equipment at competitive prices. As of January 28,
2006, TSA operated 398 stores in 45 states under The Sports
Authority, Gart Sports, Sportmart and Oshman's names. For the
fiscal year ended January 28, 2006, TSA reported a net worth of
approximately $555 million, net sales of approximately $2.5
billion and net income of approximately $55 million. On January
23, 2006, TSA announced that it had entered into a definitive
agreement to be acquired by an investor group led by Leonard
Green & Partners, L.P., and including members of TSA's senior
management team, for $1.3 billion in cash and assumed debt. On
May 3, 2006, TSA announced the completion of the acquisition.
TSA, formerly traded on the New York Stock Exchange under the
symbol TSA, will no longer be publicly traded. Prior to May 3,
2006, TSA filed reports with the SEC that are available on-line
at the SEC's web site (www.sec.gov).
Advance Auto - Middletown, Ohio. On June 1, 2006, we
purchased a 55% interest in an Advance Auto Parts store in
Middletown, Ohio for $1,022,289 from an unrelated third party.
The property is leased to Advance Stores Company, Inc. under a
lease agreement with a remaining primary term of 13.2 years. The
lease may be renewed by the tenant for up to three consecutive
terms of five years each. The lease requires initial annual rent
of $71,679, which is scheduled to increase 10% on July 22, 2014
and 5% at the beginning of each renewal term. The remaining
interest in the property was purchased by AEI Income & Growth
Fund 24 LLC, an affiliate of AEI Fund 26.
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The store was constructed in 2004 and is a 6,880 square
foot building situated on approximately .88 acres. The store is
located at 65 North University Boulevard in Middletown, which is
situated on Interstate 75 between Cincinnati and Dayton. The
store is surrounded by single family housing and retail
businesses that support the local community. The population
within a five-mile radius is approximately 75,000, with an
average household income of over $54,000.
Advance Auto Parts, Inc. reports that it conducts all of
its operations through its wholly owned subsidiary, Advance
Stores Company, Inc. As the parent company of the tenant, Advance
Auto Parts does not guarantee the lease and is not responsible
for any lease obligations. Advance Auto Parts, headquartered in
Roanoke, Virginia, is the second-largest retailer of automotive
aftermarket parts, accessories, batteries, and maintenance items
in the United States, based on store count and sales. The Company
serves both the do-it-yourself and professional installer
markets. As of December 30, 2006, the Company operated 2,995
stores in 40 states, Puerto Rico, and the Virgin Islands. For the
fiscal year ended December 30, 2006, Advance Auto Parts reported
a net worth of approximately $1.0 billion, net sales of
approximately $4.6 billion, and net income of approximately $231
million. Advance Auto Parts is traded on the New York Stock
Exchange under the symbol AAP and files reports with the SEC that
are available on-line at the SEC's web site (www.sec.gov).
Applebee's - Indianapolis, Indiana. On September 21,
2006, we purchased a 37% interest in an existing, seasoned
Applebee's restaurant in Indianapolis, Indiana for $1,130,049.
The property is leased to the seller, Apple Indiana II LLC, under
a lease agreement with a primary term of 20 years. The lease may
be renewed by the tenant for up to four consecutive terms of five
years each. The lease requires initial annual rent of $81,497 for
our 37% interest, which amount will increase every five years by
7.5%.
The restaurant was constructed in 1997 and is a 5,230
square foot building situated on approximately 1.3 acres. The
restaurant is located at 7345 East Washington Street near the
busy intersection of Routes 40 and 52. The restaurant is located
on a heavily developed commercial thoroughfare in a densely-
populated residential neighborhood on the east side of
Indianapolis. The population within a five-mile radius is
approximately 178,000, with an average household income of over
$49,000.
During the fourth quarter of 2006, we purchased the
remaining 63% interest in this property from AEI Fund Management
XVII, Inc. (AFMX), an affiliate of our managers. In order to
facilitate our purchase of this property, AFMX purchased the 63%
interest in the property for $1,924,138. The lease requires
initial annual rent of $138,765 for this interest. The price we
paid was equal to the price paid by AFMX plus the expenses
incurred by it to transfer ownership of the property to us. Those
expenses were minimal. During the period the property was owned
by AFMX, the property generated a net loss of $1,616, which was
charged to us. There was no benefit arising out of the
transaction to our managers or their affiliates apart from
compensation otherwise permitted by our operating agreement.
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Apple Indiana II LLC is a subsidiary of Apple American
Group LLC (AAG), which has guaranteed the lease. As of December
2006, AAG operated approximately 130 Applebee's restaurants in
eight states and was the largest franchisee in the Applebee's
system. For the fiscal year ended December 31, 2006, AAG reported
a net worth of approximately $48.0 million, total revenues of
$360.7 million, earnings before interest, taxes, depreciation and
amortization of approximately $33.0 million, and net income of
$7.1 million. AAG is a privately held company.
Applebee's - Crawfordsville, Indiana. On December 29,
2006, we purchased a 40% interest an existing, seasoned
Applebee's restaurant in Crawfordsville, Indiana from AFMX. In
order to facilitate our purchase of this property, AFMX purchased
the 40% interest in the property for $1,237,771 from Apple
Indiana II LLC. The price we paid was equal to the price paid by
AFMX plus the expenses incurred by it to transfer ownership of
the property to us. Those expenses were minimal. During the
period the property was owned by AFMX, the property generated a
net loss of $2,812, which was charged to us. There was no benefit
arising out of the transaction to our managers or their
affiliates apart from compensation otherwise permitted by our
operating agreement.
This property is also leased to Apple Indiana II LLC under
a lease agreement with a primary term of 20 years. The lease may
be renewed by the tenant for up to four consecutive terms of five
years each. The lease requires initial annual rent of $89,289 for
our 40% interest, which amount will increase every five years by
7.5%. The lease is guaranteed by AAG. The remaining interest in
the property was purchased by AEI Income & Growth Fund XXII
Limited Partnership, an affiliate of AEI Fund 26.
The restaurant was constructed in 1996 and is a 5,260
square foot building situated on approximately 1.9 acres. The
restaurant is located at 1516 South Washington Street in
Crawfordsville, which is approximately 45 miles northwest of
Indianapolis. The restaurant is located at the center of a major
shopping district that includes Target, Wal-Mart, Staples, and a
Kroger supermarket. The population within a five-mile radius is
approximately 22,000, with an average household income of over
$51,000.
Starbucks - Bluffton, Indiana. On August 10, 2007, we
purchased a Starbucks store in Bluffton, Indiana for
approximately $1,120,000 from an unrelated third party. The
property is leased to Starbucks Corporation under a lease
agreement with a remaining primary term of 9.6 years. The lease
may be renewed by the tenant for up to four consecutive terms of
five years each. The lease requires initial annual rent of
$79,800, which is scheduled to increase every five years by ten
percent.
The store was constructed in 2007 and is a 1,807 square
foot building situated on approximately .77 acres. The store is
located at 2133 N. Main Street in Bluffton, which is
approximately 25 miles south of Fort Wayne, Indiana on State Road
1. The store is adjacent to a Lowe's Home Center and across the
street from a Wal-Mart Supercenter. The population within a five-
mile radius is approximately 12,000, with an average household
income of over $52,000.
Starbucks Corporation, headquartered in Seattle
Washington, purchases and roasts high-quality whole bean coffees
and sells them, along with fresh, rich-brewed coffees, Italian-
style espresso beverages, cold blended beverages, a variety of
complementary food items, coffee-related accessories and
equipment and a selection of premium teas, primarily through
company-operated retail stores. As of October 1, 2006, Starbucks
operated more than 7,100 stores in the United States and several
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foreign countries. For the fiscal year ended October 1, 2006,
Starbucks reported a net worth of approximately $2.2 billion, net
revenues of approximately $7.8 billion, and net income of
approximately $564 million. Starbucks is traded on the NASDAQ
Global Select Market under the symbol SBUX and files reports with
the SEC that are available on-line at the SEC's web site
(www.sec.gov).
SELECTED FINANCIAL DATA
The following selected financial data for AEI Fund 26 for
the six months ended June 30, 2007 and for the year ended
December 31, 2006 has been derived from, and should be read in
conjunction with, the Financial Statements included elsewhere in
this supplement:
For the
Six Months Ended For the Year Ended
June 30, 2007 December 31, 2006
Rental Income $ 289,846 $ 218,953
========== =========
Interest Income $ 45,027 $ 10,263
========== =========
Net Income $ 162,341 $ 102,103
========== =========
Net Income Per LLC Unit $ .15 $ .21
========== =========
Weighted Average Units Outstanding 1,079,253 460,607
========== =========
Total Assets at Period End $11,650,433 $7,613,621
========== =========
MANAGEMENT'S DISCUSSION AND ANALYSIS
The following Management's Discussion and Analysis
discusses our financial position at June 30, 2007 and December
31, 2006 and results of operations for the six months ended June
30, 2007 and the year ended December 31, 2006. You should read
this information in conjunction with our financial statements
contained in this supplement and in the prospectus. You should
also read this section in the context of the descriptions in the
prospectus of our planned operations, particularly the sections
of the prospectus describing the offering, the period over which
and the policy employed in purchasing properties, and the
application of proceeds contained in the sections of the
prospectus captioned "Estimated Use of Proceeds," "Investment
Objectives and Policies," and "Compensation to Managers and
Affiliates."
The Management's Discussion and Analysis contains various
"forward looking statements" within the meaning of federal
securities laws which represent management's expectations or
beliefs concerning future events, including statements regarding
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anticipated application of cash, expected returns from rental
income, growth in revenue, the sufficiency of cash to meet
operating expenses, rates of distribution, and other matters.
These, and other forward looking statements made by our managers,
must be evaluated in the context of the risk factors described in
the prospectus and a number of factors that may affect our
financial condition and results of operations, including the
following:
Market and economic conditions which affect the value
of the properties we own and the cash from rental
income such properties generate;
the federal income tax consequences of rental income,
deductions, gain on sales and other items and the
effects of these consequences for members;
resolution by our managers of conflicts with which they
may be confronted;
the success of our managers of locating properties with
favorable risk return characteristics;
the effect of tenant defaults; and
the condition of the industries in which the tenants of
properties purchased by AEI Fund 26 operate.
The Application of Critical Accounting Policies
The preparation of our financial statements requires our
management to make estimates and assumptions that may affect the
reported amounts of assets, liabilities, revenues and expenses,
and related disclosure of contingent assets and liabilities. Our
management evaluates these estimates on an ongoing basis,
including those related to the carrying value of real estate and
the allocation of expenses by our managers at AEI Fund
Management, Inc., to AEI Fund 26 as opposed to other funds they
manage.
We purchase properties and record them in the financial
statements at the lower of cost or estimated realizable value. We
initially record the properties at cost (including capitalized
acquisition expenses). We are required to periodically evaluate
the carrying value of properties to determine whether their
realizable value has declined. For properties we will hold and
operate, we determine whether impairment has occurred by
comparing the property's probability-weighted cash flows to its
current carrying value. For properties held for sale, we
determine whether impairment has occurred by comparing the
property's estimated fair value less cost to sell to its current
carrying value. If the carrying value is greater than the
realizable value, an impairment loss is recorded to reduce the
carrying value of the property to its realizable value. A change
in these assumptions or analysis could cause material changes in
the carrying value of the properties.
Our managers allocate expenses to each of the funds they
manage primarily on the basis of the number of hours devoted by
their employees to each fund's affairs. They also allocate
expenses at the end of each month that are not directly related
to a fund's operations based upon the number of investors in the
fund and the fund's capitalization relative to other funds they
manage. We reimburse these expenses subject to detailed
limitations contained in our operating agreement.
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Our managers have developed and selected the above
accounting estimates and the management discussion and analysis
disclosures regarding them. These estimates and disclosures were
reviewed and approved by our senior management.
Results of Operations
We were organized on March 14, 2005. From this date until
the initial subscription proceeds of $1,932,316 were released
from escrow on April 3, 2006, we had received only $1,000 of
capital from our managers, had not conducted any business
operations other than those related to the offering and sale of
units and had not admitted any investors as limited members.
For the year ended December 31, 2006, we recognized rental
income of $218,953, representing rent from four properties
acquired during the period. At December 31, 2006, the scheduled
annual rent for the four properties was $567,289.
For the six months ended June 30, 2007, we recognized
rental income of $289,846, representing six months rent from four
properties. At June 30, 2007, the scheduled annual rent for the
four properties was $585,895.
We purchased a 40% interest in a Sports Authority
(formerly Gart Sports) store in Wichita, Kansas from an affiliate
of our managers. During the period the property was owned by the
affiliate, the property generated net income of $6,199. We
purchased a 63% interest in an Applebee's restaurant in
Indianapolis, Indiana and a 40% interest in an Applebee's
restaurant in Crawfordsville, Indiana from an affiliate of our
managers. During the period the properties were owned by the
affiliate, the properties generated a net loss of $1,616 and
$2,812, respectively. Pursuant to our operating agreement, these
amounts were paid to or charged to us and are shown as
Miscellaneous Income on the Income Statement.
For the year ended December 31, 2006 and the six months
ended June 30, 2007, we incurred LLC administration expenses
payable to an affiliate of our managers of $40,207 and $49,385,
respectively. These administration expenses include costs
associated with the management of the properties, processing
distributions, reporting requirements and correspondence to the
limited members. During the same periods, we incurred LLC
administration and property management expenses from unrelated
parties of $5,744 and $12,979, respectively. These expenses
represent direct payments to third parties for legal and filing
fees, direct administrative costs, outside audit costs, taxes,
insurance and other property costs. As we raise additional
subscription proceeds and purchase additional properties, the
administration and property management expenses increase.
For the year ended December 31, 2006 and the six months
ended June 30, 2007, we recognized interest income of $10,263 and
$45,027, respectively, mainly from subscription proceeds
temporarily invested in a money market account. In 2007, interest
income increased due to the Company having more money invested in
a money market account due to the sale of additional LLC units.
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Inflation has had a minimal effect on income from
operations. Our leases may contain provisions to increase rent
based on the increase in the Consumer Price Index over a
specified period. In addition, some of our leases may contain
rent clauses which entitle us to receive additional rent in
future years if gross receipts for the property exceed certain
specified amounts. Increases in sales volumes of the tenants,
due to inflation and real sales growth, may result in an increase
in rental income over the term of the leases. Inflation also may
cause the real estate to appreciate in value. However, inflation
and changing prices may have an adverse impact on the operating
margins of the properties' tenants, which could impair their
ability to pay rent and subsequently reduce the net cash flow
available for distributions.
Liquidity and Capital Resources
Our primary sources of cash are proceeds from the sale of
units, interest income, rental income and proceeds from the sale
of property. Our primary uses of cash are investment in real
properties, payment of expenses involved in the sale of units,
the management of properties, the organization and administration
of AEI Fund 26, and the payment of distributions.
We generated $271,540 of cash from operations during the
year ended December 31, 2006, representing net income of
$102,013, a non-cash expense of $83,023 for depreciation and an
$86,504 increase in the payable to our managers for management
expenses.
We generated $227,534 of cash from operations during the
six months ended June 30, 2007, representing net income of
$162,341 and a non-cash expense of $110,168 for depreciation,
which were partially offset by $44,975 of net timing differences
in the collection of payments from the tenants and the payment of
expenses.
The major components of our cash flow from investing
activities are investments in real estate and proceeds from the
sale of real estate. During the year ended December 31, 2006, we
expended $7,545,000 to invest in real properties (inclusive of
acquisition expenses). During the second quarter of 2006, we
purchased a 40% interest in a Sports Authority (formerly Gart
Sports) store in Wichita, Kansas for $2,230,753. On June 1,
2006, we purchased a 55% interest in an Advance Auto Parts store
in Middletown, Ohio for $1,022,289. On September 21, 2006, we
purchased a 37% interest in an Applebee's restaurant in
Indianapolis, Indiana for $1,130,049. During the fourth quarter
of 2006, we purchased the remaining 63% interest in this property
for $1,924,138. On December 29, 2006, we purchased a 40% interest
in an Applebee's restaurant in Crawfordsville, Indiana for
$1,237,771. During the six months ended June 30, 2007, we did
not purchase any real properties.
The Sports Authority store, the Applebee's restaurant in
Crawfordsville, Indiana and the 63% interest in the Applebee's
restaurant in Indianapolis, Indiana were purchased from AEI Fund
Management XVII, Inc. (AFMX), an affiliate of our managers. In
order to facilitate our purchase of these property interests,
AFMX purchased the properties from unrelated third parties. For
property interests purchased from AFMX, the price we paid was
equal to the price paid by AFMX plus the expenses incurred to
transfer ownership of the property to us, which were minimal.
There was no benefit arising out of the transactions to our
managers or their affiliates apart from compensation otherwise
permitted by the operating agreement.
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During the offering of units, our primary source of cash
flow will be from the sale of LLC units. We commenced the
offering of LLC units to the public through a registration
statement that became effective October 20, 2005 and will
continue until October 19, 2007, unless all 10,000,000 LLC units
are sold before then. The registration statement indicated that
AEI Fund 26 would not be capitalized, and all subscription funds
would be held in escrow, until we had received subscriptions for
150,000 units ($1,500,000). We obtained subscriptions for the
150,000 units required for release of escrow proceeds and on
April 3, 2006, we accepted subscriptions for 193,231.6 units for
aggregate proceeds of $1,932,316. Through June 30, 2007, we
raised a total of $13,659,737 from the sale of 1,365,973.7 units.
From subscription proceeds, we paid organization and syndication
costs (which constitute a reduction of capital) of $2,016,768.
After we acquire all our properties, our primary use of
cash flow is distribution and redemption payments to members. We
declare our regular quarterly distributions before the end of
each quarter and pay the distribution in the first ten days after
the end of each quarter. For the year ended December 31, 2006 and
the six months ended June 30, 2007, we declared distributions of
$178,070 and $278,158, respectively, which were distributed 97%
to limited members and 3% to our managers.
Beginning in April 2009, we may acquire units from limited
members who have tendered their units. Such units may be acquired
at a discount. We will not be obligated to purchase in any year
more than 2% of the total number of units outstanding on January
1 of such year. In no event shall we be obligated to purchase
units if, in the sole discretion of our managers, such purchase
would impair our capital or operations.
Our operating agreement requires that all proceeds from
the sale of units, subject to a reasonable reserve for ongoing
operations, be invested or committed to investment in properties
by the later of two years after the date the offering of units
commences or twelve months after the offering terminates.
Although we had no formal contractual commitments to expend
capital at June 30, 2007, we entered into one commitment after
this date. On August 10, 2007, we purchased a Starbucks store in
Bluffton, Indiana for approximately $1,120,000.
Until capital is invested in properties, we will remain
extremely liquid. After we acquire all our properties, we will
attempt to maintain a cash reserve of only approximately .5% of
subscription proceeds. Because properties are purchased for cash
and leased under triple-net leases, this is considered adequate
to satisfy most contingencies.
-13-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members:
AEI Income & Growth Fund 26 LLC
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Income
& Growth Fund 26 LLC (a Delaware limited liability company) as of
December 31, 2006 and 2005 and the related statements of income,
cash flows and changes in members' equity for the year ended
December 31, 2006 and for the period from inception (March 14,
2005) to December 31, 2005. These financial statements are the
responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides 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 AEI Income & Growth Fund 26 LLC as of December 31, 2006 and
2005, and the results of its operations and its cash flows for
the year ended December 31, 2006 and for the period from
inception (March 14, 2005) to December 31, 2005, in conformity
with U.S. generally accepted accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
March 23, 2007
-14-
AEI INCOME & GROWTH FUND 26 LLC
BALANCE SHEET
DECEMBER 31
ASSETS
2006 2005
CURRENT ASSETS:
Cash and Cash Equivalents $ 151,644 $ 1,004
INVESTMENTS IN REAL ESTATE:
Land 2,036,625 0
Buildings and Equipment 5,508,375 0
Accumulated Depreciation (83,023) 0
----------- -----------
Net Investments in Real Estate 7,461,977 0
----------- -----------
Total Assets $ 7,613,621 $ 1,004
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 86,504 $ 0
Distributions Payable 87,919 0
----------- -----------
Total Current Liabilities 174,423 0
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members' Equity (1,278) 1,004
Limited Members' Equity, $10 per Unit;
10,000,000 Units authorized;
882,127 Units issued and outstanding in 2006 7,440,476 0
----------- -----------
Total Members' Equity 7,439,198 1,004
----------- -----------
Total Liabilities and Members' Equity $ 7,613,621 $ 1,004
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-15-
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE
PERIOD FROM INCEPTION (MARCH 14, 2005) TO DECEMBER 31, 2005
2006 2005
INCOME
Rental Income $ 218,953 $ 0
Miscellaneous Income 1,771 0
----------- -----------
Total Income 220,724 0
----------- -----------
EXPENSES:
LLC Administration - Affiliates 40,207 0
LLC Administration and Property
Management - Unrelated Parties 5,744 0
Depreciation 83,023 0
----------- -----------
Total Expenses 128,974 0
----------- -----------
OPERATING INCOME 91,750 0
OTHER INCOME:
Interest Income 10,263 4
----------- -----------
NET INCOME $ 102,013 $ 4
=========== ===========
NET INCOME ALLOCATED:
Managing Members $ 3,060 $ 4
Limited Members 98,953 0
----------- -----------
$ 102,013 $ 4
=========== ===========
NET INCOME PER LLC UNIT $ .21 $ 0
=========== ===========
Weighted Average Units Outstanding 460,607 0
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-16-
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE
PERIOD FROM INCEPTION (MARCH 14, 2005) TO DECEMBER 31, 2005
2006 2005
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 102,013 $ 4
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 83,023 0
Increase in Payable to
AEI Fund Management, Inc. 86,504 0
----------- -----------
Total Adjustments 169,527 0
----------- -----------
Net Cash Provided By
Operating Activities 271,540 4
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate (7,545,000) 0
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Managing Members 0 1,000
Capital Contributions from Limited Members 8,821,268 0
Organization and Syndication Costs (1,307,017) 0
Increase in Distributions Payable 87,919 0
Distributions to Members (178,070) 0
----------- -----------
Net Cash Provided By
Financing Activities 7,424,100 1,000
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 150,640 1,004
CASH AND CASH EQUIVALENTS, beginning of period 1,004 0
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 151,644 $ 1,004
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-17-
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2006 AND FOR THE
PERIOD FROM INCEPTION (MARCH 14, 2005) TO DECEMBER 31, 2005
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, March 14, 2005 $ 0 $ 0 $ 0 0
Capital Contributions 1,000 0 1,000 0
Net Income 4 0 4
-------- ---------- ---------- ----------
BALANCE, December 31, 2005 1,004 0 1,004 0
Capital Contributions 0 8,821,268 8,821,268 882,126.8
Organization and
Syndication Costs 0 (1,307,017) (1,307,017)
Distributions (5,342) (172,728) (178,070)
Net Income 3,060 98,953 102,013
-------- ---------- ---------- ----------
BALANCE, December 31, 2006 $ (1,278) $7,440,476 $7,439,198 882,126.8
======== ========== ========== ==========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-18-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(1) Organization -
AEI Income & Growth Fund 26 LLC (the Company), a Limited
Liability Company, was formed on March 14, 2005 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. AEI Fund Management, Inc. (AEI), an affiliate
of AFM, performs the administrative and operating functions
for the Company.
The terms of the offering call for a subscription price of
$10 per LLC Unit, payable on acceptance of the offer. Under
the terms of the Operating Agreement, 10,000,000 LLC Units
are available for subscription which, if fully subscribed,
will result in contributed Limited Members' capital of
$100,000,000. The Company commenced operations on April 3,
2006 when minimum subscriptions of 150,000 LLC Units
($1,500,000) were accepted. At December 31, 2006, 882,126.8
Units ($8,821,268) were subscribed and accepted by the
Company. The Managing Members have contributed capital of
$1,000. The Company shall continue until December 31, 2055,
unless dissolved, terminated and liquidated prior to that
date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
6.5% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Members and 10% to
the Managing Members. Distributions to the Limited Members
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
-19-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(1) Organization - (Continued)
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 6.5% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company an amount equal to the lesser of
the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the Limited Members over
the amount previously contributed by the Managing Members.
(2) Summary of Significant Accounting Policies -
Financial Statement Presentation
The accounts of the Company are maintained on the accrual
basis of accounting for both federal income tax purposes
and financial reporting purposes.
Accounting Estimates
Management uses estimates and assumptions in preparing
these financial statements in accordance with generally
accepted accounting principles. Those estimates and
assumptions may affect the reported amounts of assets and
liabilities, the disclosure of contingent assets and
liabilities, and the reported revenues and expenses.
Actual results could differ from those estimates.
The Company regularly assesses whether market events and
conditions indicate that it is reasonably possible to
recover the carrying amounts of its investments in real
estate from future operations and sales. A change in
those market events and conditions could have a material
effect on the carrying amount of its real estate.
Cash Concentrations of Credit Risk
The Company's cash is deposited primarily in two
financial institutions and at times during the year it
may exceed FDIC insurance limits.
-20-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(2) Summary of Significant Accounting Policies - (Continued)
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash
equivalents may include cash in checking, cash invested
in money market accounts, certificates of deposit,
federal agency notes and commercial paper with a term of
three months or less.
Receivables
Credit terms are extended to tenants in the normal course
of business. The Company performs ongoing credit
evaluations of its customers' financial condition and,
generally, requires no collateral.
Receivables are recorded at their estimated net
realizable value. The Company follows a policy of
providing an allowance for doubtful accounts; however,
based on historical experience, and its evaluation of the
current status of receivables, the Company is of the
belief that such accounts will be collectible in all
material respects and thus an allowance is not necessary.
Accounts are considered past due if payment is not made
on a timely basis in accordance with the Company's credit
terms. Receivables considered uncollectible are written
off.
Income Taxes
The income or loss of the Company for federal income tax
reporting purposes is includable in the income tax
returns of the Members. In general, no recognition has
been given to income taxes in the accompanying financial
statements.
The tax return and the amount of distributable Company
income or loss are subject to examination by federal and
state taxing authorities. If such an examination results
in changes to distributable Company income or loss, the
taxable income of the members would be adjusted
accordingly.
Real Estate
The Company's real estate is leased under triple net
leases classified as operating leases. The leases
provide for base annual rental payments payable in
monthly installments. The Company recognizes rental
revenue according to the terms of the individual leases.
For leases which contain stated rental increases, the
increases are recognized in the year in which they are
effective. Contingent rental payments are recognized
when the contingencies on which the payments are based
are satisfied and the rental payments become due under
the terms of the leases.
-21-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(2) Summary of Significant Accounting Policies - (Continued)
Real estate is recorded at the lower of cost or estimated
net realizable value. The Company compares the carrying
amount of its properties to the estimated probability-
weighted future cash flows expected to result from the
property and its eventual disposition. If the sum of the
expected future cash flows is less than the carrying
amount of the property, the Company recognizes an
impairment loss by the amount by which the carrying
amount of the property exceeds the fair value of the
property.
The Company has capitalized as Investments in Real Estate
certain costs incurred in the review and acquisition of
the properties. The costs were allocated to the land,
buildings and equipment.
The buildings and equipment of the Company are
depreciated using the straight-line method for financial
reporting purposes based on estimated useful lives of 25
years and 5 years, respectively.
In accordance with Statement of Financial Accounting
Standards No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets, upon complete disposal of
a property or classification of a property as Real Estate
Held for Sale, the Company includes the operating results
and sale of the property in discontinued operations. In
addition, the Company reclassifies the prior periods
operating results and any partial sales of the property
to discontinued operations.
The Company accounts for properties owned as tenants-in-
common with affiliated Companies and/or unrelated third
parties using the proportionate consolidation method.
Each tenant-in-common owns a separate, undivided interest
in the properties. Any tenant-in-common that holds more
than a 50% interest does not control decisions over the
other tenant-in-common interests. The financial
statements reflect only this Company's percentage share
of the properties' land, building and equipment,
liabilities, revenues and expenses.
The Company's properties are subject to environmental
laws and regulations adopted by various governmental
entities in the jurisdiction in which the properties are
located. These laws could require the Company to
investigate and remediate the effects of the release or
disposal of hazardous materials at these locations if
found. For each property, an environmental assessment is
completed prior to acquisition. In addition, the lease
agreements typically strictly prohibit the production,
handling, or storage of hazardous materials (except where
incidental to the tenant's business such as use of
cleaning supplies) in violation of applicable law to
restrict environmental and other damage. Environmental
liabilities are recorded when it is determined the
liability is probable and the costs can reasonably be
estimated. There were no environmental issues noted or
liabilities recorded at December 31, 2006 and 2005.
-22-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(2) Summary of Significant Accounting Policies - (Continued)
Recently Issued Accounting Pronouncements
Management has reviewed recently issued, but not yet
effective, accounting pronouncements and does not expect
the implementation of these pronouncements to have a
significant effect on the Company's financial statements.
(3) Related Party Transactions -
The Company owns a 55% interest in an Advance Auto Parts
store. The remaining interest in this property is owned by
AEI Income & Growth Fund 24 LLC, an affiliate of the
Company.
During the second quarter of 2006, the Company purchased a
40% interest in a Sports Authority store for $2,230,753.
The property was purchased from AEI Fund Management XVII,
Inc. (AFMX), an affiliate of the Managing Members. In order
to facilitate the purchase of the Company's first property,
AFMX purchased the property from an unrelated third party on
December 22, 2005. The remaining interest in this property
is owned by AEI Income & Growth Fund 25 LLC, an affiliate of
the Company.
During the fourth quarter of 2006, the Company purchased the
remaining 63% of the Applebee's restaurant in Indianapolis,
Indiana that it did not already own for $1,924,138. On
December 29, 2006, the Company purchased a 40% interest in
an Applebee's restaurant in Crawfordsville, Indiana for
$1,237,771. In order to facilitate the Company's purchase
of these property interests, AFMX purchased the properties
from Apple Indiana II LLC, an unrelated third party, on
September 21, 2006. The remaining interest in the property
in Crawfordsville is owned by AEI Income & Growth Fund XXII
Limited Partnership, an affiliate of the Company.
For the property interests purchased from AFMX, the price
paid by the Company was equal to the price paid by AFMX plus
the expenses incurred by it to transfer ownership of the
property to the Company, which were minimal. There was no
other benefit arising out of the transactions to the
Managing Members or their affiliates apart from compensation
otherwise permitted by the Operating Agreement.
-23-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(3) Related Party Transactions - (Continued)
AEI, AFM and AEI Securities, Inc. (ASI) received the
following compensation and reimbursements for costs and
expenses from the Company:
Total Incurred by the Company
for the Year Ended December 31
2006 2005
a.AEI and AFM are reimbursed for all costs incurred in
connection with managing the Company's operations,
maintaining the Company's books and communicating
the results of operations to the Limited Members. $ 40,207 $ 0
======== ========
b.AEI and AFM are reimbursed for all direct expenses they
have paid on the Company's behalf to third parties
relating to LLC administration and property
management. These expenses included printing costs,
legal and filing fees, direct administrative costs,
outside audit costs, taxes, insurance and other
property costs. $ 5,744 $ 0
======== ========
c.AEI is reimbursed for all costs and direct expenses
incurred by it in acquiring properties on behalf of
the Company. $ 120,713 $ 0
======== ========
d.ASI was the underwriter of the Company's offering. AEI
Capital Corporation is the sole stockholder of ASI, which is
a member of the National Association of Securities Dealers,
Inc. ASI received, as underwriting commissions,10% for
sale of certain subscription Units (a majority of this
amount was re-allowed to other participating
broker/dealers). These costs are treated as a reduction
of members' capital. $ 865,953 $ 0
======== ========
e.AEI is reimbursed for all costs incurred in
connection with managing the Company's offering
and organization. $ 220,077 $ 0
======== ========
f.AEI is reimbursed for all direct expenses it has paid on the
Company's behalf to third parties relating to the offering
and organization of the Company. These expenses included
printing costs, legal and filing fees, direct
administrative costs, underwriting costs and due
diligence fees. $ 220,987 $ 0
======== ========
The payable to AEI Fund Management, Inc. represents the
balance due for the services described in 3a, b, c, d and f.
This balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
-24-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(4) Investments in Real Estate -
The Company leases its properties to various tenants under
triple net leases, which are classified as operating leases.
Under a triple net lease, the tenant is responsible for all
real estate taxes, insurance, maintenance, repairs and
operating expenses of the property. The only exceptions are
under the Leases for the Sports Authority and Advance Auto
Parts stores, the Company is responsible for repairs to the
structural components of the building, except for the roof,
which is the tenant's responsibility. At the time the
properties were acquired, the remaining primary lease terms
varied from 13 to 20 years, except for the Sports Authority
store, which had a remaining primary term of 11 years. The
leases provide the tenants with three to four five-year
renewal options subject to the same terms and conditions as
the primary term. The leases contain rent clauses which
entitle the Company to receive additional rent in future
years based on stated rent increases.
The Company's properties are commercial, single-tenant
buildings. The Sports Authority store was constructed in
1996, renovated in 2001 and acquired in 2006. The Advance
Auto Parts store was constructed in 2004 and acquired in
2006. The Applebee's restaurant in Indianapolis, Indiana
was constructed in 1997 and acquired in 2006. The
Applebee's restaurant in Crawfordsville, Indiana was
constructed in 1996 and acquired in 2006. There have been
no costs capitalized as improvements subsequent to the
acquisitions.
The cost of the properties and related accumulated
depreciation at December 31, 2006 are as follows:
Buildings and Accumulated
Property Land Equipment Total Depreciation
Sports Authority,
Wichita, KS $ 697,617 $1,533,136 $2,230,753 $ 42,992
Advance Auto Parts,
Middletown, OH 112,315 909,974 1,022,289 21,233
Applebee's, Indianapolis, IN 889,340 2,164,847 3,054,187 18,798
Applebee's, Crawfordsville, IN 337,353 900,418 1,237,771 0
---------- ---------- ---------- ----------
$2,036,625 $5,508,375 $7,545,000 $ 83,023
========== ========== ========== ==========
During the second quarter of 2006, the Company purchased a
40% interest in a Sports Authority (formerly Gart Sports)
store in Wichita, Kansas for $2,230,753. The property is
leased to TSA Stores, Inc. under a Lease Agreement with a
remaining primary term of 11 years and initial annual rent
of $186,059.
-25-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(4) Investments in Real Estate - (Continued)
On June 1, 2006, the Company purchased a 55% interest in an
Advance Auto Parts store in Middletown, Ohio for $1,022,289.
The property is leased to Advance Stores Company, Inc. under
a Lease Agreement with a remaining primary term of 13.2
years and initial annual rent of $71,679.
On September 21, 2006, the Company purchased a 37% interest
in an Applebee's restaurant in Indianapolis, Indiana for
$1,130,049. During the fourth quarter of 2006, the Company
purchased the remaining 63% interest in this property for
$1,924,138. The property is leased to Apple Indiana II LLC
under a Lease Agreement with a primary term of 20 years and
initial annual rent of $220,262.
On December 29, 2006, the Company purchased a 40% interest
in an Applebee's restaurant in Crawfordsville, Indiana for
$1,237,771. The property is leased to Apple Indiana II LLC
under a Lease Agreement with a primary term of 20 years and
initial annual rent of $89,289.
For properties owned as of December 31, 2006, the minimum
future rent payments required by the leases are as follows:
2007 $ 582,794
2008 585,895
2009 585,895
2010 585,895
2011 591,699
Thereafter 7,031,427
----------
$9,963,605
==========
There were no contingent rents recognized in 2006.
-26-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(5) Major Tenants -
The following schedule presents rent revenue from individual
tenants, or affiliated groups of tenants, who each
contributed more than ten percent of the Company's total
rent revenue for the year ended December 31:
Tenants Industry 2006
TSA Stores, Inc. Retail $ 129,757
Apple American Group Restaurant 47,190
Advance Stores Company, Inc. Retail 42,006
---------
Aggregate rent revenue of major tenants $ 218,953
=========
Aggregate rent revenue of major tenants as
a percentage of total rent revenue 100%
=========
(6) Miscellaneous Income -
The Company purchased a 40% interest in a Sports Authority
store in Wichita, Kansas from an affiliate of the Managing
Members. During the period the property was owned by the
affiliate, the property generated net income of $6,199. The
Company purchased a 63% interest in an Applebee's restaurant
in Indianapolis, Indiana and a 40% interest in an Applebee's
restaurant in Crawfordsville, Indiana from an affiliate of
the Managing Members. During the period the properties were
owned by the affiliate, the properties generated a net loss
of $1,616 and $2,812, respectively. Pursuant to the
Operating Agreement, these amounts were paid to or charged
to the Company and are shown as Miscellaneous Income on the
Income Statement.
(7) Members' Capital -
Cash distributions of $5,342 were made to the Managing
Members and $172,728 were made to the Limited Members for
the year ended December 31, 2006. The Limited Members'
distributions represent $0.38 per LLC Unit outstanding using
460,607 weighted average Units in 2006. The distributions
represent $0.21 per Unit of Net Income and $0.17 per Unit of
return of contributed capital in 2006.
Beginning in April 2009, the Company may acquire Units from
Limited Members who have tendered their Units to the
Company. Such Units may be acquired at a discount. The
Company will not be obligated to purchase in any year more
than 2% of the total number of Units outstanding on January
1 of such year. In no event shall the Company be obligated
to purchase Units if, in the sole discretion of the Managing
Member, such purchase would impair the capital or operation
of the Company.
-27-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2006
(8) Income Taxes -
The following is a reconciliation of net income for
financial reporting purposes to income reported for federal
income tax purposes for the years ended December 31:
2006 2005
Net Income for Financial Reporting Purposes $ 102,013 $ 4
Depreciation for Tax Purposes Under
Depreciation for Financial Reporting Purposes 32,711 0
---------- -------
Taxable Income to Members $ 134,724 $ 4
========== =======
The following is a reconciliation of Members' Equity for
financial reporting purposes to Members' Equity reported for
federal income tax purposes for the years ended December 31:
2006 2005
Members' Equity for Financial Reporting Purposes $7,439,198 $ 1,004
Depreciation for Tax Purposes Under
Depreciation for Financial Reporting Purposes 32,711 0
Organization and Syndication Costs Treated as
Reduction of Capital for Financial Reporting
Purposes 1,301,525 0
---------- ---------
Members' Equity for Tax Reporting Purposes $8,773,434 $ 1,004
========== =========
(9) Fair Value of Financial Instruments -
The estimated fair values of the financial instruments, none
of which are held for trading purposes, are as follows at
December 31:
2006 2005
Carrying Fair Carrying Fair
Amount Value Amount Value
Money Market Funds $151,644 $151,644 $ 1,004 $ 1,004
-------- -------- -------- --------
Total Cash and
Cash Equivalents $151,644 $151,644 $ 1,004 $ 1,004
======== ======== ======== ========
-28-
AEI INCOME & GROWTH FUND 26 LLC
BALANCE SHEET
JUNE 30, 2007 AND DECEMBER 31, 2006
(Unaudited)
ASSETS
2007 2006
CURRENT ASSETS:
Cash and Cash Equivalents $ 4,296,234 $ 151,644
Receivables 2,390 0
----------- -----------
Total Current Assets 4,298,624 151,644
----------- -----------
INVESTMENTS IN REAL ESTATE:
Land 2,036,625 2,036,625
Buildings and Equipment 5,508,375 5,508,375
Accumulated Depreciation (193,191) (83,023)
----------- -----------
Net Investments in Real Estate 7,351,809 7,461,977
----------- -----------
Total Assets $11,650,433 $ 7,613,621
=========== ===========
LIABILITIES AND MEMBERS' EQUITY
CURRENT LIABILITIES:
Payable to AEI Fund Management, Inc. $ 37,946 $ 86,504
Distributions Payable 154,415 87,919
Unearned Rent 5,973 0
----------- -----------
Total Current Liabilities 198,334 174,423
----------- -----------
MEMBERS' EQUITY (DEFICIT):
Managing Members (4,753) (1,278)
Limited Members, $10 per Unit;
10,000,000 Units authorized;
1,365,974 and 882,127 Units issued and
outstanding in 2007 and 2006, respectively 11,456,852 7,440,476
----------- -----------
Total Members' Equity 11,452,099 7,439,198
----------- -----------
Total Liabilities and Members' Equity $11,650,433 $ 7,613,621
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-29-
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF INCOME
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Three Months Ended Six Months Ended
6/30/07 6/30/06 6/30/07 6/30/06
INCOME:
Rent $ 146,473 $ 42,893 $ 289,846 $ 42,893
Miscellaneous Income 0 6,199 0 6,199
---------- ----------- ----------- -----------
Total Income 146,473 49,092 289,846 49,092
---------- ----------- ----------- -----------
EXPENSES:
LLC Administration -
Affiliates 26,628 7,957 49,385 9,171
LLC Administration and
Property Management -
Unrelated Parties 7,504 774 12,979 2,274
Depreciation 55,084 15,360 110,168 15,360
---------- ----------- ----------- -----------
Total Expenses 89,216 24,091 172,532 26,805
---------- ----------- ----------- -----------
OPERATING INCOME 57,257 25,001 117,314 22,287
OTHER INCOME:
Interest Income 35,358 343 45,027 344
---------- ----------- ----------- -----------
NET INCOME $ 92,615 $ 25,344 $ 162,341 $ 22,631
========== =========== =========== ===========
NET INCOME ALLOCATED:
Managing Members $ 2,778 $ 3,392 $ 4,870 $ 679
Limited Members 89,837 21,952 157,471 21,952
---------- ----------- ----------- -----------
$ 92,615 $ 25,344 $ 162,341 $ 22,631
========== =========== =========== ===========
NET INCOME PER LLC UNIT $ .08 $ .09 $ .15 $ .09
========== =========== =========== ===========
Weighted Average Units
Outstanding 1,198,264 249,141 1,079,253 249,141
========== =========== =========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-30-
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CASH FLOWS
FOR THE SIX-MONTH PERIODS ENDED JUNE 30
(Unaudited)
2007 2006
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income $ 162,341 $ 22,631
Adjustments To Reconcile Net Income
To Net Cash Provided By Operating Activities:
Depreciation 110,168 15,360
Increase in Receivables (2,390) (42,926)
Increase (Decrease) in Payable to
AEI Fund Management, Inc. (48,558) 123,374
Increase in Unearned Rent 5,973 0
----------- -----------
Total Adjustments 65,193 95,808
----------- -----------
Net Cash Provided By
Operating Activities 227,534 118,439
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in Real Estate 0 (3,252,141)
----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Capital Contributions from Limited Members 4,838,469 3,839,578
Organization and Syndication Costs (709,751) (570,640)
Increase in Distributions Payable 66,496 32,106
Distributions to Members (278,158) (32,106)
----------- -----------
Net Cash Provided By
Financing Activities 3,917,056 3,268,938
----------- -----------
NET INCREASE IN CASH
AND CASH EQUIVALENTS 4,144,590 135,236
CASH AND CASH EQUIVALENTS, beginning of period 151,644 1,004
----------- -----------
CASH AND CASH EQUIVALENTS, end of period $ 4,296,234 $ 136,240
=========== ===========
The accompanying Notes to Financial Statements are an integral
part of this statement.
-31-
AEI INCOME & GROWTH FUND 26 LLC
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
FOR THE PERIODS ENDED JUNE 30
(Unaudited)
Limited
Member
Managing Limited Units
Members Members Total Outstanding
BALANCE, December 31, 2005 $ 1,004 $ 0 $ 1,004 0
Capital Contributions 0 3,839,578 3,839,578 383,957.8
Organization and
Syndication Costs 0 (570,640) (570,640)
Distributions (963) (31,143) (32,106)
Net Income 679 21,952 22,631
------- ----------- ----------- ------------
BALANCE, June 30, 2006 $ 720 $ 3,259,747 $ 3,260,467 383,957.8
======= =========== =========== ============
BALANCE, December 31, 2006 $(1,278) $ 7,440,476 $ 7,439,198 882,126.8
Capital Contributions 0 4,838,469 4,838,469 483,846.9
Organization and
Syndication Costs 0 (709,751) (709,751)
Distributions (8,345) (269,813) (278,158)
Net Income 4,870 157,471 162,341
------- ----------- ----------- ------------
BALANCE, June 30, 2007 $(4,753) $11,456,852 $11,452,099 1,365,973.7
======= =========== =========== ============
The accompanying Notes to Financial Statements are an integral
part of this statement.
-32-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2007
(Unaudited)
(1) The condensed statements included herein have been prepared
by the Company, without audit, pursuant to the rules and
regulations of the Securities and Exchange Commission, and
reflect all adjustments which are, in the opinion of
management, necessary to a fair statement of the results of
operations for the interim period, on a basis consistent with
the annual audited statements. The adjustments made to these
condensed statements consist only of normal recurring
adjustments. Certain information, accounting policies, and
footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information
presented not misleading. It is suggested that these
condensed financial statements be read in conjunction with
the financial statements and the summary of significant
accounting policies and notes thereto included in the
Company's latest annual report on Form 10-KSB.
(2) Organization -
AEI Income & Growth Fund 26 LLC (the Company), a Limited
Liability Company, was formed on March 14, 2005 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. AEI Fund Management, Inc. (AEI), an affiliate
of AFM, performs the administrative and operating functions
for the Company.
The terms of the offering call for a subscription price of
$10 per LLC Unit, payable on acceptance of the offer. Under
the terms of the Operating Agreement, 10,000,000 LLC Units
are available for subscription which, if fully subscribed,
will result in contributed Limited Members' capital of
$100,000,000. The Company commenced operations on April 3,
2006 when minimum subscriptions of 150,000 LLC Units
($1,500,000) were accepted. At June 30, 2007, 1,365,973.7
Units ($13,659,737) were subscribed and accepted by the
Company. The Managing Members have contributed capital of
$1,000. The Company shall continue until December 31, 2055,
unless dissolved, terminated and liquidated prior to that
date.
During operations, any Net Cash Flow, as defined, which the
Managing Members determine to distribute will be distributed
97% to the Limited Members and 3% to the Managing Members.
Distributions to Limited Members will be made pro rata by
Units.
-33-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(2) Organization - (Continued)
Any Net Proceeds of Sale, as defined, from the sale or
financing of properties which the Managing Members determine
to distribute will, after provisions for debts and reserves,
be paid in the following manner: (i) first, 99% to the
Limited Members and 1% to the Managing Members until the
Limited Members receive an amount equal to: (a) their
Adjusted Capital Contribution plus (b) an amount equal to
6.5% of their Adjusted Capital Contribution per annum,
cumulative but not compounded, to the extent not previously
distributed from Net Cash Flow; (ii) any remaining balance
will be distributed 90% to the Limited Members and 10% to
the Managing Members. Distributions to the Limited Members
will be made pro rata by Units.
For tax purposes, profits from operations, other than
profits attributable to the sale, exchange, financing,
refinancing or other disposition of property, will be
allocated 97% to the Limited Members and 3% to the Managing
Members. Net losses from operations will be allocated 99%
to the Limited Members and 1% to the Managing Members.
For tax purposes, profits arising from the sale, financing,
or other disposition of property will be allocated in
accordance with the Operating Agreement as follows: (i)
first, to those Members with deficit balances in their
capital accounts in an amount equal to the sum of such
deficit balances; (ii) second, 99% to the Limited Members
and 1% to the Managing Members until the aggregate balance
in the Limited Members' capital accounts equals the sum of
the Limited Members' Adjusted Capital Contributions plus an
amount equal to 6.5% of their Adjusted Capital Contributions
per annum, cumulative but not compounded, to the extent not
previously allocated; (iii) third, the balance of any
remaining gain will then be allocated 90% to the Limited
Members and 10% to the Managing Members. Losses will be
allocated 99% to the Limited Members and 1% to the Managing
Members.
The Managing Members are not required to currently fund a
deficit capital balance. Upon liquidation of the Company or
withdrawal by a Managing Member, the Managing Members will
contribute to the Company an amount equal to the lesser of
the deficit balances in their capital accounts or 1.01% of
the total capital contributions of the Limited Members over
the amount previously contributed by the Managing Members.
(3) Investments in Real Estate -
During the second quarter of 2006, the Company purchased a
40% interest in a Sports Authority (formerly Gart Sports)
store in Wichita, Kansas for $2,230,753. The property is
leased to TSA Stores, Inc. under a Lease Agreement with a
remaining primary term of 11 years and initial annual rent
of $186,059. The remaining interest in the property was
purchased by AEI Income & Growth Fund 25 LLC, an affiliate
of the Company.
-34-
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO FINANCIAL STATEMENTS
(Continued)
(3) Investments in Real Estate - (Continued)
On June 1, 2006, the Company purchased a 55% interest in an
Advance Auto Parts store in Middletown, Ohio for $1,022,289.
The property is leased to Advance Stores Company, Inc. under
a Lease Agreement with a remaining primary term of 13.2
years and initial annual rent of $71,679. The remaining
interest in the property was purchased by AEI Income &
Growth Fund 24 LLC, an affiliate of the Company.
On September 21, 2006, the Company purchased a 37% interest
in an Applebee's restaurant in Indianapolis, Indiana for
$1,130,049. During the fourth quarter of 2006, the Company
purchased the remaining 63% interest in this property for
$1,924,138. The property is leased to Apple Indiana II LLC
under a Lease Agreement with a primary term of 20 years and
initial annual rent of $220,262.
On December 29, 2006, the Company purchased a 40% interest
in an Applebee's restaurant in Crawfordsville, Indiana for
$1,237,771. The property is leased to Apple Indiana II LLC
under a Lease Agreement with a primary term of 20 years and
initial annual rent of $89,289. The remaining interest in
the property was purchased by AEI Income & Growth Fund XXII
Limited Partnership, an affiliate of the Company.
The Sports Authority store, the Applebee's restaurant in
Crawfordsville, Indiana and the 63% interest in the
Applebee's restaurant in Indianapolis, Indiana were
purchased from AEI Fund Management XVII, Inc. (AFMX), an
affiliate of the Managing Members. In order to facilitate
the Company's purchase of these property interests, AFMX
purchased the properties from unrelated third parties. For
property interests purchased from AFMX, the price paid by
the Company was equal to the price paid by AFMX plus the
expenses incurred to transfer ownership of the property to
the Company, which were minimal. There was no benefit
arising out of the transactions to the Managing Members or
their affiliates apart from compensation otherwise permitted
by the Operating Agreement.
Subsequent to June 30, 2007, the Company purchased a
Starbucks store in Bluffton, Indiana for approximately
$1,120,000. The property is leased to Starbucks Corporation
under a Lease Agreement with a primary term of 10 years and
initial annual rent of $79,800.
(4) Payable to AEI Fund Management, Inc. -
AEI Fund Management, Inc. performs the administrative and
operating functions for the Company. The payable to AEI
Fund Management represents the balance due for those
services. This balance is non-interest bearing and
unsecured and is to be paid in the normal course of
business.
-35-
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors:
AEI Fund Management XXI, Inc.
Saint Paul, Minnesota
We have audited the accompanying balance sheet of AEI Fund
Management XXI, Inc. as of December 31, 2006 and December 31,
2005. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an
opinion on this financial statement based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of AEI
Fund Management XXI, Inc. as of December 31, 2006 and
December 31, 2005, in conformity with U.S. generally accepted
accounting principles.
/s/ Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
March 30, 2007
-36-
AEI FUND MANAGEMENT XXI, INC.
BALANCE SHEET
DECEMBER 31
ASSETS
2006 2005
CURRENT ASSETS:
Cash and Cash Equivalents $ 36,828 $ 61,050
Distributions Receivable from Real Estate Investments 30,322 24,184
Receivable from Related Companies 3,434 55
--------- ---------
Total Current Assets 70,584 85,289
--------- ---------
NONCURRENT ASSETS:
Real Estate Investments 33,112 27,899
--------- ---------
Total Assets $ 103,696 $ 113,188
========= =========
LIABILITIES AND STOCKHOLDER'S EQUITY
NONCURRENT LIABILITIES:
Deficit in Real Estate Investments $ 19,460 $ 18,020
STOCKHOLDER'S EQUITY:
Common Stock, Par Value $.01 per Share,
100,000 Shares authorized,
1,000 Shares issued and outstanding 10 10
Additional Paid-in Capital 990 990
Retained Earnings 83,236 94,168
--------- ---------
Total Stockholder's Equity 84,236 95,168
--------- ---------
Total Liabilities and Stockholder's Equity $ 103,696 $ 113,188
========= =========
The accompanying notes to Balance Sheet are an integral part of
this statement.
-37-
AEI FUND MANAGEMENT XXI, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 2006 AND 2005
(1) Summary of Organization and Significant Accounting Policies -
Organization
AEI Fund Management XXI, Inc. (Company) is the Managing
General Partner of AEI Income & Growth Fund XXI Limited
Partnership and AEI Income & Growth Fund XXII Limited
Partnership. The Company is the Managing Member of AEI
Income & Growth Fund 23 LLC, AEI Income & Growth Fund 24
LLC, AEI Income & Growth Fund 25 LLC and AEI Income & Growth
Fund 26 LLC. The Company operates as a wholly owned
subsidiary of AEI Capital Corporation (ACC). Robert P.
Johnson is President of the Company and is the President and
majority stockholder of ACC. At December 31, 2006 and 2005,
the Company owned 22 Units of AEI Income & Growth Fund XXII
Limited Partnership. Investors in the funds listed above
have no interest in the assets or operations of the Company.
Financial Statement Presentation
The Company accounts for its investments under the equity
method of accounting. The Company's major source of cash is
its share of distributions allocated under the terms of the
Limited Partnership or Limited Liability Company Agreements.
The combined assets, revenues and net income for the above
referenced entities were $102,351,723, $8,765,443 and
$6,979,656 for 2006 and $96,340,660, $7,481,498 and
$4,022,329 for 2005. The Company's share of income (loss)
ranges from 1% to 2%. At December 31, 2006 and December 31,
2005, the Company had accumulated deficits of $19,460 and
$18,020, respectively. The Company would be responsible to
fund a deficiency in its capital account, as defined by
agreement, if the real estate investment terminates.
Accounting Estimates
Management uses estimates and assumptions in preparing this
balance sheet in accordance with generally accepted
accounting principles. Those estimates and assumptions
affect the reported amounts of assets, liabilities and
stockholder's equity. Actual results could differ from
those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Cash Concentrations of Credit Risk
The Partnership's cash is deposited primarily in one
financial institution and at times during the year it may
exceed FDIC insurance limits.
-38-
AEI FUND MANAGEMENT XXI, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 2006 AND 2005
(2) Receivable from Related Companies -
AEI Fund Management, Inc. (AFM), an affiliated corporation,
performs the administrative and operating functions of the
Company. The receivable is non-interest bearing and
unsecured and is to be paid in the normal course of
business. At December 31, 2006 and 2005, the receivable
from AFM was $-0- and $55, respectively.
In 2006, AEI Securities, Inc. (ASI), an affiliated
corporation, acted as the underwriter of an offering of
units in a limited liability company of which the Company is
the managing member. At December 31, 2006, ASI owed the
Company $3,434 as a result of this business arrangement.
The balance is non-interest bearing and unsecured and is to
be paid in the normal course of business.
(3) Income Taxes -
The Company is a qualified subchapter S subsidiary of ACC.
As a result, the income of the Company is treated as
belonging to the parent corporation, ACC. In general, no
recognition has been given to income taxes in the
accompanying financial statements.
(4) Fair Value of Financial Instruments -
The carrying value of financial instruments approximate fair
value.
-39-
EXHIBIT B
PRIOR PERFORMANCE TABLES
The information presented in the following tables updates
the tables represents the historical experience of all
public real estate programs organized by our managers or
their affiliates during the periods indicated. You should
not assume that AEI Fund 26 will generate results, or that
you will receive benefits, comparable to the results
generated by, or benefits received by investors in, these
prior real estate programs. You will have no interest in
the assets or operations of our managers.
We have filed a registration statement that contains
additional information about the performance of prior
programs in "Part II". You can obtain a copy of the
registration statement by contacting Mr. Robert P. Johnson,
President, AEI Fund Management XXI, Inc., 1300 Wells Fargo
Place, 30 East Seventh Street, Saint Paul, Minnesota 55101.
The programs included in the following tables have
investment objectives similar to those of AEI Fund 26,
including protection of capital, distribution of partially
"tax sheltered" cash flow from operations, and capital
appreciation.
Table Index Description Page
I Experience in Raising and Investing Funds B-2
II Compensation to Sponsors B-3
III Operating Results of Prior Programs B-4
IV Results of Completed Programs B-7
V Sales or Disposals of Properties B-8
B-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(Unaudited)
The following table provides information at December 31, 2006, as to the
experience of the Managing Members and their Affiliates in raising and
investing funds with respect to all prior public programs closed in the
last five years.
AEI AEI AEI
Income & Income & Income &
Growth Growth Growth
Fund 23 Fund 24 Fund 25
Dollar Amount Offered $24,000,000 $50,000,000 $50,000,000
Dollar Amount Raised $13,349,321 $24,831,283 $42,434,763
Percentage of Amount
Raised 100.0% 100.0% 100.0%
Less Offering Expenses:
Selling Commissions
and Discount 10.0 10.0 10.0
Organizational
Expenses 5.0 4.8 4.3
Other (a) 2.6 0.0 0.0
Less Reserves 0.4 0.2 0.0
----------- ----------- -----------
Percent Available
for Investment 82.0% 85.0% 85.7%
=========== =========== ===========
Acquisition Costs:
Prepaid Items and
Fees Related
to Purchase of
Property 0.0% 0.0% 0.0%
Investment in
Properties (b) 82.0 85.0 85.7
Acquisition Fees 0.0 0.0 0.0
----------- ----------- -----------
Total Acquisition Cost 82.0% 85.0% 85.7%
=========== =========== ===========
Percent Leverage 0.0% 0.0% 0.0%
Date Offering Began Mar. 99 May 01 May 03
Length of Offering
(months) 24 24 24
Months to Invest 90% of
Amount Available for
Investment (measured
from beginning of
offering) 28 31 31
(a) Represents distributions in excess of net cash flow (return of
capital).
(b) Includes cash down payments and capitalized costs and expenses
related to the purchase of properties, including the cost
of appraisals, attorney's fees, expenses of personnel in
investigating properties, and overhead allocated to such
activities.
B-2
TABLE II
COMPENSATION TO SPONSORS
(Unaudited)
The following table provides information as to the compensation paid to
the Managing Member and their Affiliates during the period from March
1999 to December 31, 2006 for all prior public programs closed in the last
five years.
AEI AEI AEI
Income & Income & Income &
Growth Growth Growth
Fund 23 Fund 24 Fund 25
Type of Compensation
Date Offering Commenced Mar. 99 May 01 May 03
Dollar Amount Raised $13,349,321 $24,831,283 $42,434,763
Amount Paid to Sponsors
From Proceeds of Offering:
Underwriting Fees (a) 271,147 691,268 1,238,471
Acquisition Expenses
- purchase option on property 0 0 0
- real estate commission 0 0 0
- expense reimbursement 92,688(c) 158,363(c) 327,819(c)
Organization Offering Expenses 206,858 668,967 1,219,529
Dollar Amount of Cash
Generated From
Operations Before
Deducting Payments
to Sponsors 5,651,632 6,681,848 5,506,261
Amount Paid to Sponsors
From Operations:
Property Management
Fees (b) 0 0 0
Partnership
Management Fees (b) 0 0 0
Reimbursements (b) 1,067,155 1,078,274 911,032
Leasing Commissions 0 0 0
Participation in Cash Distributions 143,090 168,719 136,757
Dollar Amount of Property
Sales and Refinancing
Before Deducting
Payments to Sponsors:
- cash 7,237,446 9,934,397 1,558,106
- notes 0 0 0
Amount Paid to Sponsors
From Property Sales
and Refinancing:
Real Estate
Commissions (d) 0 0 0
Incentive Fees (d) 0 0 0
Reimbursements (d) 190,659 120,614 50,988
Participation in Cash Distributions 8,735 10,185 3,960
(a) Does not include fees paid to AEI Securities, Inc. which were
reallowed to participating dealers. The reallowed fees for Fund 23,
Fund 24, and Fund 25 totaled $1,055,821, $1,773,560 and $2,977,696,
respectively.
(b) Although not paid a fixed fee for property management and
partnership management, the Managing Members and Affiliates
were reimbursed at their Cost for the provision of such services.
Such reimbursements are reflected under the line item "Amount
Paid to Sponsors From Operations-Reimbursements."
(c) The Programs received reimbursements from the sellers and/or
tenants in the form of financing fees, commitment fees and expense
reimbursements to offset these costs. The reimbursements received
by Fund 23, Fund 24 and Fund 25 totaled $266,621, $252,187 and
$75,341, respectively.
(d) Although not paid a fixed fee from property sales, the Managing
Members and Affiliates were reimbursed at their Cost for the
provision of services related to property sales. Such
reimbursements are reflected under the line item "Amount Paid
to Sponsors From Property Sales and Refinancing - Reimbursements."
B-3
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(Unaudited)
The following table provides information as to the results of all prior
programs closed in the past five years for each year of the five years (or
from inception if formed after January 1, 2002) ended December 31, 2006.
AEI INCOME & GROWTH FUND 23
Years Ended December 31
2002 2003 2004 2005 2006
Gross Revenues from Operations $ 1,063,481 $ 880,585 $ 943,673 $ 691,300 $ 834,822
Profit on Sale of Properties 362,730 1,079,117 0 88,442 0
Less:
Operating Expenses 168,324 174,563 183,937 216,281 145,691
Depreciation & Amortization 267,495 175,111 151,844 174,677 210,424
Real Estate Impairment 0 1,600,393 0 0 0
----------- ----------- ----------- ----------- -----------
Net Income (Loss) - GAAP Basis $ 990,392 $ 9,635 $ 607,892 $ 388,784 $ 478,707
=========== =========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 641,442 $ 547,981 $ 498,390 $ 260,838 $ 472,281
-from gain (loss) on sale 344,446 1,051,952 0 (342,939) 0
=========== =========== =========== =========== ===========
Cash Generated (Deficiency) From Operations $ 939,872 $ 697,744 $ 791,251 $ 466,947 $ 629,666
Cash Generated From Sales 2,178,700 3,679,645 0 1,188,442 0
Cash Generated From Refinancing 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 3,118,572 4,377,389 791,251 1,655,389 629,666
Less: Cash Distributions to Investors
-from operating cash flow 873,962 697,744 347,113 466,947 629,666
-from sales and refinancing 97,727 292,929 482,860 0 0
-from cash reserves (a) 0 63,085 0 254,327 98,855
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 2,146,883 3,323,631 (38,722) 934,115 (98,855)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
----------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 2,146,883 $ 3,323,631 $ (38,722) $ 934,115 $ (98,855)
=========== =========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 47 40 36 19 35
-from recapture 5 4 0 0 0
Capital Gain (Loss) 19 74 0 (26) 0
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 71 1 44 26 35
-Return of Capital 0 77 17 27 18
Cash Distributions to Investors:
Source (on cash basis)
-Sales 7 22 36 0 0
-Refinancing 0 0 0 0 0
-Operations 64 51 25 34 46
-Cash Reserves (a) 0 5 0 19 7
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 100%
(a) Represents initial capital or cash retained from
prior years' cash flow.
(b) Based on an investment of a weighted average Unit
outstanding.
B-4
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 24
Years Ended December 31
2002 2003 2004 2005 2006
Gross Revenues from Operations $ 537,720 $ 1,436,722 $ 1,700,553 $ 1,794,147 $ 1,801,279
Profit on Sale of Properties 0 703,102 130,829 1,082 574,681
Less:
Operating Expenses 164,203 244,633 538,918 457,144 289,876
Depreciation 101,688 336,661 465,163 488,447 431,250
Real Estate Impairment 0 0 434,065 356,000 0
---------- ---------- ----------- ----------- -----------
Net Income (Loss) - GAAP Basis $ 271,829 $ 1,558,530 $ 393,236 $ 493,638 $ 1,654,834
========== ========== =========== =========== ===========
Taxable Income (Loss):
-from operations $ 290,954 $ 938,856 $ 1,163,904 $ 1,181,923 $ 634,580
-from gain (loss) on sale 0 661,553 121,430 (772,824) 450,018
========== ========== =========== =========== ===========
Cash Generated (Deficiency) From Operations $ 364,271 $ 1,208,879 $ 1,086,520 $ 1,407,079 $ 1,488,080
Cash Generated From Sales 0 3,155,310 509,345 995,082 5,154,046
Cash Generated From Refinancing 0 0 0 0 0
---------- ---------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 364,271 4,364,189 1,595,865 2,402,161 6,642,126
Less: Cash Distributions to Investors
-from operating cash flow 267,186 694,545 1,086,520 1,350,060 1,486,894
-from sales and refinancing 0 281,111 333,333 323,232 80,808
-from cash reserves (a) 0 0 360,452 0 0
---------- ---------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 97,085 3,388,533 (184,440) 728,869 5,074,424
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
---------- ---------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 97,085 $ 3,388,533 $ (184,440) $ 728,869 $ 5,074,424
========== ========== ========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 31 42 45 46 25
-from recapture 0 9 0 0 2
Capital Gain (Loss) 0 21 5 (31) 15
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 29 44 14 19 61
-Return of Capital 0 0 55 47 0
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 13 13 13 3
-Refinancing 0 0 0 0 0
-Operations 29 31 42 53 58
-Cash Reserves (a) 0 0 14 0 0
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 99%
(a) Represents initial capital or cash retained from
prior years' cash flow.
(b) Based on an investment of a weighted average Unit
outstanding.
B-5
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 25
Years Ended December 31
2003 2004 2005 2006
Gross Revenues from Operations $ 66,069 $ 773,695 $1,995,808 $2,773,196
Profit on Sale of Properties 0 0 434,154 0
Less:
Operating Expenses 18,772 161,429 412,656 420,682
Depreciation 4,108 189,655 546,189 939,138
Real Estate Impairment 0 0 0 0
--------- --------- ---------- ----------
Net Income (Loss) - GAAP Basis $ 43,189 $ 422,611 $1,471,117 $1,413,376
========= ========= ========== ==========
Taxable Income (Loss):
-from operations $ 54,486 $ 469,399 $1,210,839 $1,692,337
-from gain on sale 0 0 421,848 0
========= ========= ========== ==========
Cash Generated (Deficiency) From Operations $ 93,292 $ 733,149 $1,693,608 $2,139,229
Cash Generated From Sales 0 0 1,507,118 0
Cash Generated From Refinancing 0 0 0 0
--------- --------- ---------- ----------
Cash Generated From Operations,
Sales and Refinancing 93,292 733,149 3,200,726 2,139,229
Less: Cash Distributions to Investors
-from operating cash flow 5,135 463,742 1,155,378 2,139,229
-from sales and refinancing 0 0 338,384 57,576
-from cash reserves (a) 0 0 0 140,142
--------- --------- ---------- ----------
Cash Generated (Deficiency)
After Cash Distributions 88,157 269,407 1,706,964 (197,718)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0
--------- --------- ---------- ----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 88,157 $ 269,407 $1,706,964 $ (197,718)
========= ========= ========== ==========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 12 29 30 39
-from recapture 0 0 0 0
Capital Gain (Loss) 0 0 10 0
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 1 26 37 32
-Return of Capital 0 3 0 21
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 8 1
-Refinancing 0 0 0 0
-Operations 1 29 29 49
-Cash Reserves (a) 0 0 0 3
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 100%
(a) Represents initial capital or cash retained from
prior years' cash flow.
(b) Based on an investment of a weighted average Unit
outstanding.
B-6
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(Unaudited)
The following table provides the results of all programs that
have completed operations (no longer hold properties) within the five
years ended December 31, 2006.
AEI Real AEI Real AEI Real AEI Real AEI Real
Estate Estate Estate Estate Estate
Fund 85-A(a) Fund 85-B(b) Fund 86-A(c) Fund XV(d) Fund XVI(e)
Dollar Amount Raised $7,500,000 $7,500,000 $7,500,000 $7,500,000 $15,000,000
Number of Properties Purchased 15 11 11 16 24
Date of Closing of Offering Jun. 85 Feb. 86 Jul. 86 Dec. 86 Nov. 87
Date of First Sale of Property Sep. 93 Aug. 89 Aug. 89 Jul. 94 Aug. 89
Date of Final Sale of Property Aug. 03 Apr. 05 Jun. 04 Nov. 06 May 04
Tax and Distribution Data Per
$1,000 Investment:
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 792 663 771 1,033 617
-from recapture 49 2 5 119 20
Capital Gain (Loss) 500 334 296 462 132
Deferred Gain
Capital 0 0 0 0 0
Ordinary 0 0 0 0 0
Cash Distributions to Investors
Source (on GAAP basis)
-Investment Income 1,146 1,015 990 1,483 786
-Return of Capital 1,068 858 943 993 854
Source (on cash basis)
-Sales 1,059 863 925 1,134 829
-Refinancing 0 0 0 0 0
-Operations 1,155 1,010 1,008 1,342 811
-Other 0 0 0 0 0
(a)Final sale of property was completed August 15, 2003.
(b)Final sale of property was completed April 5, 2005.
(c)Final sale of property was completed June 1, 2004.
(d)Final sale of property was completed November 21, 2006.
(e)Final sale of property was completed May 25, 2004.
B-7
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
The following table provides information with respect to sales or disposals
of property by prior programs during the three years ended December 31, 2006.
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Cheddar's
Fund XVIII Clive, IA Jan.91 Jan.04 2,131,025 0 0 0 2,131,025 0 1,392,249 1,392,249 2,607,617
AEI Real Estate Johnny Carino's
Fund XV Pharr, TX(c) Sep.03 Jan.04 2,274,068 0 0 0 2,274,068 0 1,780,398 1,780,398 90,415
AEI Income & Hollywood Video
Growth Muscle Shoals,
Fund XXII AL(c) Aug.99 Jan.04 668,266 0 0 0 668,266 0 579,370 579,370 236,858
AEI Income & Winn-Dixie
Growth Fund XXI Panama City,FL(c)Sep.03 Jan.04 874,236 0 0 0 874,236 0 745,138 745,138 16,947
AEI Income & Garden Ridge
Growth Fund XXI Pineville, NC(b) Mar.96 Jan.04 392,836 0 0 0 392,836 0 334,228 334,228 281,487
AEI Income & Tia's Tex-Mex
Growth Killeen, Jan.04 to
Fund XXII TX(c) Dec.03 Feb.04 1,330,280 0 0 0 1,330,280 0 1,041,935 1,041,935 15,134
AEI Income & Children's World
Growth Round Lake Beach, Jan.04 to
Fund 24 IL(c) Nov.01 Feb.04 509,345 0 0 0 509,345 0 405,299 405,299 91,857
AEI Real Estate Jiffy Lube
Fund XVI Dallas, TX(d) Dec.87 Feb.04 80,825 0 0 0 80,825 0 154,892 154,892 329,678
AEI Real Estate Jiffy Lube
Fund XVII Dallas, TX(d) Mar.88 Feb.04 242,485 0 0 0 242,485 0 454,624 454,624 945,220
AEI Real Estate Children's World
Fund XVII Palatine, IL Sep.89 Apr.04 1,298,032 0 0 0 1,298,032 0 801,098 801,098 1,350,942
B-8
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Cheddar's
FUnd XVII Davenport, IA Nov.91 Apr.04 2,527,592 0 0 0 2,527,592 0 1,530,934 1,530,934 2,874,252
AEI Real Children's World
Estate Sterling Heights,
Fund 85-B MI(e) Nov.87 May.04 184,008 0 0 0 184,008 0 143,392 143,392 324,762
AEI Real Children's World
Estate Sterling Heights,
Fund XVI MI(e) Nov.87 May.04 941,543 0 0 0 941,543 0 729,486 729,486 1,669,253
AEI Real Estate Delisi's
Fund 86-A Brooklyn Park,MN Jun.87 Jun.04 712,331 0 0 0 712,331 0 968,958 968,958 1,049,238
AEI Real Arby's
Estate Colorado Springs,
Fund 85-B Co Mar.87 Jun.04 138,113 0 0 0 138,113 0 447,176 447,176 615,011
AEI Real Estate Children's World
Fund XVII Chino, CA Sep.89 Sep.04 1,631,193 0 0 0 1,631,193 0 1,305,518 1,305,518 2,331,370
AEI Income & Johnny Carino's
Growth Fund XXI Farmington, NM May 03 Oct.04 2,893,779 0 0 0 2,893,779 0 2,183,344 2,183,344 360,011
AEI Real Estate Applebee's
Fund XVII Ashland, OH Apr.04 Oct.04 2,290,043 0 0 0 2,290,043 0 1,959,272 1,959,272 69,001
AEI Net Lease Applebee's
I & G Fund XIX Aurora, CO(b) Dec.92 Nov.04 77,724 0 0 0 77,724 0 44,782 44,782 75,771
AEI Real Estate Champps
Fund XVII Utica, MI(b) Feb.02 Dec.04 411,252 0 0 0 411,252 0 230,029 230,029 78,416
B-9
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Raazoo's
Fund XVIII Alpharetta, GA(f)Jul.01 Mar.05 648,425 0 0 0 648,425 0 895,503 895,503 337,648
AEI Net Lease Razzoo's
I & G Fund XIX Alpharetta, GA(f)Jul.01 Mar.05 432,160 0 0 0 432,160 0 598,109 598,109 225,275
AEI Income & Razzoo's
Growth Fund 23 Alpharetta, GA(f)Jul.01 Mar.05 1,188,442 0 0 0 1,188,442 0 1,648,036 1,648,036 619,096
AEI Real Estate Arby's Jan.05 to
Fund 85-B Jackson, TN(c) Oct.86 Apr.05 1,532,926 0 0 0 1,532,926 0 752,971 752,971 1,926,790
AEI Real Estate Children's World Jan.05
Fund XVII St. Louis, MO(c) Sep.89 May 05 1,540,436 0 0 0 1,540,436 0 950,627 950,627 1,734,508
AEI Real Estate Applebee's
Fund XVIII Destin, FL(b) Nov.91 May 05 109,804 0 0 0 109,804 0 65,215 65,215 122,150
AEI Real Estate Johnny Carino's Mar.05 to
Fund XVII Mansfield, TX(c) Sep.03 Jun.05 1,460,795 0 0 0 1,460,795 0 1,028,885 1,028,885 185,753
AEI Real Estate Children's World
Fund XVII Merrimack, NH Sep.89 Jul.05 1,253,115 0 0 0 1,253,115 0 1,159,242 1,159,242 2,163,255
AEI Real Estate Champp's Feb.05 to
Fund XVII Utica, MI(c) Feb.02 Aug.05 1,300,705 0 0 0 1,300,705 0 731,618 731,618 258,571
AEI Real Estate Johnny Carino's Aug.05 to
Fund XVIII Mansfield, TX(c) Sep.03 Sep.05 1,490,853 0 0 0 1,490,853 0 1,028,886 1,028,886 221,541
AEI Real Estate Arby's
Fund XV Marshall, MI Jul.87 Sep.05 589,921 0 0 0 589,921 0 586,425 586,425 620,238
B-10
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Old Country Buffet
Fund XVIII North Lake, IL Dec.98 Oct.05 1,973,839 0 0 0 1,973,839 0 1,350,804 1,350,804 926,927
AEI Real Estate Eckerd Feb.05 to
Fund XVII Cicero, NY(c) Nov.03 Nov.05 1,918,485 0 0 0 1,918,485 0 1,586,183 1,586,183 168,650
AEI Real Estate Applebee's
Fund XVIII Stow, OH(g) Apr.04 Nov.05 1,835,784 0 0 0 1,835,784 0 1,575,755 1,575,755 182,127
AEI Net Lease Applebee's
I & G Fund XIX Stow, OH(g) Apr.04 Nov.05 1,835,784 0 0 0 1,835,784 0 1,575,755 1,575,755 182,141
AEI Income & Pancho's
Growth Fund 24 Round Rock, TX Aug.03 Nov.05 995,082 0 0 0 995,082 0 1,809,513 1,809,513 (415,064)
AEI Net Lease Eckerd Sept. 05 to
I & G Fund XX Cicero, NY(c) Nov.03 Dec.05 1,354,440 0 0 0 1,354,440 0 1,093,273 1,093,273 162,288
AEI Real Estate Johnny Carino's Oct.05 to
Fund XVII Longview,TX(c) Nov.03 Dec.05 1,631,255 0 0 0 1,631,255 0 1,179,878 1,179,878 216,761
AEI Net Lease Johnny Carino's Oct.05 to
I & G Fund XIX Longview, TX(c) Nov.03 Dec.05 758,149 0 0 0 758,149 0 546,069 546,069 99,965
AEI Income & Mimi's Cafe
Growth Fund 25 Kansas City,MO(c)Jun.04 Dec.05 1,507,118 0 0 0 1,507,118 0 1,110,561 1,110,561 165,261
AEI Real Estate Taco Cabana
Fund XVIII San Antonio, TX Dec.90 Jan.06 1,642,624 0 0 0 1,642,624 0 1,406,426 1,406,426 3,083,604
AEI Net Lease Johnny Carino's Feb.06 to
I & G Fund XIX Longview, TX(c) Nov.03 Mar.06 860,603 0 0 0 860,603 0 633,809 633,809 130,497
B-11
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Children's World
Fund XVI Franconia, VA Mar.87 May 06 1,829,853 0 0 0 1,829,853 0 962,069 962,069 2,570,411
AEI Income & Tumbleweed
Growth Ft. Wayne,
Fund XXII IN Aug.99 May 06 997,272 0 164,000 0 1,161,272 0 1,316,695 1,316,695 952,244
AEI Income & Champps
Growth Fund 24 Houston,TX Dec.02 May 06 3,147,170 0 0 0 3,147,170 0 3,106,301 3,106,301 1,143,837
AEI Net Lease Eckerd Apr.06 to
I & G Fund XX Cicero, NY(c) Nov.03 Aug.06 578,025 0 0 0 578,025 0 492,910 492,910 101,028
AEI Real Estate Children's World
Fund XVIII Lenexa, KS Sep.90 Aug.06 849,224 0 0 0 849,224 0 983,527 983,527 1,896,752
AEI Real Estate Eckerd
Fund XVIII Auburn, NY(b) May 04 Aug.06 376,203 0 0 0 376,203 0 314,206 314,206 58,122
AEI Real Estate Jared Jewelry Jun.06 to
Fund XVIII Lakewood, CO(c) Feb.04 Oct.06 2,382,658 0 0 0 2,382,658 0 2,017,633 2,017,633 384,860
AEI Net Lease Jared Jewelry Aug.06
I & G Fund XIX Lakewood, CO(c) Feb.04 Oct.06 2,166,911 0 0 0 2,166,911 0 1,824,522 1,824,522 368,737
AEI Real Estate Garden Ridge
Fund XVIII Woodlands, TX(h) Aug.03 Nov.06 2,094,119 0 0 0 2,094,119 0 1,995,850 1,995,850 561,088
AEI Income & Garden Ridge
Growth Woodlands
Fund XXII TX(h) Aug.03 Nov.06 2,792,170 0 0 0 2,792,170 0 2,661,132 2,661,132 748,129
AEI Income & Garden Ridge
Growth Fund 24 Woodlands,TX(h) Aug.03 Nov.06 2,006,876 0 0 0 2,006,876 0 1,912,690 1,912,690 529,461
B-12
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Razzoo's
Fund XV Austin, TX(i) Jun.01 Nov.06 385,412 0 0 0 385,412 0 714,689 714,689 479,160
AEI Real Estate Razzoo's
Fund XVII Austin, TX(i) Jun.01 Nov.06 297,816 0 0 0 297,816 0 545,266 545,266 370,822
AEI Net Lease Razzoo's
I & G Fund XIX Austin, TX(i) Jun.01 Nov.06 227,742 0 0 0 227,742 0 417,939 417,939 283,871
AEI Income & Razzoo's
Growth Austin,
Fund XXII TX (i) Jun.01 Nov.06 840,892 0 0 0 840,892 0 1,544,214 1,544,214 1,048,138
AEI Income & Eckerd Apr.06 to
Growth Fund XXI Utica, NY(c) Sep.04 Dec.06 1,635,645 0 0 0 1,635,645 0 1,384,963 1,384,963 198,754
AEI Income & Children's World Jun.06 to
Growth Fund XXI Kimberly, WI(c) Jun.02 Dec.06 1,414,328 0 0 0 1,414,328 0 1,011,582 1,011,582 403,755
AEI Income & Children's World
Growth Abingdon,
Fund XXII MD Jul.99 Dec.06 1,460,899 0 0 0 1,460,899 0 1,051,722 1,051,772 681,643
(a) Does not include deduction for partnership general and
administrative expenses not related to the properties.
(b) Represents the sale of a single tenant-in-common
property interest to a third party.
(c) Represents multiple sales of tenant-in-common property
interest to various third parties during the period
listed.
(d) This property was owned jointly by AEI Real Estate Fund
XVI and AEI Real Estate Fund XVII.
(e) This property was owned jointly by AEI Real Estate Fund
85-B abd AEI Real Estate Fund XVI.
(f) This property was owned jointly by AEI Real Estate Fund
XVIII, AEI Net Lease Income & Growth Fund XIX and AEI
Income & Growth Fund 23.
(g) This property was owned jointly by AEI Real Estate Fund
XVIII & AEI Net Lease Income & Growth Fund XIX.
(h) This property was owned jointly by AEI Real Estate Fund
XVIII, AEI Income & Growth Fund XXII and AEI Income &
Growth Fund 24.
(i) This property was owned jointly by AEI Real Estate Fund
XV, AEI Real Estate Fund XVII, AEI Net Lease Income &
Growth Fund XIX and AEI Income & Growth Fund XXII.
B-13
AEI INCOME & GROWTH FUND 26
AN OFFERING OF LIMITED LIABILITY COMPANY UNITS
$1,500,000 minimum
$100,000,000 maximum
AEI Income & Growth Fund 26 LLC is a newly formed limited
liability company that will acquire commercial properties net leased
to creditworthy corporate tenants. Our long-term "net" leases will
require the tenants to pay the operating expenses of our properties,
including taxes, maintenance and insurance. Although we have not
commenced operations, we intend to use the cash raised in this
offering to acquire properties in this manner.
SECURITIES OFFERED 10,000,000 units of limited liability
company interest at $10.00 per unit up to a maximum
of $100,000,000, including up to approximately
300,000 units through our distribution reinvestment
plan.
MINIMUM PURCHASE 500 units for $5,000.
MINIMUM OFFERING All subscription proceeds will be placed
in a special bank escrow until at least $1,500,000
has been received. We will promptly return to
investors all subscriptions held in escrow if we do
not raise $1,500,000 by , 2006.
OFFERING PERIOD The offering will be open until ,
2006, but we may extend it to , 2007.
DEALER MANAGER AEI Securities, Inc., a company affiliated with our
managers, will act as "Dealer Manager" and coordinate
the sale of units. AEI Securities will contract with
other broker dealers that are members of the NASD to
use their "commercially reasonable efforts" to offer
and sell the units.
PROCEEDS TO AEI FUND 26 Minimum Maximum
Per Unit Dollars Percent Per Unit Dollars Percent
Public price $10.00 $1,500,000 100.0% $10.00 $100,000,000 100.00%
Commissions & expenses 1.05 157,500 10.5% 1.01 10,100,000 10.10%
Other offering expenses 0.45 67,500 4.5% 0.27 2,700,000 2.70%
Proceeds to AEI Fund 26 8.50 1,275,000 85.0% 8.72 87,200,000 87.20%
Acquisition expenses 0.17 25,500 1.7% 0.15 1,550,000 1.55%
Working capital reserve 0.05 7,500 0.5% 0.05 500,000 0.50%
Amount available for
purchase of properties $ 8.28 $1,242,000 82.8% $ 8.52 $85,150,000 85.15%
Commissions & Expenses include commissions of 6.5%, a nonaccountable
expense allowance of 3.5%, and a due diligence expense allowance of
up to 0.5%. This assumes we pay the maximum commissions and
nonaccountable expenses. We will not pay commissions and expenses
on purchases through our distribution reinvestment plan.
WE ENCOURAGE YOU TO READ THE "RISKS" DESCRIBED ON PAGES 6 TO 11 OF
THIS PROSPECTUS. WE BELIEVE THE MOST SIGNIFICANT RISKS INCLUDE THE
FOLLOWING:
You will not be able to evaluate properties before they are
acquired.
You will be required to rely upon our managers for all facets of
our operations, including selection, management and sale of our
properties.
As an investor, you will have the right to vote upon only a
limited number of matters.
We will make substantial payments to our managers regardless of
whether we are profitable.
We may only purchase one property if only the minimum
($1,500,000) is raised.
Because there will be no market for the units, and because
restrictions will be placed upon their transfer, you may be unable to
resell your units except at a substantial discount from your purchase
price.
Our managers will operate under a number of conflicts of
interest.
We are not a mutual fund or investment company and are not
regulated under the federal Investment Company Act.
NEITHER THE SEC NOR ANY STATE SECURITIES ADMINISTRATOR HAS APPROVED
THE UNITS OR DETERMINED THAT THIS PROSPECTUS IS ACCURATE AND COMPLETE.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE. WE CANNOT
USE PROJECTIONS IN THIS OFFERING AND WE CANNOT MAKE ANY
REPRESENTATION, VERBALLY OR IN WRITING, ABOUT THE CASH OR TAX BENEFITS
YOU MIGHT RECEIVE FROM INVESTING. WE CANNOT ACCEPT YOUR SUBSCRIPTION
FOR UNITS UNTIL AT LEAST FIVE BUSINESS DAYS AFTER YOU HAVE RECEIVED
THIS PROSPECTUS.
AEI SECURITIES, INC.
1300 Wells Fargo Place, 30 Seventh Street East, St. Paul, MN 55101
800-328-3519 www.aeifunds.com
, 2005
WHO MAY INVEST
To purchase units you must represent in the subscription
agreement attached as Exhibit C that you have received this
prospectus and that you meet the following financial suitability
requirements.
Financial Standards You Must Meet
NET WORTH OR NET WORTH INVESTMENT AS
STATE IN (exclusive (exclusive of PERCENTAGE OF
WHICH YOU of home home and NET WORTH
RESIDE and automobile) PLUS
automobile) ANNUAL GROSS
INCOME
All except $150,000 OR $45,000 Net Worth NA
as PLUS $45,000
indicated Annual Gross Income
below
Arizona, $225,000 OR $60,000 Net Worth NA
California, PLUS $60,000
Iowa, Maine Annual Gross Income
Michigan,
Missouri,
North Carolina,
or
Pennsylvania
Kansas or $250,000 OR $70,000 Net Worth 10% (liquid net worth)
Ohio PLUS $70,000
Annual Gross Income
Nebraska $225,000 OR $60,000 Net Worth 10%
PLUS $60,000
Annual Gross Income
If you are purchasing through a trust, IRA or other fiduciary
account, these standards must be met by the beneficiary, the trust or
other fiduciary account itself, or by the trust donor or grantor if
they are a fiduciary and directly or indirectly supply the funds for
the purchase.
You will be required to purchase a minimum of five hundred units
($5,000). An investment in AEI Fund 26 will not create an IRA or
other tax-qualified plan for any investor.
Because of the lack of a public market, the restrictions on
resale of the units, and the tax characteristics of an investment in
the units, you should not purchase units if you need liquidity and
unless you are willing to make a long-term investment and have income
that allows you to take advantage of the tax characteristics of AEI
Fund 26. Investment firms that participate in the distribution of the
units and solicit orders for units are required to make every
reasonable effort to determine that the purchase is appropriate for
each investor. In addition to net worth and income standards, the
investment firms are required to determine:
whether you can reasonably benefit from an investment in the
units based on your investment objectives;
your ability to bear the risk of the investment; and
your understanding of the risks of the investment, including the
risk that you may lose some or all of the investment.
They must also determine whether you understand:
the lack of liquidity of the units;
the restrictions on transferability of the units;
the background and qualifications of our managers; and
the tax consequences of the investment.
In addition to other considerations, trustees and custodians of
tax-qualified plans should consider the diversification requirements
of ERISA in light of the nature of an investment in, and the
compensation structure of, the investment and the potential lack of
liquidity of the units. The prudence of a particular investment must
be determined by the responsible fiduciary taking into account all
the facts and circumstances of the tax-qualified retirement plan and
the investment.
2
TABLE OF CONTENTS
Who May Invest Page 2
Summary Page 4
Risk Factors Page 8
Capitalization Page 13
Estimated Use of Proceeds Page 13
Investment Objectives and Policies Page 14
The Properties Page 18
Managers Page 21
Prior Performance Page 25
Compensation to Managers and Affiliates Page 28
Conflicts of Interest Page 29
Cash Distributions and Tax Allocations Page 32
Federal Income Tax Considerations Page 33
Restrictions on Transfer Page 37
Summary of Operating Agreement Page 37
Reports to Investors Page 42
Plan of Distribution Page 43
Sales Materials Page 45
Legal Proceedings Page 45
Experts Page 45
Legal Opinion Page 45
Financial Statements Page 46
Operating Agreement Exhibit A
Prior Performance Tables Exhibit B
Subscription Agreement Exhibit C
3
SUMMARY
AEI FUND 26
AEI Income & Growth Fund 26 LLC is a limited liability company
organized on March 14, 2005. Although we have not commenced
operations, we intend to use the proceeds from this offering to
acquire a portfolio of income-producing, net leased commercial
properties. We will lease these properties under long-term "net"
leases that, will generally, require our tenants to pay the operating
expenses of the properties. We will operate from the offices of our
managers at 1300 Wells Fargo Place, 30 East 7th Street, Saint Paul,
Minnesota 55101. Our phone numbers are: (651) 227-7333 (toll-free 800-
328-3519).
Our investment and business objectives are to acquire properties
that provide:
regular rental income;
stable performance from long-term leases with creditworthy
corporate tenants;
growth in distributable income through rent escalations;
capital growth through appreciation in property values; and
"passive" income that can be offset by passive losses from other
investments for tax purposes.
To achieve these objectives we may, from time to time, sell
properties and reinvest the proceeds in replacement properties. We
cannot assure you that we will achieve these objectives. AEI Fund 26
is not a "tax shelter" and is not intended to shelter any of your
taxable income from other sources.
We will continue to offer units for twelve months after the date
of this prospectus. At the election of our managers, and provided we
have received subscriptions for the minimum 150,000 units within the
first 12 months of the offering, we may offer units during a second
12-month period. Our managers are continually investigating potential
property acquisitions and will engage in acquisition evaluation
throughout the offering period. We are required to commit to invest
substantially all of the offering proceeds, or return the uninvested
portion to investors, within 12 months after this offering is
completed.
Our operating agreement requires that the existence of AEI Fund
26 terminate in 2055. It is the intention of our managers, however,
to liquidate our properties and dissolve AEI Fund 26 ten to twelve
years after we complete all of our property acquisitions. Investors
may also dissolve AEI Fund 26 earlier by majority vote.
RISKS
An investment in the units involves a number of risks, including
risks related to:
your inability to evaluate our properties prior to purchase;
the total reliance you must place upon our managers for our
operations;
your inability to exercise significant voting rights;
substantial payments we will make to our managers;
our inability to diversify our assets if only the minimum amount
of capital is raised;
the illiquidity of the units;
the discount at which any repurchase of units may occur; and
potential management conflicts of interest.
These and other risks are described under "Risk Factors" starting on
Page 8.
PROPERTIES AND PROPERTY ACQUISITION
Most of the properties we acquire will be leased to corporate
tenants in the chain restaurant and retail segments of the real
estate market. We may, however, acquire properties in other segments
of the real estate market. The properties will be subject to long-
term leases (typically 15 to 20 years) with the corporate tenants at,
or prior to, the time we purchase them.
4
We will acquire all of our properties for cash: we will not use
any debt financing to acquire properties. If our managers believe it
is advantageous to diversify our portfolio, or if we do not have
adequate funds to acquire all of a property, we may acquire
properties jointly with other real estate programs sponsored by
affiliates of our managers, provided that the other programs and
their acquisition terms meet the requirements described under the
caption "Investment Objectives and Policies-Joint Venture
Investments" of this prospectus.
We expect many of the properties we acquire will be newly
constructed, although we may acquire existing properties. For some
corporate tenants, we may purchase properties prior to construction
of the improvements (buildings and site work) if a potential tenant
assumes the construction risk. If we purchase land prior to
completion of improvements, we will own the improvements as they are
being constructed.
Although we did not own any properties when this prospectus was
written, we will supplement this prospectus when we have identified
any property we intend to purchase.
THE UNITS
Each unit of limited liability company interest represents a
$10.00 equity interest in AEI Fund 26. Unlike profits and losses from
a corporation, which are taxed at the corporate level, profits,
gains, losses and tax deductions from AEI Fund 26 are designed to be
passed directly through to the investors and be taxed only once, at
the investor level. The rental income we generate will normally be
treated as passive income for tax purposes.
We expect to generate non-cash depreciation and amortization
expenses that we should be able to deduct over a period of
approximately 39 years on a straight line basis for tax purposes.
These non-cash deductions should reduce our taxable income in the
early years and allow us to make cash distributions in excess of the
taxable income allocated to our investors. However, this deferred
income will likely be recognized for tax purposes in later years when
we sell properties. There are risks to our ability to achieve these
tax objectives described in the "Federal Income Tax Considerations"
section of this prospectus.
As an investor and "limited member" of AEI Fund 26, you will
have a different interest in our profits, losses and distributions
than our managers. In addition, any cash you receive from rents will
be allocated and paid in proportions that are different than the cash
you might receive from sale or refinancing. Cash distributions will
be made as follows:
1. After deducting operating expenses, rent and other operating
income will be paid 97% to investors and 3% to managers.
2. After provision for reserves and operating expenses, cash from
the sale of properties will be paid 99% to investors and 1% to
managers. After our investors have received both (i) total cash
distributions from property sales equal to their initial
investment, plus (ii) a 6.5% annual, uncompounded return on
their investment (whether from gains on property sales or rental
income), 90% of the cash from the sale or refinancing of our
properties will be paid to investors and 10% will be paid to
managers.
We will make quarterly distributions of available cash from
interest income, rents, and proceeds from property sales and we
anticipate that distributions will commence the first full quarter
after proceeds are released from escrow, which must occur before
, 2006. Because we expect that the interest income we earn on
offering proceeds will be less than the rental income we earn on
properties, we expect that distributions per unit in the early years
of the Company's operations will be lower than distributions per unit
after the proceeds are invested in properties.
THE MANAGERS AND PRIOR PROGRAMS
This investment program will be managed by AEI Fund Management
XXI, Inc., a Minnesota corporation that has no full time employees.
AEI Fund Management, Inc., an affiliated asset management company,
will provide the management services on behalf of AEI Fund Management
XXI. Robert P. Johnson, President, CEO, director of AEI Fund
Management XXI and AEI Fund Management, will serve as special
managing member and will be responsible for overseeing the corporate
5
manager's activities. Mr. Johnson is also the sole shareholder of AEI
Fund Management and the majority shareholder of AEI Capital
Corporation, which is the sole shareholder of AEI Fund Management XXI
and AEI Securities.
The sponsors are using AEI Fund Management XXI as our managing
member, rather than AEI Fund Management, which provides most of our
services, because AEI Fund Management XXI is an S corporation that
produces more efficient tax consequences and because the sponsors
believe it is advantageous to AEI Fund 26 to be able to change the
entity that provides our services without resorting to the mechanisms
in our operating agreement necessary to replace a managing member.
AEI Fund Management has a staff of 34 professional and support
people engaged in real estate syndication, management, acquisition
and disposition transactions. It provides management services to
eleven publicly syndicated and four privately placed real estate
programs that are affiliated with our managers and described in more
detail under "Prior Performance" and in Exhibit B. Although our
managers believe they have adequate staff, directly or through
affiliated entities, to discharge their responsibilities to AEI Fund
26, they are not required by our operating agreement to devote any
minimum amount of time to providing services to AEI Fund 26.
The following chart illustrates the relationship between AEI
Fund 26, our managers and affiliated entities that will provide
services to AEI Fund 26:
[CHART: Chart depicting organization of the Company
and relationship with Managing and Special Members]
(1) 97% of cash flow from rents and other operating income, 99% of
proceeds from sale of properties until investors receive their
investment plus a 6.5% annual return, 90% of sale proceeds after that
return.
(2) 3% of cash flow from rents and other operating income, 1% of
sales proceeds until investors receive investment plus a 6.5% return,
10% of sales proceeds after that return.
(3) The managers will make only a nominal capital contribution of
$1,000.
(4) Reimbursement at cost, including allocated overhead, for services
provided.
6
COMPENSATION TO THE MANAGERS
Our managers and their affiliates, including the dealer
manager-AEI Securities-will receive compensation from AEI Fund 26
through their equity interests in distributions, through commissions
and fees received in organizing AEI Fund 26 and offering and selling
units, and through various reimbursements. This compensation
includes:
Commissions and a nonaccountable expense allowance to AEI
Securities of 10.0% of offering proceeds, most of which will be
reallowed to broker-dealers that sell the units;
An organization fee of 1.5% of offering proceeds (but only to
the extent total organization and offering expenses do not exceed 15%
of offering proceeds);
A three percent interest in all of our operating cash flow,
including our rental income;
A one percent interest in all proceeds from sale of properties
until our investors have received return of their investment, plus a
6.5% return on that investment, and then 10% of any proceeds in
excess of that amount;
Subject to limitations, reimbursement for organization and
offering costs and most forms of operating cost.
The reimbursements to our managers will be at their cost and
will consist of:
1. The organization and offering of units in AEI Fund 26 (estimated
at $75,000 at minimum subscription level), the majority of
which will be paid to third parties.
2. The acquisition of properties (estimated at $25,500 at the
minimum subscription level).
3. The administration of Fund 26, including management, leasing, re-
leasing and sale of properties (estimated at $50,000 for first
12 months at the minimum subscription level).
There are limits to the amount we pay our managers for these
reimbursements. In general, we reimburse our managers only for their
"cost," which includes the fully-loaded cost of employees and their
overhead, but in no event are these reimbursements for more than what
an unaffiliated third party would charge. In addition, the amounts
we pay as front-end fees, including the commissions and
nonaccountable expense allowance, the organization fee, the
organization and offering expense reimbursements, and any acquisition
expenses, and the amounts that we reimburse our managers and their
affiliates for overhead and for their control persons, cannot exceed
the following:
20% of subscription capital raised, plus
10% of cash flow from operations less the interest in cash flow
we pay our managers, plus
1% of rental income, plus 3% of rental income for the first five
years of each lease, plus
3% of the sales price of properties if the managers provide
sales services.
CONFLICTS OF INTEREST
Because of the affiliation between our managers, AEI Securities,
AEI Fund Management and the various public and private programs that
these persons and entities have formed and managed, our managers will
operate under a number of conflicts of interest arising out of:
the allocation of their work time between AEI Fund 26 and other
programs;
the absence of arms length negotiation of joint venture
arrangements;
the potential competition with affiliated programs for
properties to be purchased;
the common ownership of AEI Fund 26 and AEI Securities and the
absence of an independent "due diligence" investigation by our dealer
manager; and
the reimbursement payments our managers receive, regardless of
our profitability.
7
RISK FACTORS
GENERAL RISKS
YOU WILL BE RELYING UPON THE MANAGERS TO SELECT PROPERTIES AND MIGHT
NOT LIKE THE PROPERTIES THEY SELECT.
We had not selected any properties when this prospectus was
printed. It is not likely that you will be able to evaluate
properties before they are purchased. Although we will supplement
this prospectus when we believe that a property will be acquired, you
must rely upon the ability of our managers to choose properties. We
cannot assure you that the properties our managers select will
perform as favorable investments.
YOU WILL NOT HAVE A RIGHT TO A RETURN OF YOUR INVESTMENT IF YOU DO
NOT LIKE THE PROPERTIES PURCHASED.
You will not have a right to withdraw from Fund 26 or to receive
a return of your investment if you do not like the properties our
managers purchase. We will have a limited unit repurchase program,
but that program will not necessarily return your entire investment.
YOU WILL HAVE LITTLE CONTROL OVER OPERATIONS.
You will have limited voting rights and will have no control
over our management and must rely almost exclusively on our managers.
Our managers have complete authority to make decisions regarding our
day-to-day operations and the acquisition of our properties, and
there are no limitations that you may enforce regarding the types of
commercial, net leased properties that may be acquired. The managers
may take actions with which you disagree. You will not have any right
to object to most management decisions unless the managers breach
their duties. You will be able to remove the managers only by
majority vote of investors or in other limited instances. Our
investors will not be able to amend our operating agreement in ways
that adversely affect our managers without their consent.
THERE WILL NOT BE A MARKET FOR YOUR UNITS AND THERE WILL BE
RESTRICTIONS PLACED ON THEIR TRANSFER.
We are required to place significant restrictions on the
transfer of units to avoid being taxed as a corporation. That means
that you will be required to receive approval from the managers
before reselling or transferring your units. The managers are
required to refuse a transfer when it would adversely affect our tax
status. We will also require, as a condition to the transfer of any
units, that you be fully apprised by any purchaser of the apparent
value of your units, including the most recent redemption price. We
will require you to confirm your understanding of this value to us in
writing. We will provide this information to you if the purchaser
does not. Our operating agreement provides that, if you agree to sell
or transfer your units before this information is provided to you,
the managers may conclude that the transfer agreement is void. Our
operating agreement also provides that you must notify us when you
agree to sell your units and that AEI Fund 26 will have a right to
purchase your units at the same price by notifying you within 15 days
of receipt of your notice. Because of these requirements, there will
not be a public market for your units, you may not be able to sell
them at the time you desire, and any sale may be at a substantial
discount.
ALTHOUGH WE WILL MAINTAIN A REPURCHASE PROGRAM, OUR ABILITY TO
REPURCHASE UNITS WILL BE LIMITED BY TAX LAW AND BY OUR CASH NEEDS,
AND WILL BE SUBJECT TO OUR MANAGERS' DETERMINATION THAT THE
REPURCHASE WILL NOT IMPAIR OUR OPERATING CASH.
Although we will maintain a unit repurchase plan starting 36
months after the date of this prospectus, the amount of repurchases
we may make is limited by tax law, by the provisions of our operating
agreement and by our operating cash needs as assessed by our
managers. Our operating agreement limits aggregate repurchases in any
year to two percent of the units that are outstanding at the
beginning of the year. Our manager will also be able to exercise its
discretion to make no purchases if it believes that doing so would
impair our operating capital. Further, even if repurchases are made,
they will be at a discount from asset value and asset value will be
determined by our managers. Therefore, we cannot assure you that our
repurchase program will provide you with an opportunity to sell your
units, or that if it does, you will obtain full value for the units.
8
YOU WILL NOT HAVE A RIGHT TO A RETURN OF YOUR CAPITAL PRIOR TO THE
TERMINATION OF THE PROGRAM.
Although we intend to dissolve earlier, we are not required to
dissolve until 2055 unless you and a majority of the other investors
vote to have us dissolve earlier. You will not have a right to redeem
your units until we are dissolved. Although we will have a unit
repurchase program, that program is limited, provides for discounts
that may not provide you with full value for your investment, may be
periodically suspended at the discretion of our managers, and is not
available if there is not adequate capital to pay for repurchases.
THE RATE OF DISTRIBUTIONS WE MAKE WILL VARY AND WILL DEPEND UPON THE
TIMING OF OUR PROPERTY PURCHASES AND SALES.
Although we intend to make distributions to investors quarterly,
the amount we distribute will depend upon the amount of cash flow
from operations we generate and whether we have distributable
proceeds from properties we have sold. We cannot assure you that we
will always have adequate cash flow from either source to cover
expenses and also be in a position to make distributions. In the
early years of our operations, it is less likely that we will have
proceeds from sale of our properties and our distributions will be
primarily from rents and interest earned on temporary investment of
offering proceeds. We will also not receive rental income until after
we have purchased properties. Therefore, a larger portion of our cash
flow during the early years will be from interest income. Because we
expect the rate of interest we earn will be less than the rental
rates we receive, distributions per unit in the early years of
operations will likely be lower than in later years.
WE MAY NOT BE ABLE TO DIVERSIFY OUR INVESTMENTS AND THE LACK OF
DIVERSIFICATION COULD INCREASE THE RISK THAT WE WILL NOT ACCOMPLISH
ALL OF OUR INVESTMENT OBJECTIVES.
If we raise only $1,500,000, we may purchase only one property
and the proportion of our capital spent on organizational and
offering costs will be higher. While we intend to diversify our
investments, we are under no obligation to do so and may invest in a
single property. If we have only one property, or a limited number of
properties, our operations will be subject to the increased risks of
factors affecting those properties.
PENNSYLVANIA INVESTORS: Because the minimum is less than $5,000,000,
you are cautioned to carefully evaluate our ability to accomplish our
objectives and to ask about the current amount of subscriptions
before you invest.
WE MAY BE FORCED TO DISSOLVE IF BOTH MANAGERS CEASE TO EXIST OR
WITHDRAW.
If both our managers cease to exist, are removed, withdraw, or
are declared bankrupt, AEI Fund 26 may be required to dissolve early.
If we are forced to dissolve early, we might be required to sell our
properties at disadvantageous prices. We will not carry insurance on
the life of Robert Johnson, the special managing member and president
of our manager.
WE ARE CURRENTLY DEPENDENT UPON THE KEY PERSONNEL OF OUR MANAGERS AND
THE LOSS OF THEIR SERVICES, AND PARTICULARLY THE SERVICES OF ROBERT
P. JOHNSON AND PATRICK W. KEENE COULD HAVE A DETRIMENTAL AFFECT UPON
AEI FUND 26.
Our success depends to a significant extent upon the continued
service of the officers of our managers and their affiliates. The
departure of those officers, particularly of Robert P. Johnson, our
special managing member and the CEO and President of our managing
member, or Patrick W. Keene, the Chief Financial Officer of our
Managing Member, could materially adversely affect our operations. We
do not maintain, and our managers do not maintain for our benefit,
employment agreements with, or key man insurance on, Mr. Johnson or
Mr. Keene.
WE ARE REQUIRED TO INDEMNIFY OUR MANAGERS FOR THEIR GOOD FAITH
ACTIONS AND THE INDEMNIFICATION OBLIGATION MAY CAUSE ANY LIABILITY
THEY INCUR TO BE PAID BY AEI FUND 26.
Under our operating agreement our managers are not liable to us
for any act or omission that they take in good faith and that they
believe is in the best interest of AEI Fund 26, except for acts of
9
negligence or misconduct. Under certain circumstances our managers
will be entitled to indemnification from us for losses they incur in
defending actions arising out of their position as our managers.
REAL ESTATE INVESTMENT RISKS
WE MIGHT NOT BE SUCCESSFUL IN ACHIEVING OUR INVESTMENT OBJECTIVES IF
THERE ARE SIGNIFICANT CHANGES IN THE ECONOMIC AND REGULATORY
ENVIRONMENT AFFECTING REAL ESTATE.
Our investments in commercial properties will be subject to
risks related to national economic conditions, changes in the
investment climate for real estate, changes in local real estate
market conditions, changes in interest rates, changes in real estate
tax rates, governmental rules and fiscal policies, and other factors
beyond the control of our managers. Changes in these economic and
regulatory factors could cause the value of the properties we hold to
decline, cause some of our tenants to default on their lease
obligations, reduce any tax benefits we provide to our investors, or
otherwise render unattractive some of the ways we do business.
WE FACE COMPETITION FOR THE PURCHASE AND FINANCING OF PROPERTIES FROM
ENTITIES WITH SUBSTANTIALLY MORE CAPITAL AT THEIR DISPOSAL, SUCH AS
REAL ESTATE INVESTMENT TRUSTS AND TRADITIONAL FINANCING SOURCES, THAT
MAY CAUSE US TO HAVE DIFFICULTY FINDING PROPERTIES THAT GENERATE
FAVORABLE RETURNS.
The rental rates that we are able to receive on the properties
we purchase depend substantially upon the presence of competition
from other property purchasers and, to a certain extent, upon the
availability of mortgage financing at similar rates that would allow
a tenant to own its property. The availability of these alternative
purchasers or sources of financing at lower rates has periodically
caused competition for affiliated programs for attractive properties
and caused reduction in market rental rates, both of which may
adversely affect the performance of a real estate program.
IF WE HAVE DIFFICULTY FINDING ATTRACTIVE PROPERTIES, AND WE ARE
DELAYED IN INVESTING THE PROCEEDS FROM THIS OFFERING, IT IS LIKELY
THAT THE RETURNS TO OUR INVESTORS WILL BE REDUCED.
The amount of proceeds from this offering that we invest at
money market rates will produce less income than proceeds invested in
properties. Accordingly, the overall return to AEI Fund 26 may be
reduced to the extent we are delayed in investing those proceeds in
properties.
If a tenant defaults on its lease we cannot assure you that we
will be able to find a new tenant for the vacant property who will
pay the same rental rate or that we will be able to sell the property
without incurring a loss. If a tenant files for bankruptcy we might
not be able to quickly recover the property from the bankruptcy
trustee. Because we probably could not obtain a new tenant while a
property is held by a trustee, the property might not generate rent
that covers our expenses associated with the property during this
period.
SOME PROPERTIES MAY BE SUITABLE FOR ONLY ONE USE AND MAY BE COSTLY TO
REFURBISH IF A LEASE IS TERMINATED.
Most of the properties we buy will be designed for a particular
tenant. If we own a property when the lease terminates and the tenant
does not renew its occupancy under the lease, or if the tenant
defaults on its lease, the property might not be marketable without
substantial capital improvements. Improvements could require the use
of cash that would otherwise be distributed to you as an investor.
Attempting to sell the property without improvements would also
likely result in a lower sales price.
WE COULD LOSE MONEY IF CONSTRUCTION OF IMPROVEMENTS ON A PROPERTY WE
OWN IS NOT COMPLETED AND A TENANT DEFAULTS ON IT REPURCHASE
OBLIGATION.
We may purchase land prior to completion of improvements or pay
for improvements made by tenants as they are completed to assist in
financing the construction of improvements on a property. Although
the tenant will be responsible for the construction in these
arrangements, and to repurchase the property if construction is not
completed, this type of development can present risks because cost
overruns, non-performing contractors, changes in construction codes
and changes in cost can occur during construction that can cause
default on the construction contract. If construction is not
completed and the tenant defaults in the contractual repurchase
10
obligation we create when construction is commenced, we might not be
able to resell the property at a price equal to our purchase price.
We may also need to pay more for its completion to enhance its
potential sale or rental.
WE CAN REINVEST PROCEEDS FROM SALES OF PROPERTIES IN REPLACEMENT
PROPERTIES WITHOUT YOUR APPROVAL.
We may, from time to time, sell properties and reinvest the
proceeds in replacement net leased properties rather than
distributing all of the proceeds to you. You will not have the right
to receive all the cash we receive when we sell properties and must
rely upon the ability of our managers to find replacement properties
in which to reinvest the proceeds. We intend, however, to distribute
to investors any net cash gain representing the difference between
the sale price and the purchase price of properties. If we provide
financing to purchasers, upon the final sale of all our properties,
our liquidation and the distribution of cash to you could be delayed
until the financing is fully collected.
THE INSURANCE WE PURCHASE FOR OUR PROPERTIES MIGHT NOT BE ADEQUATE TO
COVER LOSSES WE INCUR.
Although our managers will attempt to arrange for comprehensive
insurance coverage on our properties, some catastrophic losses may be
either uninsurable or not economically insurable. If a disaster
occurs, we could suffer a complete loss of capital invested in, and
any profits expected from, the affected properties. If uninsured
damages to a property occur and we do not have adequate cash to fund
repairs, we would likely be forced to sell the property at a loss or
to borrow capital to fund the repairs and would mortgage the property
to secure the borrowing.
CONFLICT OF INTEREST RISKS
We will not have any employees and will be dependent upon AEI
Fund Management for most of the services required for our operations.
Robert P. Johnson, our special managing member, is also the
President, CEO, and a director of our managing member, AEI Fund
Management and AEI Securities. Further, Mr. Johnson is the sole
shareholder of AEI Fund Management, and the majority shareholder of
AEI Capital Corporation, which is the sole shareholder of AEI Fund
Management XXI and AEI Securities. Our investors will not have any
interest in any of these entities and will not be in a position to
control their activities. The interlocking interests of our managers
and affiliated entities create a number of conflicts of interest that
are described in this prospectus under the caption "Conflicts of
Interest," including the following.
OUR MANAGERS AND THE SERVICE ENTITIES WITH WHICH THEY CONTRACT WILL
PROVIDE SIMILAR SERVICES TO A NUMBER OF AFFILIATED PROGRAMS THAT MAY
IMPAIR THEIR ABILITY TO PROVIDE SERVICES TO US.
AEI Fund Management provides services to eleven similar publicly
syndicated and four privately syndicated affiliated programs, many of
which have been operating for a number of years. These other programs
also acquire, operate and dispose of commercial properties. The time
devoted by our managers and AEI Fund Management on the activities of
these other entities may conflict with the time required to operate
AEI Fund 26. Our operating agreement does not require our managers to
devote a minimum amount of time to providing services to AEI Fund 26.
WE MAY BE IN COMPETITION WITH OTHER AFFILIATED REAL ESTATE PROGRAMS
FOR THE PURCHASE OR SALE OF PROPERTIES.
AEI Fund 26 may have cash available for investment in properties
at the same time as another affiliated program. Most of these
affiliated programs have investment objectives that are similar or
identical to the objectives of AEI Fund 26. Because our managers and
affiliates will make property purchase decisions for multiple
programs, there may be conflicts of interest as to which program
should acquire a property. Although the managers have a fiduciary
duty to act in the best interest of AEI Fund 26, they have a similar
obligation with respect to the affiliated programs. Therefore, we
cannot assure you that AEI Fund 26 will always be in the position of
purchasing the most favorable properties that are made available to
our managers.
11
IF WE PURCHASE PROPERTIES JOINTLY WITH ANOTHER AFFILIATED PROGRAM,
CONFLICTS MAY ARISE IN DECISIONS REGARDING THE OPERATION OR SALE OF
THE PROPERTY.
If we purchase a property jointly with another affiliated
program, it is likely that all of the decisions relating to the
property will affect both programs. Nevertheless, some operating
decisions, such as the term of leases affecting the property or the
timing of the sale of a property, may affect one program differently
than another. Our managers will be subject to conflicts of interest
in making these decisions.
OUR MANAGERS AND THEIR AFFILIATES MAY PURCHASE UNITS FROM US OR FROM
OTHER INVESTORS AND THEIR PURCHASES MAY BE AT PRICES THAT ARE LESS
THAN THE ASSET VALUE ATTRIBUTABLE TO THE UNITS.
There are no restrictions, other than tax restrictions, on the
ability of our managers or their affiliates to purchase units.
Although there will be no trading market for the units, the managers
may be in a position to purchase units from other investors at prices
that are below the prices we are selling them in this offering and
below our asset value per unit.
AEI SECURITIES, THE DEALER MANAGER THAT WILL COORDINATE THE SALE OF
THE UNITS AND PERFORM THE DEALER MANAGER'S "DUE DILIGENCE"
INVESTIGATION, IS AN AFFILIATE OF OUR MANAGERS.
The dealer manager of an offering of securities such as our
units is obligated to perform a "due diligence" investigation to
confirm the accuracy of the statements made in offering documents. In
the case of AEI Fund 26, the dealer manager is an affiliated entity.
WE WILL MAKE PAYMENTS TO OUR MANAGERS FOR THEIR SERVICES WHETHER OR
NOT WE ARE PROFITABLE.
The operating agreement that governs our operations requires us
to make payments to our managers for the services they provide
whether or not we are profitable. Although the managers are required
to act in a manner that is in our best interests, these payments may
create conflicts in how the managers deal with us.
WE ARE NOT PROVIDING YOU WITH SEPARATE LEGAL OR ACCOUNTING
REPRESENTATION.
AEI Fund 26, our investors and our managers are not represented
by separate counsel. Although our counsel has given the tax opinion
referenced in the "Federal Income Tax Considerations" section of this
prospectus, and an opinion that there is legal authority to issue the
units, our counsel and accountants have not been retained, and will
not be available, to provide other legal counsel or tax advice to
individual investors.
FEDERAL INCOME TAX RISKS
THE TIMING OF TAX DEDUCTIONS COULD BE CHALLENGED BASED UPON THE
ALLOCATION OF "BASIS" AMONG PROPERTIES, AND INVESTORS COULD BE
SUBJECTED TO INCREASED TAX.
The allocations by our managers of the purchase price of
properties among buildings, personal property, and the underlying
land will affect the amount of deductions we may take because some of
these items are depreciable and some are not. These allocations
cannot be made until we purchase the properties. We will not seek an
opinion of counsel on whether the allocation of purchase price, the
rate of depreciation or the timing of deductions is proper. If the
Internal Revenue Service successfully challenged these allocations,
investors could lose a portion of the deductions and be subject to
increased taxable income in the early years of operations.
THE RESALE OF PROPERTIES COULD CAUSE GAINS TO BE TAXED AS ORDINARY
INCOME.
If we were characterized as a dealer in real estate when
properties are sold, gain or loss on sales would be considered
ordinary income or loss. Whether we will be characterized as a dealer
in real estate is dependent upon future events and the timing of
property purchases and sales. We will not seek an opinion of counsel
on this issue. Because ordinary income is, in most cases involving
individual taxpayers, taxed at higher rates than capital gain, if we
were characterized as a dealer there could be an increase in the
taxes you will be required to pay on our income, if any, that is
allocated to you.
12
THE INTERNAL REVENUE SERVICE COULD CHARACTERIZE CERTAIN SALE-
LEASEBACK TRANSACTIONS INTO WHICH WE MAY ENTER AS FINANCING
TRANSACTIONS AND NOT AS TRUE LEASES.
If the IRS were to characterize a sale-leaseback transaction as
a financing, investors could be deprived of deductions for
depreciation and cost recovery, and income derived from that
transaction would not be passive activity income that could
potentially be offset by passive activity losses that we generate or
that result from your investments in other passive activities.
INCORRECT ALLOCATION OF EXPENSES AMONG START-UP, ORGANIZATION AND
SYNDICATION COSTS COULD CAUSE MORE TAXABLE INCOME.
Our managers will allocate expenses during our early stages of
operation to start-up, organization, syndication and acquisition
expenses for purposes of the deduction or capitalization of such
expenses. These allocations cannot be made until the expenses are
incurred. We will not seek an opinion of counsel regarding the
propriety of the allocations. If the Internal Revenue Service
determines that the allocations were improper, we could lose some
deductions and our investors would recognize more income during the
early stages of the operation of properties.
CAPITALIZATION
The following table sets forth our historical capitalization as
of April 30, 2005 and our pro forma capitalization as of that date as
adjusted to give effect to the sale of the minimum of 150,000 units
and the sale of the maximum of 10,000,000 units:
Pro Forma Pro Forma
After Sale of After Sale of
Title of Class Historical 150,000 Units 10,000,000 Units
Managers' capital $ 1,000 $ 1,000 $ 1,000
Investors' capital - 1,500,000 100,000,000
Less offering expenses - (225,000) (12,800,000)
-------- ----------- -------------
Total capital $ 1,000 $ 1,276,000 $ 87,201,000
======== =========== =============
ESTIMATED USE OF PROCEEDS
We expect to have approximately $1,275,000 available for
investment in properties and reserves if $1,500,000 is raised and
$87,200,000 if $100,000,000 is raised. The following table shows how
we expect to use these proceeds. Several of the items listed below
cannot be precisely calculated and could vary materially from the
amounts shown. These items include "other offering expenses," which
consist of expenses incurred by our managers and the dealer manager
in preparing offering documents and coordinating the sale of the
units, and acquisition expenses, which consist primarily of payments
to third parties for professional work and reimbursements to our
managers for their costs of investigating and completing purchases.
Minimum Maximum
(150,000 Units) (10,000,000 Units)
Dollars Percent Dollars Percent
Gross offering proceeds $ 1,500,000 100.00% $ 100,000,000 100.00%
Less offering expenses:
Selling commissions,
nonaccountable expense
allowance and due diligence
expenses (157,500) 10.50% (10,100,000) 10.10%
Other Offering expenses (67,500) 4.50% (2,700,000) 2.70%
------------ -------- ------------- --------
Amount available for investment
(net proceeds) 1,275,000 85.00% 87,200,000 87.20%
------------ -------- ------------- --------
Acquisition expenses (25,500) 1.70% (1,550,000) 1.55%
Working capital reserve (7,500) .50% (500,000) .50%
------------ -------- ------------- --------
Amount available for purchase
of properties $ 1,242,000 82.80% 85,150,000 85.15%
============ ======== ============= ========
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Other offering expenses shown in the table above include
federal and state registration fees, accountant's fees and fees of
counsel, printing costs, and personnel costs of the managing member
for coordinating the admission of members, the processing of
subscriptions, and other investor relations matters. Other offering
costs also includes, to the extent that total other offering costs
is less than 5% of offering proceeds, an organizational fee to the
managing member equal to 1.5% of offering proceeds.
The amount available for investment in properties will not, in
any event, be less than 80% of gross offering proceeds. We will hold
the proceeds of the offering in trust for the benefit of the
purchasers of units and use them only for the purposes set forth
above.
We will continue to offer and sell units for twelve months after
the date of this prospectus. At the election of our managers, we may
offer units during a second twelve months. We will not commit to
invest more money in properties than we raise through the sale of
units. Accordingly, our managers believe that we will have adequate
capital to fund our operation for the first 24 months of operation.
INVESTMENT OBJECTIVES AND POLICIES
PRINCIPAL INVESTMENT OBJECTIVES
AEI Fund 26 will acquire only commercial net leased properties.
It is our intent that all of the properties will be leased to single-
tenants under a "net" lease that requires the tenant to pay the
operating expenses of the property, such as taxes, maintenance and
insurance. Some of our leases, particularly those for properties used
in the sale of retail goods or services, will require that, as the
landlord, we will bear the costs of maintaining the structural
integrity of the building, including roof and foundation. We will
investigate the acquisition of properties located throughout the
United States, including the states in which prior affiliated
programs have purchased properties as described under the caption
"Prior Performance." We may sell properties from time to time and
purchase replacement properties when our managers believe market
conditions are favorable and when our managers believe that we can
profit from this type of sale and reinvestment. We may commit to
purchase properties at either agreed prices or subject to pricing
formulas. Most sale leaseback transactions are negotiated at rental
rates that reflect current real estate financing conditions.
ACQUISITION OF PROPERTIES
We will not purchase or lease any property from, nor sell or
lease any property to, our managers or their affiliates. We may,
however, purchase property that our managers or their affiliates
purchased in their own name to help us acquire the property. If we
do, we will purchase the property from our managers or their
affiliate at a price no greater than the price they paid, plus
acquisition and holding expenses. Although we do not intend to
acquire any unimproved or undeveloped properties, or to participate
in the speculative development of any properties, we may acquire raw
land prior to the building of improvements and may advance funds or
make loans in connection with the construction of properties that we
intend to acquire.
We will obtain an independent appraisal of the fair market value
of each property we acquire. Nevertheless, our managers will rely
upon their own analysis, and not upon the appraisals, in determining
whether to acquire a particular property. Copies of appraisals will
be retained at our offices for at least five years and will be
available for inspection and duplication by any investor. Prior to
the acquisition of a property, we will be provided with evidence
satisfactory to our managers that we will acquire marketable title to
the property, subject only to liens and encumbrances such as liens
for tax assessments, utility easements, and other encumbrances
typical in commercial transactions. Such evidence may include a
policy of title insurance, an opinion of counsel or such other
evidence as is customary in the locality in which the property is
situated.
14
In certain instances, we may acquire land on which a tenant
wishes to construct a net leased commercial property prior to
completion of the improvements and lease the property to the tenant.
We may also pay for improvements as they are being completed by a
construction company hired by the tenant. These construction
contracts normally include a provision allowing us to sell the entire
property to the tenant if construction is not completed in a timely
fashion. We will not acquire raw land unless there are plans that
provide for construction of improvements within one year of
acquisition, and will not pay our managers or their affiliates any
development or construction fees for the acquisition activities
described above.
TEMPORARILY INVESTED FUNDS
After release from escrow, and before investment in properties,
we will invest all of our funds in short-term government securities
or in deposits with a financial institution and will earn interest at
short-term deposit rates. Although we may retain some funds to pay
operating expenses and working capital reserves, we will distribute
to the investors as a return of capital any of the net proceeds of
this offering that have not been invested or committed for investment
in real property within 24 months after the date of this prospectus
or twelve months after termination of the offering of units. These
distributions will be without interest but will include a
proportionate amount of any commissions or other organization and
offering expenses originally deducted. All funds will be available
for our general use during this period and may be expended in
operating any properties that have been acquired.
For purposes of the foregoing, we will consider capital as being
committed to properties and not returnable to the investors if
written contractual agreements have been signed prior to the period
described above, regardless of whether the property is ultimately
purchased. To the extent that funds have been reserved to make
contingent payments in connection with a property under a written
contractual agreement, or because our managers determine that
additional reserves are necessary in connection with a property,
regardless of whether such payment is ultimately made, funds will not
be returned to investors.
SALE OF PROPERTIES
At the discretion of our managers, we will either distribute all
or a portion of the net proceeds from sale of properties to investors
or reinvest net proceeds in properties that meet our acquisition
criteria. We will not reinvest net proceeds from the sale of a
property unless enough cash is distributed to investors to allow them
to pay their income taxes resulting from the sale, assuming they are
taxed at a rate of seven percent above the individual capital gains
rate.
Rather than selling our entire interest in a property, we may
sell co-tenancy or other fractional interests. Our managers believe
that sales of smaller interests to property buyers seeking to
complete like-kind "exchanges" under Section 1031 of the Internal
Revenue Code can result in greater profits as compared to listing and
selling the property through a real estate broker. In those instances
in which we do not sell all of a property, we will retain, either
alone or with another program sponsored by affiliates of our
managers, the authority to manage the property.
Although we intend to sell our properties for cash, purchase
money obligations secured by mortgages may be taken as partial
payment. The terms of payment may be affected by custom in the area
in which the property is located and by prevailing economic
conditions. To the extent we receive notes and property other than
cash, that portion of the proceeds will not be included in net
proceeds from sale until and to the extent the notes or other
property are actually collected, sold, refinanced or otherwise
liquidated. Therefore, the distribution to investors of the cash
proceeds of a sale may be delayed until the notes or other property
are collected at maturity, sold, refinanced or otherwise converted to
cash. We may receive payments in the year of sale in an amount less
than the full sales price, and subsequent payments may be spread over
several years. The entire balance of the principal may be a balloon
payment due at maturity. For federal income tax purposes, unless we
elect otherwise, we will report the gain on such sale proportionately
under the installment method of accounting as principal payments are
received.
15
BORROWING & LENDING POLICIES
We will acquire all of our properties for cash: we will not use
any debt financing to acquire properties or refinance properties to
generate capital to acquire other properties. Our managers do not
expect that we will incur any indebtedness, although we may borrow to
finance the refurbishing of a property or for other operating cash
needs. The programs sponsored by affiliates of our managers have
rarely borrowed for such purposes and we therefore believe it is
unlikely that such borrowings will be incurred.
We will not obtain permanent financing from the managers or
their affiliates. Recourse for any indebtedness will be limited to
the particular property to which the indebtedness relates. To the
extent recourse is limited to a particular property such indebtedness
would, under most circumstances, increase the investors' tax basis in
the units. We will not issue any senior securities and will not
invest in junior mortgages, junior deeds of trust or similar
obligations. To the extent that any financing is not fully
amortizing, and it exceeds 25% of the original cost of properties,
its maturity (its due date) will not be earlier than ten years after
the date of purchase of the underlying property or two years after
the anticipated holding period of the property (provided such holding
period is at least seven years).
AEI Fund 26 will not underwrite securities of other issuers,
will not offer its securities in exchange for property and, except
with respect to the joint venture investments described below, will
not invest in the securities of other issuers for purposes of
acquiring control. We will not make any loans to our managers or
their affiliates.
JOINT VENTURE INVESTMENTS
We may purchase property jointly with other programs sponsored
by our managers or their affiliates. We will make these joint
ventured investments only with a program that has investment
objectives and management compensation provisions substantially the
same as those of AEI Fund 26. Our ability to enter into a joint
venture may be important if we wish to acquire an interest in a
specific property but do not have sufficient funds (or, at the time
we enter into a commitment to acquire a specified property, cannot
determine whether we will have sufficient funds) to acquire the
entire property.
In any joint venture with another fund sponsored by our managers
or their affiliates, the following conditions must be satisfied:
the joint venture must have comparable investment objectives and
the investment by each party to the joint venture must be on
substantially the same terms and conditions;
we will not pay more than once for the same services and will
not act indirectly through any such joint venture if we would be
prohibited from doing so directly;
the compensation of the managers and such affiliates in the
other fund must be substantially the same as their compensation in
AEI Fund 26; and
we must have a right of first refusal to purchase the other
party's interest if the other party to the joint venture wishes to
sell a property.
There is a potential risk of impasse on joint venture decisions
and a risk that, even though we will have the right of first refusal
to purchase the other party's interest in the joint venture, AEI Fund
26 may not have the resources to exercise such right.
DISTRIBUTIONS
We intend to make distributions to investors on a quarterly
basis commencing with the first calendar quarterly period after
proceeds are released from escrow. The distribution rate will vary
based upon the availability of the cash flow from operations or
proceeds of a sale, if any. During the early years of our operations,
cash flow will be derived from both the interest we earn on offering
16
proceeds and, as the proceeds are invested in properties, the rent
from those properties. Because we expect that the interest rate we
earn will be less than the rental rate, and because we do not intend
to use offering proceeds, or to incur indebtedness, to pay
distributions, we expect that distributions per unit will be lower
during the early years of operations.
We will not use net cash flow from operations to acquire
properties, although we may hold cash flow as reserves and may use
cash flow to repurchase units. We will distribute quarterly
substantially all of the cash flow we receive from operations that is
not needed for our operations or to fund reserves. To the extent
rental cash flow is interrupted by a tenant default or other factors,
or property management costs increase, distributions to investors may
fluctuate. We also intend to distribute, at the time we sell
properties, any net cash gain representing the difference between the
sale price and the purchase price of properties.
Distributions to investors who elect to participate in a
distribution reinvestment plan will be applied to the purchase of
additional units. You should read the section of this prospectus
entitled "Cash Distributions and Tax Allocations" for a more detailed
description of how our cash is allocated between the interest of our
managers and the interests of our investors.
RESERVES FOR OPERATING EXPENSES
Our managers expect that about 1/2% of the offering proceeds will
initially be reserved to meet operating costs and expenses. To the
extent that these reserves and any income are insufficient to defray
our costs and other obligations, it may be necessary to sell
properties, possibly on unfavorable terms. We may increase reserves
to meet anticipated costs and expenses or other economic
contingencies during the holding period of a property. Any excess
reserves may be distributed to investors if our managers determine
that such reserves are not necessary for operations.
MANAGEMENT OF PROPERTIES
Our managers or their affiliates will manage each property and
enforce the lease obligations of the tenants. The managers will:
negotiate disputes with tenants;
manage the re-letting and remodeling of properties;
receive and deposit monthly lease payments;
periodically verify payment of real estate taxes and insurance
coverage; and
periodically inspect properties and tenant sales records, where
applicable.
Because our properties will be net leased, the tenants will be
responsible for payment of the day-to-day on-site management, taxes,
insurance and maintenance expenses of our properties.
CHANGES IN INVESTMENT OBJECTIVES AND POLICIES
We will not make any material changes in the investment
objectives and policies described above without first obtaining the
written consent or approval of investors owning in the aggregate more
than 50% of outstanding units, excluding units held by the managers
and their affiliates.
17
THE PROPERTIES
We had not acquired any properties when this prospectus was
printed. Our managers are continually evaluating properties for
acquisition and engaging in negotiations with sellers, tenants and
developers regarding the potential purchase of properties. Our
managers intend to diversify the type and location of properties we
acquire consistent with the amount of proceeds available from this
offering,. We have not placed any limitations upon the amount or
percentage of assets that may be invested in any one property.
Although we intend to purchase two or more properties with the net
proceeds of this offering, we may purchase only a single property if,
in our manager's judgment, that would be in the best interest of AEI
Fund 26.
Our leases will provide that risks such as fitness for use or
purpose, design or condition, quality of material or workmanship,
latent or patent defects, compliance with specifications, location,
use, condition, quality, description or durability will be borne by
the lessee. As is customary in commercial property transactions, most
of our leases will provide for early termination upon the occurrence
of events such as casualty loss or substantial condemnation. Some of
our leases, particularly those for properties used in the sale of
retail goods or services, will require that, as the landlord, we will
bear the costs of maintaining the structural integrity of the
building, including the roof and foundation.
ACQUISITION CANDIDATES
Prior programs that were sponsored by our managers or their
affiliates have invested approximately 66% of their capital in food
service (restaurant) properties and 34% in retail types of
properties. Our managers believe that real estate used in the
restaurant and retail market segments is less susceptible to changes
in general economic conditions than other commercial real estate. We
therefore expect that AEI Fund 26 will purchase properties primarily
in these markets, although we may purchase free-standing net-leased
properties in other segments of the commercial real estate market.
Our managers will have authority to choose the properties we acquire
based on their judgment of the appropriate balance between the level
of income and gain a property is likely to generate and the level of
risk it represents.
18
THE RESTAURANT INDUSTRY
As illustrated by the following graphs, Americans are spending
increasing amounts of their total food expenditures at restaurants.
The National Restaurant Association anticipates that in 2005
Americans will spend 47 cents, while in 1970 they spent less then 35
cents, of every food dollar in restaurants.
[GRAPHS: Three graphs that depict the increase in consusmer
food dollars spent away from the home, chain restaurants'
sales growth, and number of chain restaurant units]
The sales at the top 100 national restaurant chains, and the
total restaurant outlets operated by these chains, have increased
consistent with this demographic trend. The chain restaurant industry
strives to provide convenient food service by opening new locations
that follow population expansion patterns. The third graph
illustrates how the top 100 restaurant chains increased their store
count during 2003 by 7,264 to a total of 182,203.
We believe that these national chains generally provide
consistent food services that have brand recognition and stability
relative to individual restaurant outlets and small chains.
Accordingly, we intend to focus our acquisitions within the
restaurant industry on these larger chains, but also will evaluate
newer restaurant concepts as they become established if our managers
believe they have substantial potential and meet our acquisition
criteria.
Prior programs sponsored by our managers or their affiliates
have acquired properties leased to brand-name national and regional
entities such as Applebee's, Champps, Arby's, TGI Friday's and Johnny
Carino's. The expansion of the restaurant industry, coupled with
demographic trends pointing to future growth, lead our managers to
believe that the restaurant segment of the real estate market will
continue to offer attractive investment opportunities for AEI Fund
26.
19
THE RETAIL INDUSTRY
[GRAPHS: Three graphs depicting spending in retail
establishments, leasable retail area in U.S. shopping
centers and number of U.S. shopping centers]
Our managers believe that free-standing commercial properties
net leased to national retailers have many of the same
characteristics as brand name restaurant properties. Like spending
in the food services industry, consumer retail spending continues to
grow and has encouraged growth in shopping centers, including stand-
alone retail centers, that follows demographic trends in population.
As illustrated by the graphs, the total leased space devoted to
retail shopping grew from almost 1.5 billion square feet in 1970 to
more than 5.8 billion square feet in 2003. The last graph depicts
the growth in the number of shopping centers in the United States
from 1970 to 2003. The U.S. now has 400% more shopping centers than
it did just 35 years ago.
Prior programs sponsored by our managers or their affiliates
have acquired free-standing commercial properties, many of them
located on out-parcels of shopping centers, leased to retail tenants
including: Best Buy electronic superstores, Jared's The Galleria of
Jewelry stores, Eckerd drug stores, CarMax automotive superstores
and Tractor Supply Company retail farm stores.
ACQUISITION CRITERIA
In determining whether a property may be a suitable acquisition,
our managers will consider the following factors, among others:
the creditworthiness of the lessee and the lease guarantor, if
any, and their ability to meet the lease obligations;
the terms of the proposed lease and guaranty, if any, including
any provisions relating to rent increases and the payment of
operating expenses by the tenants;
the location, condition, use and design of the property and its
suitability for a long-term net lease;
the demographics of the community in which a property is
located;
the prospects for long-term appreciation of the property; and
the prospects for long-range liquidity of the investment.
All property acquisition decisions made by our managers will
involve balancing these factors with the economic characteristics,
including rental return and purchase price of each property to
provide, in their judgment, the likelihood of a favorable return to
investors while minimizing risk of loss. In making these decisions,
our managers may give more weight to some of the forgoing factors
than others and the weight attributed to any one factor may not be
consistent among all properties acquired. Our success in achieving
our investment objectives will, to a substantial extent, be dependent
upon the considerable judgment exercised by our managers in making
these decisions.
20
PROPERTY UPDATES
If there is a reasonable probability that a property will be
acquired during the offering period, we will supplement this
prospectus to disclose important information about such property.
Based upon the experience and acquisition methods of our managers,
this will normally occur when a legally binding purchase agreement is
signed for a property, but may occur sooner or later depending upon
the circumstances involved.
Supplements to this prospectus will describe any property to be
acquired, the proposed terms of purchase, the financial results of
any prior operations of the property, if available, and other
information considered appropriate for an understanding of the
transaction. Upon termination of this offering, no further
supplements to this prospectus will be distributed, but we will
continue to provide investors with acquisition reports containing
substantially the same information regarding the properties acquired.
You should understand that you should not rely upon the initial
disclosure of a proposed acquisition as any assurance that we will
ultimately consummate the acquisition or that the information
provided concerning an acquisition will not change between the date
of this prospectus (or supplement) and the actual purchase date.
MANAGERS
FIDUCIARY RESPONSIBILITY
Our managers are accountable to us as fiduciaries and must
exercise good faith in handling our affairs. Our managers have
fiduciary responsibility for the safekeeping and use of all our
capital and assets, whether or not in the managers' possession or
control. Our managers are prohibited from employing, or allowing any
other person or entity to employ, our capital or assets in any manner
except for the exclusive benefit of our investors.
The managers will not be liable to us or our investors for acts
or omissions which may occur in the exercise of their judgment, as
long as their actions were made in the good faith belief that the
actions were in the interest of AEI Fund 26 and not the result of
negligence or misconduct. We will indemnify the managers for any
claim or liability arising out of their activities on behalf of AEI
Fund 26, unless the claim or liability was the result of negligence
or misconduct.
In the opinion of the SEC and the securities administrators of
most states, indemnification for liabilities arising under securities
laws is against public policy and therefore unenforceable. If a claim
for indemnification for liabilities under securities laws is asserted
by our managers in connection with registration of the units, after
apprising such court of the position of the SEC and state securities
administrators, we will submit to a court of appropriate jurisdiction
the question of whether indemnification by us is against public
policy and will be governed by the final adjudication of such issue.
MANAGEMENT
Our managers will have the sole and exclusive right, power and
responsibility to manage our business. Among other powers, and
subject to the restriction that financing not be obtained to acquire
properties, our managers will have authority to borrow funds to meet
our operating cash needs and to secure those borrowings with our
properties. Our managers will make all of the investment decisions,
including:
decisions relating to the properties to be acquired;
the method and timing of any refinancing of the properties;
the selection of tenants;
the terms of leases on the properties; and
the method and timing of the sale of our interest in properties.
21
Our managers will coordinate and manage all of our activities,
maintain our records and accounts, and arrange for the preparation
and filing of all our tax returns. Some of the administrative and
management functions to be performed by our managers may be delegated
to their affiliates, provided that any compensation paid to
affiliates of our managers is at cost. For these purposes, cost means
the actual expenses affiliates incur in providing services,
including:
the salaries, fees and expenses paid to employees and
consultants of our managers and their affiliates for work they
perform on our behalf; and
office rent, telephone, travel, employee benefit expenses and
other expenses attributable to providing those services.
Our managers allocate and charge us for a majority of these
expenses based upon the amount of time devoted by their employees to
our affairs as calculated in quarter-hour increments and recorded on
employee daily time records. They allocate some general expenses at
the end of each month based upon the number of our investors and our
capitalization relative to other programs that they manage.
BACKGROUND AND EXPERIENCE OF MANAGEMENT
AEI FUND MANAGEMENT XXI
AEI Fund Management XXI, our manager, is a Minnesota corporation
formed in 1994 to serve as a general partner of AEI Income & Growth
Fund XXI Limited Partnership, an affiliated limited partnership with
investment objectives and structure similar to AEI Fund 26. In
addition to AEI Income & Growth Fund XXI Limited Partnership, our
manager serves as the general partner or managing member of AEI
Income & Growth Fund XXII Limited Partnership, AEI Income & Growth
Fund 23 LLC, AEI Income & Growth Fund 24 LLC, and AEI Income & Growth
Fund 25 LLC, publicly syndicated real estate programs with structures
and objectives similar to AEI Fund 26.
The sole director of our manager is Robert P. Johnson, who also
serves as its President. Mr. Johnson is also the majority shareholder
of AEI Capital Corporation, the holding company for our manager. Each
of the officers of our manager also holds a position as an officer in
the corporations formed to serve as general partners of prior funds
sponsored by our managers and their affiliates. The officers and sole
director of our manager are as follows:
Name Age Position
Robert P. Johnson 61 Sole Director, Chief Executive Officer and
President
Patrick W. Keene 46 Chief Financial Officer, Treasurer and Secretary
[PICTURE: Robert P Johnson]
ROBERT P. JOHNSON, has been President, a director and the principal
stockholder of AEI Fund Management, a real estate management company
founded by him, since 1978. From 1970 to the present Mr. Johnson has
been employed exclusively in the investment industry, specializing in
real estate and other tax advantaged investments. In that capacity,
he has been involved in the development, analysis, marketing and
management of public and private investment programs investing in net
lease properties as well as public and private investment programs
investing in energy development.
Since 1971, Mr. Johnson has also been the President, a director
and a registered principal of AEI Securities, which is registered
with the Securities and Exchange Commission as a securities broker-
dealer, is a member of the National Association of Securities
Dealers, Inc. and is a member of the Security Investors Protection
Corporation (SIPC). Mr. Johnson is currently a general partner or
principal of the general partner of each of the limited partnerships
and a managing member of each of the limited liability companies set
forth under "Prior Performance." He is the President, the sole
director, and majority stockholder of AEI Capital Corporation, which
22
serves as the holding company for AEI Securities, our manager, and
the general partner or managing member of affiliated public and
private real estate programs.
[PICTURE: Patrick W Keene]
PATRICK W. KEENE, a CPA (inactive), is Chief Financial Officer,
Secretary and Treasurer of AEI Fund Management. He has been employed
by AEI Fund Management since 1986 and is responsible for all
accounting functions, including coordination of reports to the SEC
and investors. Prior to joining AEI Fund Management, he was with KPMG
Peat Marwick Certified Public Accountants, first as an auditor and
later as a tax manager. He is an equity owner of AEI Capital
Corporation.
SECURITY OWNERSHIP OF MANAGERS
Except for their interests as managing members of AEI Fund 26,
none of the managers, the affiliates of the managers, nor the
officers or directors of the managers, hold any units or other
interest in AEI Fund 26. Although it is not currently anticipated
that they will acquire units, the managers and their affiliates may
acquire units on the same terms as other investors. Units acquired by
the managers and their affiliates will not be considered in
determining whether the minimum number of units has been sold.
AEI FUND MANAGEMENT
Most of our management services will be provided on behalf of
our manager by AEI Fund Management, a Minnesota corporation having
the same officers as our manager. AEI Fund Management is a program
management company that provides services to the real estate programs
that are described under the caption "Prior Performance" below.
In addition to Mr. Johnson and Mr. Keene, AEI Fund Management
employs the following administrative management personnel:
[PICTURE: Richard J Vitale]
RICHARD J. VITALE, 38, a Chartered Financial Analyst, is Executive
Vice President of AEI Fund Management. He joined the company in 1992
and is responsible for general strategic corporate initiatives and
organization and management of the selling groups and corporate
market planning. He also serves as an assistant to the President.
Prior to joining the company, he was with Burlington Northern
Railroad in Ft. Worth, Texas, where he served as Corporate Treasury
Analyst. He is an equity owner of AEI Capital Corporation.
[PICTURE: Rona L Newtson]
RONA L. NEWTSON, 47, Senior Vice President of Operations of AEI Fund
Management is also a General Securities Principal and Chief
Compliance Officer of AEI Securities. She joined AEI Fund Management
in 1993 and is responsible for managing general operations and
securities compliance requirements of affiliate companies and
investment funds. Prior to joining the company, she was employed in a
similar capacity with Heartland Realty Investors, Inc. in
Minneapolis, Minnesota. She is an equity owner of AEI Capital
Corporation.
[PICTURE: George J Rerat]
GEORGE J. RERAT, 41, is the Vice President of Acquisitions of AEI
Fund Management. He joined the company in 2001 and is responsible for
developing and maintaining relationships with corporate sources of
sale leaseback financing opportunities and the negotiation of
acquisitions from those sources, as well as from commercial real
estate brokers and developers. He worked for a number of years in the
REIT industry prior to joining AEI.
23
[PICTURE: Michael B Daugherty]
MICHAEL B. DAUGHERTY, Esq., 47, is special real estate counsel to the
company and its affiliates. He has been representing the company
since 1987 and provides independent counsel to the acquisitions,
lease management, property disposition and 1031 exchange departments
in the evaluation, due diligence and contractual aspects of property
transactions.
AEI Fund Management employs approximately 34 persons, four of
whom are engaged primarily in property acquisitions, two in property
management, four in property sales, seven in accounting and financial
reporting, ten in investor and dealer support services and seven in
general administrative services. Management services from AEI Fund
Management will be billed to us directly.
The sponsors are using AEI Fund Management XXI as our managing
member, rather than AEI Fund Management, which provides most of our
services, because AEI Fund Management XXI is an S corporation that
produces more efficient tax consequences and because the sponsors
believe it is advantageous to AEI Fund 26 to be able to change the
entity that provides our services without resorting to the mechanisms
in our operating agreement necessary to replace a managing member.
Our managing member may not withdraw from its position as a
manager without providing investors, as limited members, at least 90
days written notice and providing a substitute managing member who is
approved by vote of a majority of the units outstanding, excluding
units held by the managing member and affiliates. Our special
managing member may not withdraw during the first 24 months of our
operations. Our operating agreement provides that either manager may
be removed as a manager if a court determines that:
the manager was grossly negligent in performing its obligations
under our operating agreement;
the manager committed fraud against our investors or AEI Fund
26;
the manager committed a felony in connection with management of
AEI Fund 26;
the manager was in material breach of its obligations under our
operating agreement; or
the manager is bankrupt.
Our operating agreement also allows investors to remove and
replace either of our managers by vote of the holders of a majority
of the units, excluding units held by the manager.
24
PRIOR PERFORMANCE
During the past 30 years, Mr. Johnson and affiliates have
syndicated 15 public and 15 private net lease property investment
programs in the United States. Detailed information regarding many
of these programs is contained in the prior performance tables
attached as Exhibit B to this prospectus.
Since 1984, Mr. Johnson and affiliates have formed and
syndicated 15 public real estate programs that have purchased, for
cash, single-tenant properties under long-term net leases. With the
exception of size and the ability to use mortgage indebtedness for
the acquisition of properties, all of these programs are similar to
AEI Fund 26. Mr. Johnson and affiliates have sponsored the following
public programs in which approximately 16,000 investors purchased
interests for a total investment of $262,961,267:
Fund Name Month Capital
Offering Raised
Completed
AEI Income & Growth Fund 25 LLC May 2005 $42,539,763
AEI Income & Growth Fund 24 LLC May 2003 $24,831,283
AEI Income & Growth Fund 23 LLC March 2001 $13,349,321
AEI Income & Growth Fund XXII January 1999 $16,917,222
Limited Partnership
AEI Income & Growth Fund XXI January 1997 $24,000,000
Limited Partnership
AEI Net Lease Income & Growth Fund XX January 1995 $24,000,000
Limited Partnership
AEI Net Lease Income & Growth Fund XIX February 1993 $21,151,928
Limited Partnership
AEI Real Estate Fund XVIII December 1990 $22,783,050
Limited Partnership
AEI Real Estate Fund XVII November 1988 $23,388,700
Limited Partnership
AEI Real Estate Fund XVI November 1987 $15,000,000
Limited Partnership
AEI Real Estate Fund XV December 1986 $ 7,500,000
Limited Partnership
AEI Real Estate Fund 86-A Limited July 1986 $ 7,500,000
Limited Partnership
AEI Real Estate Fund 85-B February 1986 $ 7,500,000
Limited Partnership
AEI Real Estate Fund 85-A June 1985 $ 7,500,000
Limited Partnership
Net Lease Income & Growth Fund December 1984 $ 5,000,000
84-A Limited Partnership
The properties purchased by all of these programs were single-
tenant, net leased commercial properties. At December 31, 2004, these
programs had purchased or contracted to purchase 214 properties
located in 34 states for approximately $335,000,000. Of these
properties, 94 were in Southern states, 82 were in Midwest states, 28
were in Western states and 10 were in Northeast states. By cost
approximately 66% were restaurants and 34% were retail properties. By
cost approximately 73% were new or recently constructed properties
and 27% were existing properties.
25
At December 31, 2004, these programs had sold 100 entire
properties and had completed 433 partial tenant-in-common sales,
involving an additional 54 properties. The programs received net sale
proceeds of approximately $215,400,000 and realized an average cash
gain on sale of 10.9% representing net sale proceeds minus the
original cost of the properties divided by the original cost of the
properties. Net sale proceeds represents gross sale proceeds reduced
by all sale expenses, including expenses paid to our managers and
affiliates. This calculation does not include any rental income
generated by the properties or any operating expense required by the
properties, nor does it reflect general expenses of the programs or
the participation in proceeds of the general partners or managers of
the programs. Accordingly, it is not necessarily indicative of
return to investors. The weighted average holding period for these
properties was 6.3 years (weighted based on the original cost of the
properties). These results represent past performance, which is no
guarantee of future results.
[GRAPHIC: Map of United States showing states where AEI funds
own properties]
Upon request, for no fee, the managers will provide any
potential investor with a copy of the most recent Annual Report on
Form 10-KSB as filed with the Securities and Exchange Commission for
any of these programs and, upon payment of reasonable fees to cover
postage and handling, a copy of any of the exhibits to such Form 10-
KSB. These annual reports are also available at the SEC's web site at
www.sec.gov.
During the three years ended December 31, 2004, affiliated
public programs that were still operating acquired a total of 42
properties, including 26 restaurants and 16 retail properties. All of
these properties were acquired for cash, without assumed or
additional indebtedness. Of these properties, 16 were in Southern
states, 14 were in Midwest states, 6 were in Western states and 6
were in Northeastern states. We have included more detailed
information about these properties in tables that are in Part II of
the registration statement that we have filed with the SEC and will
provide those tables to you, without charge, upon request. Investors
in AEI Fund 26 will not own any interest in any prior real estate
program and should not assume that they will see returns, if any,
comparable to those experienced in the prior real estate programs.
26
Of the fifteen private programs formed and syndicated by Mr.
Johnson and affiliates, ten were formed more than 20 years ago to
purchase specified properties using leverage and their operations are
not comparable to the proposed operations of AEI Fund 26. Mr. Johnson
and affiliates have formed and syndicated five private real estate
programs during the past ten years that have purchased, for cash,
single-tenant properties under long-term net leases. With the
exception of size, holding period objectives and the ability to use
mortgage indebtedness for the acquisition of properties, all of these
programs are similar to AEI Fund 26. As of May 31, 2005,
approximately 700 investors purchased interests in the private
programs listed below for a total investment of $74,711,477.
Fund Name Month Capital
Offering Raised
Completed
AEI Accredited Investor Fund V LP Open $ 5,299,185
AEI Accredited Investor Fund 2002 August 2004 $47,892,866
Limited Partnership
AEI Private Net Lease Millennium Fund June 2002 $14,680,036
Limited Partnership
AEI Private Net Lease Fund 1998 November 1999 $ 5,441,303
Limited Partnership
AEI Institutional Net Lease Fund '93 December 1998 $ 1,398,087
The properties purchased by all of these private programs were
single-tenant, net leased commercial properties. At December 31,
2004, these programs had purchased or contracted to purchase 41
properties located in 20 states for approximately $63,700,000. Of
these properties, 16 were in Southern states, 15 were in Midwest
states, 6 were in Western states and 4 were in Northeast states. By
cost approximately 55% were restaurants, 31% were retail properties
and 14% were childcare centers. By cost approximately 59% were new or
recently constructed properties and 41% were existing properties.
At December 31, 2004, these private programs had sold 3 entire
properties and had completed 83 partial tenant-in-common sales,
involving an additional 17 properties. The programs received net sale
proceeds of approximately $23,600,000 and realized an average cash
gain on sale of 25.1% representing net sale proceeds minus the
original cost of the properties divided by the original cost of the
properties. Net sale proceeds represents gross sale proceeds reduced
by all sale expenses, including expenses paid to our managers and
affiliates. This calculation does not include any rental income
generated by the properties or any operating expense required by the
properties, nor does it reflect general expenses of the programs or
the participation in proceeds of the general partners or managers of
the programs. Accordingly, it is not necessarily indicative of
return to investors. The weighted average holding period for these
properties was 1.4 years (weighted based on the original cost of the
properties). These results represent past performance, which is no
guarantee of future results.
The programs sponsored by our managers and affiliates have owned
some properties leased to tenants that failed to fully perform under
the terms of their leases, including the timely payment of rent. When
a tenant defaults on its lease obligations, the managers take such
action as they deem prudent in commercial lease transactions. Such
actions may include termination of lease, after which the property
may be re-let to a new tenant or sold. If tenants fail to meet their
lease obligations, rental payments will likely be interrupted.
Although any such interruption may cause a decrease in distributions
of cash flow for a period of time, the programs have diversified
their acquisitions to reduce this risk. Because of this, no default,
or series of defaults, has caused a public program sponsored by our
managers to miss a quarterly cash distribution to investors or to
have inadequate cash to fund operations. It is a continuing objective
of our managers to minimize tenant defaults through careful property
evaluation of the creditworthiness of tenants and by renegotiating
leases or locating new tenants with the intent of minimizing any
interruption of rents. More detailed information about these
properties is included in Exhibit B to this prospectus.
27
COMPENSATION TO MANAGERS AND AFFILIATES
AEI Fund Management XXI and AEI Fund Management will provide
nearly all of the operational services we require and will be
compensated accordingly. AEI Securities will coordinate the sale of
units and will receive commissions and a nonaccountable expense
allowance, most of which will be paid or "re-allowed" to other broker-
dealers that solicit subscriptions for the program. AEI Fund
Management will provide administrative services and we will reimburse
AEI Fund Management for all of its expenses in furnishing services at
its "cost," including a portion of its general expenses directly
related to the furnishing of these services. AEI Fund Management XXI
will receive an organization fee to compensate it for organizing AEI
Fund 26 and for the risk it incurs in paying the expenses of AEI Fund
26 before escrowed funds can be released. In addition, AEI Fund
Management XXI and Robert P. Johnson, as our managing members, will
receive an interest in net cash flow and net proceeds from sale of
properties. Robert P. Johnson, the individual manager, is the
President, CEO and director of AEI Fund Management XXI, AEI Fund
Management and AEI Securities. Mr. Johnson is also the sole
shareholder of AEI Fund Management and the majority shareholder of
AEI Capital Corporation, which is the sole shareholder of AEI Fund
Management XXI and AEI Securities.
The following table describes the forms of compensation,
distributions and cost reimbursements that we will, or may, pay to
AEI Fund Management XXI, AEI Fund Management and AEI Securities for
their services in connection with our organization, operation and
liquidation, assuming the minimum 150,000 units and the maximum
10,000,000 units are sold. The following arrangements were formulated
by our managers and are not the result of arm's-length negotiations.
PERSON OR ENTITY FORM AND METHOD OF ESTIMATED DOLLAR AMOUNT
RECEIVING COMPENSATION
COMPENSATION
OFFERING STAGE
AEI Securities Selling commissions of $10,100,000 maximum and
6.5% of proceeds, all $157,500 minimum, all but
of which will be reallowed approximately $3,500,000
to participating dealers, (maximum) and $52,500
a nonaccountable expense (minimum) of which is
allowance of 3.5% of expected to be reallowed.
proceeds, which will be
used to cover wholesaling
and other marketing costs
of the dealer manager and a
portion of which may be
reallowed to participating
dealers, and up to a 1/2% due
diligence allowance, all of
which will be reallowed to
participating dealers.
Managers and Reimbursement for Estimated $2,700,000
Affiliates other organization and maximum and $67,500
offering expenses (1), minimum, but subject to
plus a 1.5% organizational limitation (2).
fee, but only to the extent
total commissions and
offering expenses do not
exceed 5.0%.
PROPERTY ACQUISITION STAGE
Managers and Reimbursement at cost for Estimated $1,550,000
Affiliates all acquisition expenses maximum and $25,500
(3). minimum, but subject to
the limitation (3).
OPERATING STAGE
Managers Three percent (3%) of net Not presently
cash flow. determinable.
Managers and Reimbursement at cost for Estimated $1,000,000
Affiliates all administrative maximum and $50,000
expenses, including all minimum. The cumulative
expenses related to amount of such expense
management and disposition reimbursements for
of properties and all other general overhead of the
transfer agency, reporting, managers and affiliates,
investor relations and and for controlling
other administrative person expenses, together
functions (4). with front-end fees and
sales expenses, are
subject to limitation
(4).
28
PROPERTY SALE OR FINANCING STAGE
Managers 1% of distributions of net Not presently
proceeds of sale until determinable.
investors have received an
amount equal to (a) their
"adjusted capital
contributions," plus (b) an
amount equal to 6.5% of
their adjusted capital
contributions per annum,
cumulative but not
compounded, to the extent
not previously distributed.
10% of distributions of net
proceeds of sale
thereafter.
1. Includes federal and state securities registration fees, fees of
counsel, accountant's fees, printing expenses, and other out-of-
pocket expenses paid to non-affiliates.
2. To the extent organization and offering expenses, including
payments to AEI Securities and third parties, when added to
acquisition expenses exceed 20% of the capital contributions, they
will be borne by the managers.
3. Acquisition expenses include amounts paid for legal fees, travel
and communication, appraisal costs, accounting fees, title
expenses and other expenses in acquiring properties. These
expenses will be paid at "cost," which includes the time spent by
the manager's employees in performing these services.
4. Subject to the limitations set forth in Section 6.2b of the
operating agreement, we will reimburse our managers and their
affiliates at cost for administrative expenses in managing all our
operations. These expenses include costs they incur in providing
services for the acquisition, leasing and operation of our
properties, including:
the salaries, fees and expenses paid to employees and
consultants of our managers and their affiliates for work they
perform on our behalf; and
office rent, telephone, travel, employee benefit expenses and
other expenses attributable to providing such services.
Our managers allocate and charge us for a majority of these
expenses based upon the number of quarter-hour increments devoted by
their employees to our affairs, as recorded on employee daily time
records. They allocate some expenses at the end of each month based
upon the number of our investors and our capitalization as compared
to other programs that they manage. Our managers have committed that
they will not obtain expense reimbursements for general overhead and
for controlling person expense to the extent the reimbursements
exceed, together with Front-End Fees and sales expenses, the sum of
20% of capital contributions, 1% of revenues from properties, plus 3%
of revenues for the first five years of each lease, a 3% sales
commission, and 7% of net cash flow.
We will not pay real estate commissions to our managers or their
affiliates for the purchase or sale of any of our properties. We
will, however, compensate our managers and their affiliates at their
cost, subject to the limitations set forth in the preceding table and
in Section 6.2 of our operating agreement, for all expenses they
incur in connection with the purchase and sale of properties. These
expenses may include bonus compensation to non-controlling employees.
We will not pay acquisition fees to our managers. Further, we will
not compensate our managers or their affiliates for services not
described in the table above and will not allow the managers to
receive any rebates or engage in reciprocal business arrangements
through AEI Fund 26.
CONFLICTS OF INTEREST
AEI Fund 26 will not have any employees, but will, instead, be
dependent upon its managers, and particularly on AEI Fund Management,
an affiliate of its managers, for most of the services required for
its operations. Robert P. Johnson, our special managing member, is
also the President, CEO, and director of our managing member, AEI
Fund Management and AEI Securities, the dealer manager, is the sole
29
shareholder of AEI Fund Management and is the majority shareholder of
AEI Capital Corporation, which is the sole shareholder of AEI Fund
Management XXI and AEI Securities. Our investors will not have any
interest in any of these entities and will not be in a position to
control their activities. The interlocking interests of our managers
and affiliated entities create a number of conflicts of interest,
including the following:
LACK OF ARM'S-LENGTH NEGOTIATIONS WITH MANAGEMENT
Our managers will receive substantial reimbursements for the
cost of providing services to AEI Fund 26 and may realize income from
AEI Fund 26 during our operations and upon our liquidation. Our
agreements and arrangements with the managers and with their
affiliates, including those relating to compensation, were not
negotiated at arm's-length. Although the aggregate amount of
reimbursements our managers may receive is limited by our operating
agreement, the amount of services that our managers provide, and
therefore the amount of reimbursement they receive within these
limits, will be determined in the first instance by our managers. Our
managers believe that payment for services based upon actual
reimbursement of costs allows AEI Fund 26 to operate with lower
overall administrative expense than would occur if they were
reimbursed based upon the fixed fees represented by the limits placed
in the operating agreement. Further, and consistent with their
fiduciary obligations, the managers believe that their interest in
cash flow provides an incentive not to overcharge AEI Fund 26, and
the managers intend to make decisions regarding allocation of
services in the best interest of AEI Fund 26.
The interests of our managers and our investors with respect to
the timing and price of any sale of our properties may also conflict
because a significant portion of our managers' compensation will not
be payable until the sale of properties. Nevertheless, our managers
believe their inability to share substantially in sale proceeds
unless there is significant appreciation in the value of the
properties provides an incentive to maximize proceeds both to the
managers and the investors.
OTHER REAL ESTATE ACTIVITIES OF MANAGERS
Our managers and their affiliates are actively engaged in the
commercial real estate business as general partners or managing
members in eleven other operating publicly syndicated, and four
privately placed programs. Mr. Johnson also intends to offer
additional real estate programs in the future through companies with
which he is affiliated. We will not have independent management but
will rely upon our managers and their affiliates for our operations.
Our managers will devote only so much of their time to our business
as, in their judgment, is reasonably required and are not required to
devote any minimum amount of time to our operations. We anticipate
that, although Mr. Johnson may devote up to 30% of his time to our
business while we are offering units and acquiring property, he may
devote less than 10% of his overall work time after properties are
acquired. The allocation by our managers of their time, services and
functions among current programs and future programs they might
sponsor, as well as other business ventures in which they may be
involved, may create conflicts of interest. Our managers believe that
they have, or can retain directly or through affiliates, sufficient
staff to be fully capable of discharging their responsibilities to
all programs with which they are affiliated.
COMPETITION WITH MANAGERS AND OTHER AFFILIATED PROGRAMS FOR PURCHASE
AND SALE OF PROPERTIES
Our managers and their affiliates may engage in other business
ventures, including forming and sponsoring other public or private
programs, and neither AEI Fund 26 nor any of our investors will be
entitled to any interest in those programs.
30
It is possible that we will periodically have money available to
acquire additional properties at the same time as other programs
sponsored by our managers or their affiliates. If this happens,
conflicts of interest will arise as to which program should acquire a
particular property. Our managers will review the investment
portfolio of each program and will make a decision as to which
program will acquire the property on the basis of several factors,
including:
the cash flow requirements of each program;
the degree of diversification of each program;
the estimated income tax effects of the purchase on each
program;
the amount of funds available to each program; and
the length of time such funds have been available for
investment.
If funds are available in two or more programs to purchase the
same property, and the factors enumerated above have been evaluated
and deemed equally applicable to each program, the property will be
acquired by the program that first reached its minimum investment
level. Any other conflicts will be resolved by our managers in their
sole discretion.
Conflicts of interest may arise when we attempt to sell or rent
our properties. Our managers may sell less than a 100% interest in a
property and we may then own a fractional interest in that property.
Our managers may be forced to choose between selling a property we
hold and a property held by the manager or by an affiliated program.
Such conflicts will be resolved by our managers, in their sole
discretion, after consideration of the investment objectives of the
program holding the property and the length of time until the planned
final disposition of properties. Our managers may allow the sale of a
fractional interest they hold or that is held by an affiliated
program prior to the sale of an interest we hold. We cannot assure
you that the terms of sale of fractional interests in a property sold
at different times will be the same.
POSSIBLE JOINT INVESTMENT WITH AFFILIATED PROGRAMS
We may invest in property jointly with another program sponsored
by our managers or their affiliates under the conditions described in
"Investment Objectives and Policies-Joint Venture Investments."
Although we may make these joint investments only with another
program with similar investment objectives and compensation
structure, the programs may have different objectives with respect to
the timing of disposition of the properties or the level of short-
term, versus long-term income from the properties. The same personnel
from our managers and their affiliates will make all of the decisions
for the joint investment and may have conflicting duties to act for
the benefit of AEI Fund 26 and for the other program that is party to
the joint investment. In such a situation, conflicts of interest
could arise between the joint venture partners.
MANAGER'S REPRESENTATION OF FUND IN AUDIT PROCEEDINGS
Our managing member will act as the "tax matters partner"
pursuant to Section 6231 of the Internal Revenue Code. This grants
our manager discretion and authority regarding extensions of time for
assessment of additional tax against the investors related to our
income, deductions or credits and for settlement or litigation of
controversies involving such items. The positions taken by the
manager on tax matters may have differing effects on the managers and
our investors. It is possible that in some disputes the interests of
our managers will actually be adverse to the interests of our
investors. Any decisions made by our managers with respect to these
matters will be made in good faith consistent with its fiduciary
duties to us and our investors. Our managing member, to the extent
its actions as tax matters partner are in good faith and reasonably
intended to be in our best interests and subject to the
indemnification and exculpation language contained in our operating
agreement, may be entitled to indemnity for liability incurred as a
result of their actions on tax matters.
LACK OF SEPARATE REPRESENTATION
Our managers and our investors are not represented by separate
counsel. Our managers' counsel will provide services to the managers
relating to AEI Fund 26. The attorneys and accountants who perform
services on behalf of the managers also perform services for AEI
Securities and other affiliates of the managers. Without independent
legal representation, you might not receive legal advice regarding
31
matters that might be in your interest but contrary to the interest
of our managers and their affiliates. Should a dispute arise between
AEI Fund 26 and our managers or their affiliates - or should
negotiations or agreements between AEI Fund 26 and our managers,
other than those existing or contemplated on the effective date of
this prospectus, be necessary - our managers will cause AEI Fund 26
to retain separate counsel. Any future agreement between AEI Fund 26
and the managers or their affiliates will provide that it may be
terminated at the option of AEI Fund 26 upon 60 days' notice without
penalty to AEI Fund 26.
AFFILIATION OF SELLING AGENT
AEI Securities, an affiliate of our managers, is serving as
"Dealer Manager" for the offering of units. Normally, the dealer
manager or underwriter of securities would perform an arms-length
investigation of an issuer of securities to make certain that the
offering and related documents are accurate and complete. In our
case, the "due diligence" investigation customarily performed by an
underwriter is being performed by an affiliate of the managers. AEI
Securities believes, however, that such due diligence has, in fact,
been exercised. Moreover, under Rule 2810(b)(2) of the NASD Conduct
Rules, each investment firm that sells units has an obligation to
make an appropriate independent inquiry about the offering.
EXPENSE REIMBURSEMENTS
Our managers and their affiliates are reimbursed at their cost
for the services they perform upon our behalf. The aggregate cost of
such reimbursements can total as much as the fees and increased
interest in net cash flow the managers are allowed to be paid under
applicable state regulation.
CASH DISTRIBUTIONS AND TAX ALLOCATIONS
CASH DISTRIBUTIONS
Our managers intend to make distributions of available net cash
flow, if any, within 30 days after the end of each calendar quarter.
Our objective is to acquire net leased properties that will generate
partially tax deferred cash distributions that result from the
depreciation deductions that the properties will generate. Any net
cash flow from operations for each fiscal year will be distributed
97% to investors and 3% to our managers.
When we sell, refinance, or otherwise dispose of any of our
properties, we are allowed to reinvest the net proceeds from the sale
or refinancing in other properties. If we do not reinvest, we will
distribute the net proceeds from the sale or refinance as follows:
first, 99% to the investors and 1% to the managers until the
investors have received an amount from net sales proceeds equal to
the total of their capital contributions (adjusted for previous
distributions from sale) plus an amount equal to a 6.5% per annum
return on their adjusted capital contributions, cumulative but not
compounded, to the extent the 6.5% return has not been previously
distributed to them from sales proceeds or cash flow; and
any remaining balance will be distributed 90% to the investors
and 10% to the managers.
The 1% unsubordinated interest in net proceeds of sale received
by our managers for a $1,000 capital contribution is not
proportionate to the interest that would be received by an investor
with the same capital contribution.
TAX ALLOCATIONS
For income tax purposes, we will allocate all income, profits,
gains and losses for each fiscal year, other than any gain or loss
realized upon the sale, exchange or other disposition of any
property, as follows:
net loss will be allocated 99% to the investors and 1% to the
managers so long as the investors have positive balances in their
capital accounts. If their capital accounts are reduced to zero, all
losses will be allocated to the managers; and
net income will be allocated 97% to the investors and 3% to the
managers.
32
For income tax purposes, the gain realized upon the sale,
exchange or other disposition of any property will be allocated as
follows:
first, to and among the investors in an amount equal to the
negative balances in their respective capital accounts (pro rata
based upon the relative amounts of such negative balances);
then, 99% to the investors and 1% to the managers until the
balance in each investor's capital account equals the sum of such
investor's Adjusted Capital Contribution plus an amount equal to a
6.5% per annum return on such investor's Adjusted Capital
Contribution, cumulative but not compounded, to the extent not
previously distributed; and
the balance of any remaining gain will then be allocated 90% to
the investors and 10% to the managers.
For income tax purposes, any loss on the sale, exchange or other
disposition of any property shall be allocated 99% to the investors
and 1% to the managers.
FEDERAL INCOME TAX CONSIDERATIONS
The following summary of material U.S. federal income tax
considerations is based upon current law, which is subject to change
(including retroactive changes) or to possible differing
interpretations. It is not intended as a complete analysis of all
potential federal income tax considerations relating to your
purchase, ownership and disposition of units, and does not address
all aspects of taxation that may be relevant to you in light of your
individual circumstances. This summary specifically does not address
the effect of any foreign, state or local tax laws. Unless otherwise
expressly indicated, this summary applies only to investors who are
individuals who are citizens or residents of the United States and is
not addressed to corporate investors or to certain other types of
investors subject to special treatment under federal income tax laws
(such as persons not citizens or residents of the United States, tax-
exempt entities, partnerships or other pass-through entities, dealers
in securities, or dealers in commodities).
Dorsey & Whitney LLP has rendered an opinion to our manager that
the discussions set forth in this section and under the heading "Risk
Factors - Federal Income Tax Risks" correctly summarize the material
federal income tax considerations as of the date of this prospectus
to potential investors of the purchase, ownership and disposition of
units in AEI Fund 26. You should be aware, however, that the opinion
of Dorsey & Whitney LLP is subject to the qualifications and
assumptions set forth in the opinion and in this prospectus, is based
upon facts described in this prospectus, relies upon certain
certifications of our manager and is based upon current legislative,
judicial and administrative interpretations of existing federal
income tax law. In addition, the opinion represents counsel's legal
judgment and is not binding upon the Internal Revenue Service or the
courts.
We urge you to consult your own tax advisor regarding the
federal, state, local and foreign tax consequences to you of the
purchase, ownership and disposition of units in light of your
individual tax circumstances.
TAX STATUS OF AEI FUND 26
AEI Fund 26 will be treated as a partnership for federal income
tax purposes. Partnerships that are classified as "publicly traded
partnerships" are treated as corporations for federal income tax
purposes. AEI Fund 26 should not be classified as a publicly traded
partnership either because its units are not and, under the terms of
the operating agreement cannot be, traded on an established
securities market, on a secondary market or on the substantial
equivalent of a secondary market, or because it meets another
exception to the publicly traded partnership rules.
TAXATION OF PROFITS AND LOSSES OF AEI FUND 26
You must report on your income tax return your allocable share
of our income, gains, losses, and deductions for each taxable year,
even if we do not make any cash distributions to you. On your return,
you either must report items we allocate to you consistently with the
treatment on our information return or must identify and explain any
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inconsistency to the Internal Revenue Service. Your allocable share
of such items will be determined under the terms of our operating
agreement that are summarized under "Cash Distributions and Tax
Allocations-Tax Allocations." The allocations under our operating
agreement should be given effect for federal income tax purposes in
determining how our income, gains, losses, deductions, and credits
will be allocated among investors.
LIMITATIONS ON DEDUCTIBILITY OF LOSSES
Your ability to deduct losses allocated to you by AEI Fund 26 is
limited by several rules. You may deduct losses only to the extent of
your adjusted tax basis in your units. Your adjusted tax basis in
your units generally equals the amount that you paid for the units
increased by income or gains allocated to you with respect to the
units and decreased (but not below zero) by distributions, deductions
and losses allocated to you with respect to the units.
You may only deduct losses to the extent of your "at-risk"
amount, which is calculated in a manner that is similar to the
calculation of your adjusted tax basis, except that the "at risk"
amount does not include any amount borrowed on a non-recourse basis
by AEI Fund 26 or from someone with an interest in AEI Fund 26.
You may deduct capital losses only to the extent of your short-
term or long-term capital gains for the year, plus $3,000. You may,
therefore, not be able to deduct all of the losses allocated to you
in the year in which those losses are allocated. You generally may
not carry back capital losses to offset gains in prior years. Capital
losses that you cannot deduct in any year are carried over
indefinitely to future years.
PASSIVE -ACTIVITY LOSS RULES AND THEIR EFFECT ON THE TREATMENT OF
INCOME AND LOSS
Our manager expects that most of the income or losses allocated
to you by AEI Fund 26 will constitute income or losses from passive
activities. You may generally deduct losses from passive activities
only to the extent of your income from passive activities. Passive
activity losses that are not allowed in any taxable year are
suspended and carried forward indefinitely and allowed in subsequent
years as an offset against passive activity income in future years.
Suspended losses generated by AEI Fund 26, if any, will become
deductible in full upon the liquidation of AEI Fund 26 or when an
investor disposes of all of its units in a fully taxable transaction.
We may earn income on the investment of the proceeds of this
offering before we purchase properties or from other working capital
investments. That income will be treated as portfolio income, which
cannot be offset with losses from passive activities, including our
rental activities.
Recently enacted rules also may place limits on losses generated
by any tax-exempt use property held by AEI Fund 26. A portion of the
properties owned by AEI Fund 26 may be treated as tax-exempt use
property if tax-exempt entities invest in the fund. Under these
rules, losses generated by a particular tax-exempt use property may
be used only to offset income and gain generated by that same
property. Losses that are disallowed in one tax year under these
rules will be carried over and may be used to offset income and gain
generated from that property in future years. These rules may also
limit the ability of an investor to offset passive losses from other
sources against income from AEI Fund 26 if those losses arise from
tax exempt use property placed into service after March 12, 2004.
The rules would generally not limit the ability of an investor to
offset net income from Fund 26 with passive losses from other
investments that are not generated by tax exempt use property.
DEPRECIATION
We will depreciate our properties for tax purposes as required
by the Internal Revenue Code. Nearly all of our properties will be
depreciated over 39- or 40-year recovery periods, using the straight-
line method. Our depreciation deductions will reduce our taxable
income, and will reduce our adjusted basis in the properties, which
will increase the potential gain (or decrease the potential loss)
recognized upon the sale of the properties. We expect to depreciate a
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small portion of the properties we purchase, attributable to
equipment and land improvements, over a period of 5 to 15 years.
LEASES
For some situations, the Internal Revenue Service has taken the
position that certain lease transactions should be treated as
financing transactions rather than as true leases. We intend to
structure all of our lease transactions, including any sale-leaseback
transactions, so that our leases will be characterized as "true
leases" and we will be treated as the owner of the properties in
question for federal income tax purposes. We will not seek an advance
ruling from the Internal Revenue Service or obtain an opinion of
counsel regarding this characterization, however, and a determination
by the Internal Revenue Service to the contrary could result in
substantial adverse tax consequences to investors. For example,
investors could be deprived of deductions for depreciation and cost
recovery, and income derived from lease transactions in which we are
not treated as the owner of the leased properties would not be
passive activity income that could potentially be offset by passive
activity losses that we generate or that result from your investments
in other passive activities.
In addition, tax rules may require us to accrue a constant
amount of rental income from certain lease agreements into which we
may enter despite changes in rental rates or may require recapture on
the disposition of the properties subject to the lease agreements. If
we enter into such a lease agreement, we could be required to
recognize more income in a year than we actually receive in that
year.
ORGANIZATIONAL AND SYNDICATION COSTS AND OTHER EXPENSES
Expenses incurred in connection with either organizing AEI Fund
26 or syndicating interests in AEI Fund 26 are generally not
currently deductible, with the exception that we may elect to deduct
$5,000 of organizational expenses. The $5,000 limit will be reduced
if our total organizational expenses exceed $50,000. Organizational
expenses in excess of the deductible amount may be amortized and
deducted ratably over 180 months. Syndication expenses are neither
deductible nor amortizable and include costs and expenses incurred in
connection with promoting and marketing the units. The Internal
Revenue Service may attempt to recharacterize certain costs and
expenses which our manager intends to deduct or amortize as
nondeductible syndication expenses.
Our manager will allocate our expenses between those that are
paid for ordinary and necessary business expenses, which are
currently deductible, and those that must be added to the purchase
price of our properties, which must be amortized and deducted over
time. The Internal Revenue Service may challenge these allocations.
DISTRIBUTIONS
As indicated above, you will be required to report on your
income tax return your share of our income and gains, even if we do
not make any distributions of cash to you. You will not also be
taxed on distributions or partial redemption payments unless the
aggregate amount you receive exceeds your adjusted tax basis in all
of your units. If you receive distributions in excess of your
adjusted tax basis, you will recognize gain equal to the excess.
Tax rules do not permit recognition of a loss upon a partial
redemption of your units. If you receive a cash payment in complete
redemption of all of your units, you will recognize gain or loss for
federal income tax purposes equal to the difference between the
amount of cash you receive and your adjusted tax basis in your units.
The gain or loss will be characterized as long-term or short-term
capital gain or loss depending upon whether you held the units for
more than one year, except for that portion of any gain or loss
attributable to your share of our "unrealized receivables" and
"inventory items," as defined in the Internal Revenue Code, which
portion would be taxable as ordinary income or loss.
35
SALE OF PROPERTIES
Upon the sale of any of our properties, we will recognize gain
or loss to the extent that the amount realized is more or less than
the adjusted basis of the property sold. The amount realized upon the
sale of one of our properties will generally be equal to the sum of
the cash received plus the amount of indebtedness encumbering the
property, if any, assumed by the purchaser or to which the property
remains subject upon the transfer of the property to the purchaser.
The adjusted basis of partnership property will in general be equal
to the original cost of the property less depreciation and cost
recovery allowances allowed with respect to the property.
Assuming that we are not deemed to be a dealer with respect to
our properties, an investor's allocable share of the gains or losses
resulting from the sale of any of our properties that we have held
for at least one year would generally be combined with any gains or
losses realized by the investor in that year from the sale of other
depreciable or real property used in a trade or business, and the net
gain or loss from those sales will generally be treated as long-term
capital gain or ordinary loss. Depreciation or cost recovery
allowance recapture could cause a portion of those gains to be
treated as ordinary income. The amount of taxable gain allocated to
an investor with respect to the sale of one of our properties may
exceed the cash proceeds received by that investor with respect to
the sale.
LIQUIDATION
The operating agreement provides that investors will receive
only distributions of money and no distributions of property upon the
liquidation of AEI Fund 26. Upon your receipt of a liquidating
distribution of money, you will recognize gain or loss to the extent
that the amount of the distribution is more or less than the adjusted
basis of your units. The gain or loss will be characterized as long-
term or short-term capital gain or loss depending upon whether you
held the units for more than one year, except for that portion of any
gain or loss attributable to your share of our "unrealized
receivables" and "inventory items," as defined in the Internal
Revenue Code, which portion would be taxable as ordinary income or
loss.
SALE OF UNITS
You may be unable to sell any of your units because no active
trading market exists for the units and the operating agreement
imposes substantial restrictions on transfer. If you sell any units,
however, you will recognize gain or loss equal to the difference
between the amount realized on the sale and your adjusted tax basis
in the units sold. The amount realized on the sale is the sum of any
money and the fair market value of any property you receive in
exchange for the units plus your share of partnership liabilities.
Assuming that you have held the units for more than 12 months, your
gain or loss will be long-term capital gain or loss, except for that
portion of any gain or loss attributable to your share of our
"unrealized receivables" and "inventory items," as defined in the
Internal Revenue Code, which portion would be taxable as ordinary
income or loss.
ALTERNATIVE MINIMUM TAX
Alternative minimum tax is payable to the extent that a
taxpayer's alternative minimum tax liability exceeds the taxpayer's
regular federal income tax liability for the taxable year. The amount
of alternative minimum tax imposed depends upon various factors
unique to each particular taxpayer. Accordingly, you should consult
with your own tax advisor regarding the possible application of the
alternative minimum tax in your individual circumstances.
FUND AUDIT PROCEDURES
If the Internal Revenue Service audits AEI Fund 26, our manager
will take primary responsibility for contesting any proposed federal
income tax adjustments. If an audit results in an adverse adjustment,
you may be required to pay additional taxes, interest and penalties.
Our manager may also extend the statute of limitations as to all
investors and, in certain circumstances, bind each investor to such
36
adjustments. Although our manager will attempt to inform each
investor of the commencement and disposition of any such audit or
subsequent proceedings, you should be aware that your participation
in tax administrative or judicial proceedings relating to AEI Fund 26
will be substantially restricted.
TAX SHELTER REGULATIONS
Any entity deemed to be a "tax shelter," as defined by the
Internal Revenue Code, is required to register with the Internal
Revenue Service. The "tax shelter" definition is complex, but
generally applies to investments in which an investor expects to be
allocated deductions significantly in excess of the investor's
capital contributions during the first five years of the investment.
AEI Fund 26 is not intended to constitute a "tax shelter," as so
defined, and our managers have determined that, based upon its
characteristics, AEI Fund 26 is not required to be registered as a
"tax shelter."
FOREIGN INVESTORS
This discussion is not intended to describe tax consequences of
an investment in AEI Fund 26 by foreign investors. Nonetheless, you
should understand that foreign investors could be subject to tax and
to withholding of taxes by AEI Fund 26 under the Foreign Investment
in Real Property Tax Act of 1980 and other relevant provisions of the
Internal Revenue Code.
RESTRICTIONS ON TRANSFER
We do not expect a public market for the units to develop. You
should not expect to be able to easily sell your units or use them as
collateral for a loan. If you wish to sell your units, you might not
be able to find a buyer due to market conditions or the general
illiquidity of the units. Moreover, if you are able to sell your
units, dependent upon the price negotiated, you might receive less
than your original investment. We cannot assure you that your units
can be resold for their original purchase price.
Our operating agreement allows transfers, other than "permitted
transfers," only if they comply with certain safe harbors created by
the IRS from treatment of AEI Fund 26 as a "publicly traded
partnership" for tax purposes.
Our operating agreement also prohibits us from transferring
units that you sell unless you confirm, directly (not through a power
of attorney), that you know the most recent repurchase price that we
were offering prior to your proposed sale. The operating agreement
provides that your agreement to sell your units without this
information is void. Our operating agreement requires this
information because our managers believe that investors in other AEI
Funds have been defrauded into selling units at well below their
value by persons who withheld this information.
You must also provide us with 15 days written notice before you
can complete a sale of your units. We have the right to purchase your
units upon the same terms that you propose to sell them to a third
party by notifying you in writing during this 15 day period. This may
render it more difficult for you to sell your units. Under our
operating agreement, we will require any substituted investor to
agree in the instrument of assignment to become an investor and to
pay reasonable legal fees and filing costs in connection with his
substitution as an investor. We will recognize transfers of units
only as of the last day of the month in which we receive written
evidence regarding the assignment in form satisfactory to our
managers.
SUMMARY OF OPERATING AGREEMENT
Your rights as a member in AEI Fund 26 are established and
governed by the operating agreement that is enclosed with this
prospectus as Exhibit A. The subscription agreement that you must
sign to invest in this Fund includes a power of attorney that gives
our managers the power to sign the operating agreement on your
behalf.
37
This section of the prospectus, together with the sections
referenced in the next paragraph below, summarizes all of the
material provisions of the operating agreement. It is not, however,
as complete or as detailed as the operating agreement itself. You
should carefully review the operating agreement with your advisors.
Some provisions of the operating agreement are described in
other sections of this prospectus:
For a discussion of compensation and payments to our managers
and their affiliates, see "Compensation to Managers and Affiliates."
For a discussion of the distribution of cash and the allocation
of profits and losses for tax purposes, see "Cash Distributions and
Tax Allocations."
For a discussion of investment objectives and policies, see
"Investment Objectives and Policies."
For a discussion of the liability of our managers for their acts
or omissions and the indemnification of the managers, see
"Managers-Fiduciary Responsibility."
For a discussion of rights of our managers to withdraw, or of
our investors to remove a manager, see "Managers-Management."
For a discussion of the reports to be received by the investors,
see "Reports to Investors."
TERM AND DISSOLUTION
Our operating agreement provides that we will be dissolved and
liquidated at any of the following times or events:
December 31, 2055;
the decision of investors holding a majority of the units;
the final sale or disposition of our assets;
the final decree of a court that dissolution is required under
law; or
if all our managers withdraw or are expelled and no successor is
appointed.
RETURN OF CAPITAL
Prior to dissolution and liquidation, you will not have the
right to demand the return of your investment unless we are unable to
fully utilize the offering proceeds, either by purchasing properties
or through joint ventures with other similar programs.
VOTING RIGHTS
As a limited member, you will have the right to vote on and
approve the following matters:
amendments to our operating agreement;
removal of either or both of our managers;
election of a new manager;
the sale of all or substantially all of our assets;
dissolution by our members; or
changes in our investment objectives.
Investors may vote at a meeting or by written consent. In either
case, the vote of the holders of the majority of the units
outstanding will decide each matter, except that any amendment to the
operating agreement that adversely affects our managers may not be
approved without their consent.
38
MEETINGS
Periodic meetings of our investors are not required and we
currently do not intend to hold meetings. Our managers may, however,
call a meeting at any time and are required to call a meeting if
investors holding at least 10% of the units properly request a
meeting. After receipt of a request for a meeting, our managers are
required to send notice to all investors of the meeting within 10
days and hold the meeting at the time requested (which must be more
than 15 days and less than 60 days after the request).
REPURCHASE OF UNITS
Starting 36 months after the date of this prospectus, and
subject to certain conditions discussed in the operating agreement,
we will repurchase an investor's unit(s) upon proper written request.
The repurchase price will be equal to 100% of the net value per unit
in the case of units of a deceased investor, who is a natural person,
including units held by the investor in an IRA or other qualified
plan, and 85% of the net value per unit for other repurchases. Net
value per unit will be estimated by our managers based on methods
they believes are reasonable. In most cases, our managers will
estimate value per unit by adding the value of individual properties
that we hold to any other assets, such as cash, subtracting any
liabilities we have outstanding, subtracting the interest of our
managers, and dividing the result by the number of units outstanding.
Our managers normally estimate the value of individual properties we
hold by dividing the annual rental income for the property by
capitalization rates for comparable properties sold by affiliates of
our managers, or known to our managers in the marketplace.
Properties are then reviewed to determine that the capitalization
rate also reflects circumstances that may be unique to each specific
property. For example, if a lease contains an option for the tenant
to purchase the property at a price that is less than the capitalized
rents, the option price will be used for valuation purposes. If a
property is vacant, the marketability of the property is analyzed and
a discount factor is applied to the original property acquisition
price or, if there is existing market interest in a vacant property,
the merit of such interest is reviewed and the valuation is adjusted
accordingly. Our managers will calculate and make available to you
as soon as possible after the first business day of January and July
of each year the net value per unit, as well as the price at which
units may be presented for repurchase.
To have your units repurchased, you or your representative must
submit a written request to our manager. If your testamentary estate
or heirs are requesting the repurchase, the written notice must be
received within 180 days after your death. If the units are held
jointly and either of the joint owners dies, the written request for
repurchase may be made by the surviving joint owner. If the investor
is a trust, partnership, corporation or similar entity, and/or the
units were not acquired directly from the Company, these rights for
repurchase upon death do not apply. For all other repurchases, if you
want your units repurchased, you must submit a written request
stating the number of units you want repurchased. You must mail the
request after January 1 but before January 31, or after July 1 but
before July 31 of the year of repurchase.
We will repurchase units on March 31 and September 30 of each
year based on the value at the beginning of the repurchase period.
You will not be entitled to distributions from the beginning of the
repurchase period to the date of repurchase and any distributions you
receive will be deducted from the repurchase price that is paid to
you. Any investor who tenders units that are not repurchased must re-
tender the units in succeeding periods if he or she wants the request
reconsidered.
Our obligation to repurchase units is limited in any year to 2%
of the number of units outstanding at the beginning of the year of
repurchase. If investors tender units totaling more than 2% of the
units outstanding at the beginning of the year, we will honor
repurchase requests with the earliest postmarks first. We are not
obligated to repurchase any unit(s) if doing so would, in the
discretion of our managers, impair our operations.
We will pay for repurchases out of either revenues otherwise
distributable to investors or from borrowings. We cannot assure you
that revenues or borrowings will be available for repurchases, that
we will be able to repurchase any or all of the units tendered, or
that our managers will not suspend repurchases. A repurchase will
result in smaller distributions to remaining investors in the year of
repurchase, but will not result in a reduction of taxable income or
39
gains to such investors. A repurchase will, however, result in the
remaining investors owning a proportionately larger interest in AEI
Fund 26. A repurchase may result in certain adverse tax consequences
to the tendering investor.
DISTRIBUTION REINVESTMENT PLAN
We have established a distribution reinvestment plan for
investors who elect in writing to have their distributions of our
cash reinvested in additional units during the period of this
offering. Our managers, in their discretion, may decide at any time
to terminate the reinvestment plan. Our reinvestment plan allows
participating investors to directly purchase additional units at the
offering price of $10.00 per unit.
No distributions accruing to an investor who participates in the
reinvestment plan prior to release of funds from escrow and execution
of the operating agreement will be reinvested. All other
distributions to participants in the reinvestment plan will be
reinvested within 30 days after the date of the distribution,
provided that:
the sale of units continues to be registered or qualified for
sale under federal and applicable state securities laws;
each participant has received a current copy of this prospectus,
including any supplements; and
there has been no distribution of sales or refinancing proceeds
to investors.
The reinvestment plan will terminate upon completion of this
offering. If one of the requirements described above is not
satisfied, distributions will be paid in cash to participants rather
than used in the reinvestment plan.
If you participate in the reinvestment plan you must agree that,
if you at any time fail to meet our suitability standards or cannot
make the other investor representations contained in our current
prospectus, the subscription agreement, or the operating agreement,
you will promptly notify us in writing.
You should understand that affirmative action is required to
change or withdraw from the reinvestment plan. Change in or
withdrawal from participation in the reinvestment plan will be
effective only with respect to distributions made 30 days following
receipt by our managers of written notice of change or withdrawal. In
the event you transfer your units, the transfer will terminate your
participation in the reinvestment plan as of the first day of the
quarter in which the transfer is effective.
We will not pay selling commissions, nonaccountable expenses or
organization fees for units purchased with reinvested distributions.
We will not charge or offset any reinvestment fee against any reinvested
distributions under the reinvestment plan. The cost of administering the
reinvestment plan will be considered an organization and offering
cost and the actual cost of administering the reinvestment plan may
be reimbursed to our managers in accordance with the limitations on
reimbursements for organization and offering expenses.
Following each reinvestment, each participant in the plan will
be sent a statement showing the distributions received and the number
and price of units issued to the participant. Taxable participants
will incur tax liability for income allocated to them even though
they have elected not to receive their distributions in cash but
rather to have their distributions reinvested in the purchase of
units.
We reserve the right to amend any aspect of the reinvestment
plan, or to terminate the reinvestment plan, with respect to any
distribution of cash flow subsequent to notice of such amendment or
termination, provided that notice is sent to all participants in the
plan at least 10 days prior to the record date for the distribution.
Our managers also reserve the right to assign the administrative
duties of the reinvestment plan to a reinvestment agent who may hold
units on behalf of participants, provide reports to participants, and
satisfy other record keeping requirements.
Investors may also be given the opportunity to reinvest
distributions from AEI Fund 26 in interests of a program having
substantially identical investment objectives as AEI Fund 26, if
affiliates of our managers publicly offer the program interests after
the termination of the offering of units under this prospectus.
40
Investors would be allowed to reinvest distributions from AEI Fund 26
in a subsequent program only if each of the following conditions are
satisfied:
the subsequent program is registered under federal and
applicable state securities laws;
the subsequent program has substantially identical investment
objectives;
reinvesting investors are afforded the revocation rights
described above with respect to such reinvestments and the payment of
commissions on such reinvestments; and
each participating investor receives the prospectus, including
any supplements, relating to such subsequent program and satisfies
the investment qualifications, including minimum investment
requirements, for such subsequent offering.
Our managers are not obligated to continue the offering of units
or to offer units in any subsequent real estate programs or permit
reinvestment therein.
LIABILITIES OF INVESTORS
You will not be liable for any of our obligations in excess of
the capital you agree to contribute by signing a subscription
agreement, plus your share of undistributed net income. If, however,
you receive a return of your capital contribution you will be liable,
for a period of one year if the capital contribution was returned,
for any obligations to creditors who extended credit, or whose claims
arose, before your capital contribution was returned, but not in
excess of the returned capital contribution with interest, necessary
to discharge the liabilities. You will not have the right to a return
of your capital contributions except in accordance with the
distribution and repurchase provisions of our operating agreement.
RIGHTS, POWER AND DUTIES OF THE MANAGERS
Our managers will have the exclusive right to manage our
business. Our managers will be responsible for the selection,
acquisition, sale, refinancing and leasing of all our properties. The
rights, powers and duties of our managers may be delegated or
contracted to an affiliate of the managers at cost. AEI Fund
Management XXI will initially serve as our manager.
SUBSTITUTED INVESTORS; ASSIGNEES
You will not have the right to substitute an investor in your
place unless you have represented to us that you have received
information necessary to make a decision to assign your units,
including information about the most recent repurchase price of
units, and unless the substituted investor has agreed in the
instrument of assignment to become an investor and has paid all
expenses in connection with admission as a substituted investor. An
assignee who does not become a substitute investor will only have the
right to receive the distributions from AEI Fund 26 to which the
assigning investor would have been entitled if no such assignment had
been made. The assignee will have no right to require any information
or account from us or to inspect our books.
APPOINTMENT OF MANAGERS AS ATTORNEYS-IN-FACT
By signing the subscription agreement, you will irrevocably
constitute and appoint our managers as your attorney-in-fact, with
power to execute documents necessary to carry out the provisions of
our operating agreement.
"ROLL-UPS"
Our operating agreement prohibits transactions in which units
are required to be exchanged for securities of another entity (as
defined in the operating agreement as a "roll-up") unless certain
41
rights of the investors are maintained in the resulting entity and
unless a vote of the majority of our investors is obtained. The
operating agreement defines a roll-up to include certain transactions
involving the acquisition, merger, conversion, or consolidation,
either directly or indirectly, of AEI Fund 26 and the issuance of
securities from another entity. This definition comports with
requirements under certain state securities laws but differs slightly
from definitions used by the SEC and may differ from definitions
contained in rules or legislation promulgated in the future. The
determination of whether a transaction constitutes a roll-up will, in
the first instance, be made by our managers.
Our operating agreement provides, in material part, that we may
not participate in any roll-up that would:
reduce the democracy rights of our investors;
impede the ability of the equity owners of the resulting entity
to purchase the securities of that entity;
limit the voting rights of our investors as equity owners of the
resulting entity;
limit rights to access to records of the resulting entity; or
provide, without the consent of investors, that the costs of the
roll-up are to be borne by AEI Fund 26.
Further, our operating agreement requires that we obtain an
appraisal by a competent independent expert of our assets, based upon
all available information and assuming an orderly liquidation of our
assets, in connection with any roll-up that we summarize for
investors. If the appraisal is included in a roll-up prospectus, it
must be filed with securities authorities and we will have liability
for misrepresentations or omissions that it contains.
A roll-up requires the vote of holders of not less than a
majority of the units. Our operating agreement provides that an
investor who votes against the roll-up must be given the option of
accepting securities in the resulting entity or accepting either cash
for the investor's units at the pro rata appraised value of our
assets or the ability to retain the investor's interest in AEI Fund
26 on the same terms and conditions as existed previously.
REPORTS TO INVESTORS
Our books and records will be maintained at our principal
offices and will be open for examination and inspection by our
investors during reasonable business hours. We will furnish a list of
names and addresses and number of units held by investors to any
investor who requests the list in writing for a proper purpose, with
costs of photocopying and postage to be borne by the requesting
investor. The assignee of an investor does not have a right to
receive any reports unless the assignee is admitted as a substitute
member in accordance with our operating agreement.
Within 75 days after the close of each taxable year, we will
distribute both to investors and assignees of investor interests who
held the assignment interest during the relevant tax period, all
information relating to AEI Fund 26, consisting of a Schedule K-1
report, that is necessary for the preparation of their federal income
tax returns.
Within 120 days after the end of each fiscal year, we will also
distribute to you an annual report containing a balance sheet and
statements of operations, changes in members' equity and cash flows
(which will be prepared on a GAAP basis of accounting and will be
examined and reported upon by an independent public accountant) and a
report of our activities during the period reported upon. The annual
report will describe all reimbursements to our managers and their
affiliates and all distributions to investors, including the source
of the payments. The annual report will also include our manager's
estimate of the value of a unit in the Company, a statement of the
method used to develop this estimated value, and the date of the data
used to develop the estimated value.
Within 60 days after the end of each quarter, we will also
distribute to you a report containing a condensed balance sheet,
condensed statements of operation, and a related cash flow statement,
together with a detailed statement describing all real properties
acquired (including the geographic locale and the plan of operation,
42
the appraised value and purchase price and all other material
information), setting forth all fees, if any, received by our
managers or their affiliates and describing the services rendered for
these fees.
Our managers intend to make all of the foregoing reports
available electronically, and to allow delivery to an e-mail address
or through access at one of the manager's web sites. Because
electronic delivery is expected to save considerable printing and
mailing costs, all investors who have the ability to accept
electronic delivery are urged to complete the portion of the
subscription agreement that provides written consent to this form of
delivery.
Finally, when and if required by applicable SEC rules, we will
make available to investors, upon request, the information set forth
in SEC Form 10-QSB within 45 days after the close of each quarter and
SEC Form 10-KSB within 90 days after the close of each fiscal year.
Our managers are permitted to combine such reports so long as they
are distributed in a timely manner.
PLAN OF DISTRIBUTION
THE OFFERING: HOW TO INVEST
We are offering, through AEI Securities, as the manager of a
syndicate of broker-dealers that will solicit purchase of units,
$100,000,000 of our limited liability company interests in the form
of 10,000,000 units of $10.00 each. You must purchase a minimum of
five hundred units ($5,000) to invest. The offering period will
commence on the date of this prospectus. We will not sell any units
unless we receive subscriptions for at least 150,000 units within one
year after the date of this prospectus.
To invest, you will be required to accept and adopt the
provisions of the operating agreement attached to this prospectus as
Exhibit A and to complete and sign the subscription agreement
attached as Exhibit C. At the time you submit a subscription
agreement, you must submit a check for $10.00 for each Unit you are
purchasing. Checks should be made payable to "Fidelity Bank-AEI Fund
26 Escrow." We will sell units to you only if you represent in
writing that, at the time you sign the subscription agreement, you
meet the suitability requirements described under "Who May Invest"
above. AEI Securities has confirmed that its agreements with the
broker-dealers who solicit purchase of units will prohibit sales to
accounts over which the dealers have discretionary authority without
the prior written approval of the customer and we will not accept any
subscriptions signed by a dealer on behalf of a customer.
ESCROW: ACCEPTANCE OF SUBSCRIPTIONS
We will deposit all funds received from investors in an escrow
account with Fidelity Bank, Edina, Minnesota until $1,500,000 has
been deposited. Purchases by our managers and their affiliates will
not be counted for purposes of meeting this minimum. Broker-dealers
who solicit purchases are required to forward your subscription and
check to us by noon of the business day after you submit it and we
are required to deposit your check in the escrow account by noon of
the second business day after we receive it. If the required
$1,500,000 has not been deposited within one year after the date of
this prospectus, all subscriptions will be canceled and all funds
will be promptly returned to investors with interest and without any
deduction. An investor may not withdraw his funds from the escrow
account. When we have received subscriptions for the minimum number
of units, our managers may remove funds from escrow and instruct the
escrow agent to pay accrued selling commissions. After this initial
release from escrow, the escrow account will convert to a convenience
clearing account for our use.
Upon admission to AEI Fund 26, you will receive your pro rata
share of any interest earned on escrowed funds based upon the date of
deposit of your subscription payment. Escrow funds will be invested
in insured deposits with a financial institution and will earn
interest at short-term deposit rates. Following first admission, we
will admit additional investors as limited members on or before the
first business day of each month until the termination of the
offering. Only subscribers whose subscriptions have been received and
accepted at least five business days prior to each admittance date
will be admitted as limited members on such date.
43
Our managers have complete discretion to reject any subscription
agreement within 30 days of its submission. Funds from a rejected
subscriber will be returned within 10 days after rejection.
Subscriptions may be rejected for an investor's failure to meet the
suitability requirements, an over-subscription of the offering, or
for other reasons determined to be in the best interest of AEI Fund
26. Our managers and their affiliates may purchase units, without
limitation, on the same terms as other investors. Any purchase by the
managers or affiliates will be for investment and not for
redistribution.
SELLING ARRANGEMENTS
AEI Securities and other broker-dealers that are members of the
NASD as "participating dealers," have agreed to use their
"commercially reasonable efforts" to sell the units. None of these
broker-dealers are obligated to purchase units and resell them or to
sell any or all of the units. Participating dealers in the offering
will offer and sell units on the same terms and conditions as AEI
Securities.
Except as described below, we will pay AEI Securities selling
commissions of 6.5% and a nonaccountable expense allowance of 3.5% of
the gross proceeds from the sale of units. All of the commissions will
be repaid to participating dealers and a portion of the nonaccountable
allowance may be reallowed to some dealers. AEI Securities may also
receive up to one-half of 1% of the gross offering proceeds for the
reimbursement of bona fide due diligence expenses of the participating
dealers, all of which will be repaid by AEI Securities to the participating
dealers.
We will sell units directly to the dealer or customer at a price
of $9.35 per unit, in connection with the following special sales:
the sale of our units to one or more participating dealers and
to their respective officers and employees and some of their
respective affiliates who request and are entitled to purchase units
net of selling commissions;
the sale of units to investors whose contracts for investment
advisory and related brokerage services include a fixed or "wrap" fee
feature, provided that the participating dealer associated with the
investment advisor agrees to waive its commission.
It is illegal for us to pay or award any commissions or other
compensation to any person engaged by you for investment advice as an
inducement to such advisor to advise you to purchase our units.
Although we will pay our manager an organization fee to form AEI Fund
26 and will reimburse our managers and their affiliates for the costs
they incur in connection with the offer and sale of the units, except
for commissions, nonaccountable expenses and due diligence costs
described in this section, we will not pay any other incentive fees,
wholesaling costs or other expense reimbursement or commissions for
sales efforts.
DEFERRED COMMISSION OPTION
You may agree with the participating dealer and the dealer
manager to have selling commissions due on the purchase of your units
paid over a period of up to six years pursuant to a deferred
commission option arrangement. If you elect the deferred commission
option, you may purchase units for an initial purchase price of $9.50
per unit. Under this arrangement, you will pay $.50 per unit upon
subscription to cover the nonaccountable expenses of the dealer
manager and a portion of the participating dealer commission, rather
than the $1.00 per unit selling commission and expense allowance, and
we will deduct an amount equal to a $.10 per unit selling commission
per year for the next five years from cash distributions otherwise
payable to you. For example, to purchase 10,000 units, you would pay
$95,000 with your subscription and we would pay selling commissions
and nonaccountable expenses of $5,000 upon subscription. For each of
the five years following the subscription, we will deduct $.10 per
unit, or $1,000 total, from cash distributions otherwise payable to
you. We would pay this amount to the participating dealer on your
behalf to pay deferred commission obligations. You will be
considered, for tax purposes, to have received the commissions we pay
on your behalf as a distribution and we will report to the IRS the
income it represents even though you do not receive it.
To elect the deferred commission option, you must complete the
subscription agreement and must also have an authorized
representative of the participating dealer initial the agreement. If
you elect the deferred commission option and either (i) elect to
participate in our unit repurchase program or (ii) request that we
44
transfer your units for any other reason prior to the time that the
remaining deferred selling commissions have been deducted from cash
distributions, then we will accelerate the remaining selling
commissions due under the deferred commission option. If you decide
to sell your units under our unit repurchase program, you will be
required to pay us the unpaid portion of the deferred commission
obligation prior to our purchase of your units or we will deduct the
unpaid portion from the amount we would otherwise pay you on
repurchase. If you request that we transfer your units for any other
reason, we will not effect the transfer until you first either pay us
the unpaid portion of the deferred commission obligation; or provide
us with a written commitment signed by the transferee that the
transferee will pay the unpaid portion from cash distributions
otherwise payable to the transferee during the remaining portion of
the deferred commission period. If your deferred commissions have not
been paid prior to the time we liquidate, we will deduct the unpaid
portion from any proceeds to which you are entitled at the time of
our liquidation.
INDEMNIFICATION OF DEALERS
We will indemnify the broker-dealers that act as participating
dealers and their controlling persons, against certain liabilities,
including liabilities under the Securities Act of 1933. As of the
date of this prospectus, no broker-dealers have entered into a
Participating Dealer Agreement. We will also reimburse our managers
for certain expenses incurred by them in connection with the
supervision and monitoring of the organizational and pre-sale
activities of AEI Fund 26.
SALES MATERIALS
Sales material may be used in connection with this offering only
when accompanied or preceded by the delivery of this prospectus. The
sales materials that may be disseminated to prospective investors
include a brochure, video, slide presentation and transmittal letter
prepared by our managers describing AEI Fund 26 and our proposed
operations. In certain states, all sales materials may not be
available. Except for these materials, sales materials have not been
authorized for use by our managers and should be disregarded.
This offering is made only by means of this prospectus. Although
the information contained in the supplemental sales material does not
conflict with the information contained in this prospectus, such
sales material does not purport to be complete and should not be
considered part of this prospectus or as forming the basis of the
offering of the units.
LEGAL PROCEEDINGS
Neither AEI Fund 26 nor the managers are parties to any pending
legal proceedings that are material to AEI Fund 26. Neither AEI Fund
Management XXI nor Robert P. Johnson, who is the general partner or
managing member of other investment programs, is an adverse party in
any legal proceedings with limited partners or limited members in
such other limited partnerships or limited liability companies.
EXPERTS
The balance sheets of AEI Income & Growth Fund 26 LLC, as of
April 4, 2005, and AEI Fund Management XXI, Inc., as of December 31,
2004 and December 31, 2003, included in this Prospectus have been
examined by Boulay, Heutmaker, Zibell & Co., P.L.L.P., independent
public accountants, as indicated in their report with respect
thereto, and are included herein in reliance on the authority of said
firm as experts in giving such report.
The discussions under the headings "Risk Factors-Federal Income
Tax Risks" and "Federal Income Tax Considerations" have been reviewed
by Dorsey & Whitney LLP, counsel for our manager. We have received
the opinion of Dorsey & Whitney LLP that those discussions correctly
summarize the material federal income tax considerations as of the
date of this prospectus to potential investors of the purchase,
ownership and disposition of units in AEI Fund 26.
LEGAL OPINION
The legality of the units will be passed upon for AEI Fund 26 by
counsel to our managers, Dorsey & Whitney LLP.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Members
AEI Income & Growth Fund 26 LLC
St. Paul, Minnesota
We have audited the accompanying balance sheet of AEI Income
& Growth Fund 26 LLC as of April 4, 2005. This financial
statement is the responsibility of the Company's management. Our
responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of AEI
Income & Growth Fund 26 LLC as of April 4, 2005, in conformity
with U.S. generally accepted accounting principles.
/s/ BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
April 7, 2005
46
AEI INCOME & GROWTH FUND 26 LLC
BALANCE SHEET
ASSETS
June 30, April 4,
2005 2005
(Unaudited)
Cash $ 1,001 $ 1,000
======== ========
LIABILITIES AND MEMBERS' EQUITY
MEMBERS' EQUITY:
Managing Members' Equity $ 1,001 $ 1,000
-------- --------
Total Liabilities and Members' Equity $ 1,001 $ 1,000
======== ========
The accompanying Notes to the Balance Sheet are an integral part
of this statement.
47
AEI INCOME & GROWTH FUND 26 LLC
NOTES TO THE BALANCE SHEET
APRIL 4, 2005
Information as of June 30, 2005 is unaudited
(1) SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -
Organization
AEI Income & Growth Fund 26 LLC (the Company), a Limited
Liability Company, was formed on March 14, 2005 to acquire
and lease commercial properties to operating tenants. The
Company's operations are managed by AEI Fund Management XXI,
Inc. (AFM), the Managing Member. Robert P. Johnson, the
President and sole director of AFM, serves as the Special
Managing Member. AFM is a wholly owned subsidiary of AEI
Capital Corporation of which Mr. Johnson is the majority
shareholder. The Company has elected December 31 for its
fiscal year end. The Operating Agreement provides that the
entity is to expire in the year 2055.
The terms of the offering call for a subscription price of
$10 per LLC Unit, payable on acceptance of the offer. The
Company has not yet sold any Units. Under the terms of the
Operating Agreement, 10,000,000 LLC Units are available for
subscription which, if fully subscribed, will result in
contributed Limited Members' capital of $100,000,000. The
agreement sets forth the methods for allocation of Net Cash
Flow, Net Proceeds of Sale and profits, losses and other
items.
Unaudited Interim Information
The balance sheet at June 30, 2005 is unaudited but has been
prepared on the same basis as the audited balance sheet and,
in the opinion of management, includes all adjustments
necessary for fair presentation, consisting of normal
recurring adjustments. The Company did not engage in any
operations or incur any expenses during the period from
inception through June 30, 2005 and its only income has been
interest earned on the Managing Members' capital
contribution. Accordingly, a Statement of Income, Statement
of Cash Flows and Statement of Changes in Members' Equity
are not presented.
Accounting Estimates
Management uses estimates and assumptions in preparing the
balance sheet in accordance with generally accepted
accounting principles. Those estimates and assumptions
affect the reported amounts of assets, liabilities and
equity. Actual results could differ from those estimates.
(2) INCOME TAXES -
The income or loss of the Company for federal income tax
reporting purposes is includable in the income tax returns
of the members. In general, no recognition has been given
to income taxes in the accompanying balance sheet.
The tax return and the amount of distributable LLC income or
loss are subject to examination by federal and state taxing
authorities. If such an examination results in changes to
distributable LLC income or loss, the taxable income of the
members would be adjusted accordingly.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS -
The carrying value of financial instruments approximate fair
value.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
AEI Fund Management XXI, Inc.
Saint Paul, Minnesota
We have audited the accompanying balance sheet of AEI Fund
Management XXI, Inc. as of December 31, 2004 and December 31,
2003. This financial statement is the responsibility of the
Company's management. Our responsibility is to express an
opinion on this financial statement based on our audits.
We conducted our audits in accordance with the standards of
the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the balance sheet referred to above presents
fairly, in all material respects, the financial position of AEI
Fund Management XXI, Inc. as of December 31, 2004 and
December 31, 2003, in conformity with U.S. generally accepted
accounting principles.
/s/BOULAY, HEUTMAKER, ZIBELL & CO. P.L.L.P.
Boulay, Heutmaker, Zibell & Co. P.L.L.P.
Certified Public Accountants
Minneapolis, Minnesota
January 26, 2005
49
AEI FUND MANAGEMENT XXI, INC.
BALANCE SHEET
ASSETS
June 30, December 31,
2005 2004 2003
(Unaudited)
CURRENT ASSETS:
Cash and Cash Equivalents $ 955 $ 23,185 $ 20,463
Partnership Distributions Receivable 23,940 26,393 23,092
Receivable from AEI Fund Management, Inc. 7,446 55 60
-------- -------- --------
Total Current Assets 32,341 49,633 43,615
-------- -------- --------
NONCURRENT ASSETS:
Real Estate Investments 30,798 35,487 46,533
-------- -------- --------
Total Assets $ 63,139 $ 85,120 $ 90,148
======== ======== ========
LIABILITIES AND STOCKHOLDER'S EQUITY
NONCURRENT LIABILITIES:
Deficit in Real Estate Investments $ 18,268 $ 13,354 $ 12,032
STOCKHOLDER'S EQUITY:
Common Stock, Par Value $.01 per Share,
100,000 Shares authorized,
1,000 Shares issued and outstanding 10 10 10
Additional Paid-in Capital 990 990 990
Retained Earnings 43,871 70,766 77,116
-------- -------- --------
Total Stockholder's Equity 44,871 71,766 78,116
-------- -------- --------
Total Liabilities and Stockholder's Equity $ 63,139 $ 85,120 $ 90,148
======== ======== ========
The accompanying notes to Balance Sheet are an integral part of
this statement.
50
AEI FUND MANAGEMENT XXI, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 2004 AND 2003
Information as of June 30, 2005 is unaudited
(1)SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -
Organization
AEI Fund Management XXI, Inc. (Company) is the Managing
General Partner of AEI Income & Growth Fund XXI Limited
Partnership (Fund XXI), and AEI Income & Growth Fund XXII
Limited Partnership (Fund XXII). The Company is the
Managing Member of AEI Income & Growth Fund 23 LLC (Fund
23), AEI Income & Growth Fund 24 LLC (Fund 24), and AEI
Income & Growth Fund 25 LLC (Fund 25), and AEI Income &
Growth Fund 26 LLC (Fund 26). On August 31, 2003, Robert P.
Johnson, the Company's sole stockholder, contributed the
outstanding shares of the Company to a newly formed entity,
AEI Capital Corporation (ACC). The Company operates as a
wholly owned subsidiary of ACC. Robert P. Johnson is the
majority stockholder of ACC. At December 31, 2004 and 2003,
the Company owned 22 Limited Partnership Units of Fund XXII.
Investors in the funds listed above have no interest in the
assets or operations of the Company.
Financial Statement Presentation
The Company accounts for its investments under the equity
method of accounting. The Company's major source of cash is
its share of distributions allocated under the terms of the
Limited Partnership or Limited Liability Company Agreements.
The combined assets, revenues and net income for the above
referenced entities were $88,833,095, $6,248,139 and
$4,523,603 for 2004 and $71,796,077, $5,173,209 and
$6,928,294 for 2003. The Company's share of income (loss)
ranges from 1% to 2%. At December 31, 2004 and December 31,
2003, the Company had accumulated deficits of $13,354 and
$12,032, respectively. The Company would be responsible to
fund a deficiency in its capital account, as defined by
agreement, if the real estate investment terminates.
Unaudited Interim Information
The balance sheet as of June 30, 2005 is unaudited. The
unaudited balance sheet has been prepared on the same basis
as the audited balance sheets and, in the opinion of
management, includes all adjustments necessary for fair
presentation, consisting of normal recurring adjustments.
At June 30, 2005, the unaudited combined assets, revenues and
net income for the above referenced entities were $98,307,788,
$3,534,725, and $1,814,804. At June 30, 2005, the Company
owned 22 Limited Partnership Units of Fund XXII.
51
AEI FUND MANAGEMENT XXI, INC.
NOTES TO BALANCE SHEET
DECEMBER 31, 2004 AND 2003
Information as of June 30, 2005 is unaudited
(1)SUMMARY OF ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES -(Continued)
Accounting Estimates
Management uses estimates and assumptions in preparing this
balance sheet in accordance with generally accepted
accounting principles. Those estimates and assumptions
affect the reported amounts of assets, liabilities and
stockholder's equity. Actual results could differ from
those estimates.
Cash Equivalents
The Company considers all highly liquid debt instruments
purchased with a maturity of three months or less to be cash
equivalents.
Cash Concentrations of Credit Risk
The Partnership's cash is deposited primarily in one
financial institution and at times during the year it may
exceed FDIC insurance limits.
(2) RECEIVABLE FROM AEI FUND MANAGEMENT, INC. -
AEI Fund Management, Inc. (AFM), an affiliated organization,
performs the administrative and operating functions of the
Company. The receivable from AEI Fund Management, Inc.
represents the balance due for those services. The balance
is non-interest bearing and unsecured and is to be paid in
the normal course of business.
(3) INCOME TAXES -
The Company elected S-Corporation status. As a result,
prior to September 1, 2003, the income of the Company for
Federal and State income tax reporting purposes was included
in the income tax return of the sole stockholder. On August
31, 2003, the Company became a qualified subchapter S
subsidiary of ACC. As a result, the income of the Company
is treated as belonging to the parent corporation, ACC. In
general, no recognition has been given to income taxes in
the accompanying financial statements.
(4) FAIR VALUE OF FINANCIAL INSTRUMENTS -
The carrying value of financial instruments approximate fair
value.
52
EXHIBIT A
OPERATING AGREEMENT
OF
AEI INCOME & GROWTH FUND 26 LLC
TABLE OF CONTENTS
Article Page
I. Formation of Limited Liability Company A-2
II. Definitions A-2
III. Purpose and Character of Business A-6
IV. Capital A-6
V. Allocation of Profits, Gains and
Losses; Distributions to Members A-9
VI. Rights, Powers and Duties of Managing Members A-12
VII. Provisions Applicable to Limited Members A-18
VIII. Books of Account; Reports and Fiscal Matters A-21
IX. Assignment of Limited Member's Interest A-23
X. Death Withdrawal, Expulsion and Replacement
of the Managing Members A-25
XI. Amendment of Agreement and Meetings A-26
XII. Dissolution and Liquidation A-26
XIII. Miscellaneous Provisions A-27
A-1
OPERATING AGREEMENT
OF
AEI INCOME & GROWTH FUND 26 LLC
THIS OPERATING AGREEMENT is entered into as of this day
of , 2005 by and among AEI Fund Management XXI, Inc.
(the "Managing Member"), a Minnesota corporation, Robert P. Johnson
(the "Special Managing Member"), and all other parties comprising the
Limited Members, who shall execute this agreement and whose addresses
appear at the end of this agreement.
I. FORMATION OF THE LIMITED LIABILITY COMPANY
The parties hereto do hereby confirm the formation of a limited
liability company (the "Company") pursuant to the provisions of the
Delaware Limited Liability Company Act (the "Act") by the filing of a
Certificate of Formation on March 14, 2005 and agree that the Company
shall be governed by the terms of this agreement. The parties agree
that they shall promptly file any amended certificates of formation
that may be required in the appropriate office in the State of
Delaware and in such other offices as may be required, and that the
parties shall comply with the other provisions and requirements of
the Limited Liability Company Act as in effect in Delaware, which Act
shall govern the rights and liabilities of the Members, except as
herein or otherwise expressly stated.
1.1 NAME. The business of the Company is conducted under the firm
name and style of: AEI INCOME & GROWTH FUND 26 LLC.
1.2 AGENT FOR SERVICE. The agent for service of process is The
Corporation Trust Company. The location of the agent for service of
process of the Company shall be at The Corporation Trust Company,
Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801.
1.3 PRINCIPAL PLACE OF BUSINESS /NAMES AND ADDRESSES. The location
of the principal place of business, principal office and agent for
service of process of the Company shall be at the offices of the
Managing Member, 1300 Wells Fargo Place, 30 East 7th Street, Saint
Paul, Minnesota 55101. The Company may also maintain offices at such
other place of business as the Managing Member may from time to time
determine. The name and address of the Managing Member is AEI Fund
Management XXI, Inc., 1300 Wells Fargo Place, 30 East 7th Street,
Saint Paul, Minnesota 55101. The name and address of the Special
Managing Member is Robert P. Johnson, 1300 Wells Fargo Place, 30 East
7th Street, Saint Paul, Minnesota 55101. The names and addresses of
the Limited Members are set forth on Schedule A at the end of this
agreement.
1.4 TERM. The Company shall commence business on the date hereof,
and shall continue until December 31, 2055, unless dissolved,
terminated and liquidated prior thereto under the provisions of
Article XII.
II. DEFINITIONS
As used in this agreement, the following terms shall have the
following meanings:
2.1 "Acquisition Expenses" means expenses including, but not limited
to, legal fees and expenses, travel and communication expenses, costs
of appraisals, non-refundable option payments on properties not
acquired, accounting fees and expenses, title insurance and
miscellaneous expenses related to selection and acquisition of
properties with initial, whether or not acquired.
2.2 "Acquisition Fees" means the total of all fees and commissions
paid by any party in connection with making or investing in mortgage
loans or the purchase, development or construction of Properties,
whether designated as a real estate commission relating to the
purchase of Properties, Selection Fee, Development Fee, Construction
Fee, nonrecurring management fee, loan fees or points paid by
borrowers to the Managing Member if the Company invests in mortgage
loans, or any fee of a similar nature, however designated or however
treated for tax or accounting purposes. Acquisition Fees shall not
include Development Fees and Construction Fees paid to any person or
entity who is not Affiliates of the Managing Members in connection
with the actual development and construction of a project.
A-2
2.3 "Adjusted Capital Contributions" means the aggregate original
capital contribution of a Limited Member reduced, from time to time,
by (i) any return of capital contributions pursuant to Section 4.5,
and (ii) to the extent the Company has paid a cumulative (but not
compounded) 6% per annum return on Adjusted Capital Contributions, by
total cash distributed from Net Proceeds of Sale with respect to the
Units; and increased from time to time by the product of (i) the
Adjusted Capital Contribution of any Limited Member whose Units are
repurchased and (ii) the ratio of each remaining Limited Member's
Units to the total Units outstanding after such repurchase. Adjusted
Capital Contributions shall not be reduced by distributions of Net
Cash Flow.
2.4 "Administrative Expenses" means expenses incurred by the
Managing Members and their Affiliates during the operation of the
Company directly attributable to rendering the following services to
the Company: (i) administering the Company (including agency type
services, member relations and communications, financial and tax
reporting, accounting and payment of accounts, payment of
distributions, payment of unit redemptions, staffing and processing
other investor requests); (ii) property management (including
collecting, depositing and monitoring rental payments and penalties,
monitoring compliance with leases, monitoring the maintenance of
property and liability insurance and the payment of taxes,
maintenance of lease insurance (if applicable), monitoring and
negotiating other forms of tenant security and financial condition,
ongoing site inspections and property reviews and reviewing tenant
reports); (iii) property and lease workout (including enforcing lease
provisions in default, filing lease insurance claims, enforcing
guarantees, collecting letters of credit or foreclosing other
collateral, if applicable, eviction of tenants in default, re-leasing
of properties, and monitoring tenant disputes and foreclosures); (iv)
property financing and refinancing; and (v) Company dissolution and
liquidation (accounting, final payment to creditors, administrative
filings and other costs).
2.5 "Affiliate" means (i) any person directly or indirectly
controlling, controlled by or under common control with another
person, (ii) any person owning or controlling 10% or more of the
outstanding voting securities of such other person, (iii) any
officer, director or partner of such person and (iv) if such other
person is an officer, director or partner, any such company for which
such person acts in such capacity.
2.6 "Company" means the limited liability company formed by this
agreement.
2.7 "Competitive Real Estate Commissions" means real estate or
brokerage commissions paid for the purchase or sale of a Property
that are reasonable, customary and competitive in light of the size,
type and location of such Property and which do not, in any event,
exceed 6% of the contract price for the sale of such Property.
2.8 "Construction Fee" means a fee or other remuneration for acting
as general contractor and/or construction manager to construct
improvements, supervise and coordinate projects or to provide Major
Repairs or Rehabilitation of Company Property.
2.9 "Cost" means, when used with respect to services furnished by
the Managing Members or their Affiliates to, or on behalf of, the
Company, the lesser of (i) the actual expenses incurred by such
Managing Members and Affiliates in providing services necessary to
the prudent operation of the Company, including salaries and expenses
paid to officers, directors, employees and consultants, depreciation
and amortization, office rent, travel and communication expenses,
employee benefit expenses, supplies and other overhead expenses
directly attributable to the furnishing of such services; or (ii) the
price that would be charged by unaffiliated parties rendering similar
services in the same geographic location. Overhead expenses shall be
charged only if directly attributable to such services and shall be
allocated based upon the amount of time personnel actually spend
providing such services, or such other method of allocation as is
acceptable to the Company's independent public accountant.
2.10 "Development Fee" means a fee for packaging the Company's
Property, including negotiating and approving plans, and undertaking
to assist in obtaining zoning and necessary variances and necessary
financing for a specific Property, either initially or at a later
date.
2.11 "Front-End Fees" means fees and expenses paid by any party for
services rendered during the Company's organizational or acquisition
phase, including Organizational and Offering Expenses, Acquisition
Fees, Acquisition Expenses, interest on deferred fees and expenses
and other similar fees, however designated by the Managing Member.
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2.12 "Investment in Properties" means the amount of capital
contributions actually paid or allocated to the purchase of
Properties, including working capital reserves allocable thereto
(except that working capital reserves in excess of 5% will not be
included) and other cash payments such as interest and taxes, but
excluding Front-End Fees.
2.13 "Limited Members" means all parties who shall execute, either
personally or by an authorized attorney-in-fact, this agreement as
Limited Members and comply with the conditions in Section 4.2, and
any and all assignees of the Limited Members, whether or not such
assignees are admitted to the Company as substitute Limited Members;
provided, however, that an assignee of the interest of any Limited
Member shall not be considered a "Limited Member" for purposes of
Articles X and XI hereof unless such assignee is admitted as a
substitute Limited Member as provided in Article IX.
2.14 "Limited Liability Company Act" means the Delaware Limited
Liability Company Act, as the same may be amended.
2.15 "Limited Liability Company Unit" or "Unit" means the Company
interest and appurtenant rights, powers and privileges of a Limited
Member and represents the stated capital contributions with respect
thereto, all as set forth elsewhere in this agreement.
2.16 "Major Repairs or Rehabilitation" means the repair,
rehabilitation or reconstruction of a Property where the aggregate
costs exceed 10% of the fair market value of the Property at the time
of such services.
2.17 "Managing Members" means the Managing Member, the Special
Managing Member and any substitute Managing Member as provided in
Article X.
2.18 "Managing Member" means AEI Fund Management XXI, Inc., and any
substitute as provided in Article X.
2.19 "Members" means the Managing Member, the Special Managing Member
and the Limited Members.
2.20 "Net Value Per Unit" means the aggregate value of the
Company's assets less the Company's liabilities, and less the value
attributable to the interest of the Managing Members, divided by the
number of Units outstanding. Such aggregate value shall be as
determined by the Managing Members, after taking into account (i) the
value of the Fund's properties based on the application of rental
capitalization rates for similarly situated properties, based on
pending or proposed transactions relating to the properties, or based
on such other methods as the Managing Member deems reasonable, (ii)
the price at which Units of the Company have last been purchased, and
(ii) such other factors as the Managing Member deems relevant.
2.21 "Net Cash Flow" means Company cash funds provided from
operations, including lease payments from builders and sellers
without deduction for depreciation, but after deducting cash funds
used to pay all other expenses, debt payments, capital improvements
and replacements and less the amount set aside for restoration or
creation of reserves.
2.22 "Net Proceeds of Sale" means the excess of gross proceeds from
any sale, refinancing (including the financing of a Property that was
initially purchased debt-free) or other disposition of a Property
over all costs and expenses related to the transaction, including
fees payable in connection therewith, and over the payments made or
required to be made on any prior encumbrances against such Property
in connection with such transaction.
2.23 "Organization Fee" means a fee to the Managing Members in
consideration of its organization of the Company equal to 1.5% of
capital contributions, but only to the extent that Organization and
Offering Expenses, including such Organizational Fee, do not exceed
15% of capital contributions.
2.24 "Organization and Offering Expenses" means the Organization
Fee and all other expenses incurred in connection with and in
preparing the Company for registration and subsequently offering and
distributing it to the public, including any sales commissions,
nonaccountable expense allowances or reimbursement of bona fide due
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diligence expenses paid to broker-dealers in connection with the
distribution of the Company and all advertising expenses.
2.25 "Permitted Transfer" means, with respect to the transfer of
Units in any fiscal year of the Company (i) transfers in which the
basis of the Unit in the hands of the transferee is determined, in
whole or in part, by reference to its basis in the hands of the
transferor, or is determined under Section 732 of the Internal
Revenue Code of 1986, as amended (the "Code"), (ii) transfers of
Units upon the death of a Limited Member, (iii) transfers of Units
between members of a family (as defined in Section 267(c)(4) of the
Code), (iv) transfers of Units at original issuance and sale, (v)
transfers of Units pursuant to distribution under a Qualified Plan,
and (vi) block transfers of Units by a single Member in one or more
transactions during any thirty calendar day period representing in
the aggregate more than five percent (5%) of the total interest of
all Members in Company capital and profits.
2.26 "Properties" or "Property" means real properties or any interest
therein acquired directly or indirectly by the Company and all
improvements thereon and all repairs, replacements or renewals
thereof, together with all personal property acquired by the Company
that from time to time is located thereon or specifically used in
connection therewith.
2.27 "Prospectus" means that certain prospectus of the Company dated
, 2005.
2.28 "Qualified Matching Service" means a listing system operation,
provided either through the Managing Members or through any unrelated
third party (including any dealer in the Units), in which Limited
Members contact the operator to list Units they desire to transfer
and through which the operator attempts to match the listing Limited
Member with a customer desiring to buy Units without (i) regularly
quoting prices at which the operator stands ready to buy or sell
interests, (ii) making such quotes available to the public, or (iii)
buying or selling interests for its own account.
2.29 "Qualified Matching Service Transfer" means a transfer of Units
through a Qualified Matching Service in which (i) at least a fifteen
(15) calendar day delay occurs between the day (the "Contact Date") a
Limited Member provides written confirmation to the Qualified
Matching Service that his or her Units are available for sale and the
earlier of (A) the day information is made available to potential
buyers that such Units are available for sale, or (B) the day
information is made available to the selling Limited Member regarding
the existence of outstanding bids to purchase Units, (ii) the closing
of the transfer does not occur until at least forty five (45) days
after the Contact Date, (iii) the Limited Member's offer to sell is
removed from the Qualified Matching Service within one hundred and
twenty (120) days of the Contact Date, and (iv) no Units of such
Limited Member are entered for listing by the Qualified Matching
Service for at least sixty (60) days after the removal of the Limited
Member's information from such Qualified Matching Service; provided,
however, that no transfer shall be a Qualified Matching Service
Transfer if, after giving effect to such transfer, the aggregate of
(a) Qualified Matching Service Transfers, (b) transfers pursuant to
the repurchase provisions contained in section 7.7 of this agreement
of Limited Member interests and (c) all other transfers of Limited
Member interests except Permitted Transfers since the beginning of
the fiscal year in which such transfer is made would exceed ten
percent (10%) of the Company interests outstanding.
2.30 "Qualified Plans" means Individual Retirement Accounts, Keogh
Plans and pension/profit-sharing plans that are qualified under
Section 401 of the Internal Revenue Code.
2.31 "Roll-Up" means a transaction involving the acquisition, merger,
conversion, or consolidation, either directly or indirectly, of the
Company and the issuance of securities of a Roll-Up Entity; provided,
however, that a Roll-Up shall not include a transaction involving the
conversion to corporate, trust or association form of only the
Company if, as a consequence of such transaction, there will be no
significant adverse change in any of the following:
(i) voting rights of Limited Members;
(ii) the term of existence of the surviving entity beyond that
of the Company;
(iii) compensation to the Managing Members or their Affiliates;
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(iv) the investment objectives of the Company or the surviving
entity.
2.32 "Roll-Up Entity" means a company, real estate investment trust,
corporation, trust or other entity that would be created or would
survive after successful completion of a proposed Roll-Up
Transaction.
2.33 "Special Managing Member" means Robert P. Johnson, and any
substitute as provided in Article X.
2.34 "Sponsor" means any person, company, corporation, association or
other entity which is directly or indirectly instrumental in
organizing, wholly or in part, the Company or any person, company,
corporation, association or other entity which will manage or
participate in the management of the Company, and any Affiliate of
such person, company, corporation, association or other entity, but
does not include a person, company, corporation, association or other
entity whose only relation with the Company is as that of an
independent property manager, whose only compensation is as such.
"Sponsor" does not include wholly independent third parties such as
attorneys, accountants, and underwriters whose only compensation is
for professional services rendered in connection with the offering of
Company interests. A person, company, corporation, association or
other entity may also be a Sponsor of the Company by: (i) taking the
initiative, directly or indirectly, in founding or organizing the
business or enterprise of the Company, either alone or in conjunction
with one or more other persons, companies, corporations, associations
or other entities; (ii) receiving a material participation in the
Company in connection with the founding or organizing of the business
of the Company, in consideration of services or property, or both
services and property; (iii) having a substantial number of
relationships and contacts with the Company; (iv) possessing
significant rights to control Company Properties; (v) receiving fees
for providing services to the Company which are paid on a basis that
is not customary in the industry; (vi) providing goods or services to
the Company on a basis which was not negotiated at arm's length with
the Company.
III. PURPOSE AND CHARACTER OF THE BUSINESS
The purpose and character of the business of the Company shall
be to acquire an interest in the Properties upon such terms and
conditions as the Managing Member, in its absolute discretion, shall
determine, including, without limitation, taking title to the
Properties; to own, lease, operate and manage the Properties for
income-producing purposes; to furnish services and goods in
connection with the operation and management of the Properties; to
enter into agreements pertaining to the operation and management of
the Properties; to borrow funds for such purposes and to mortgage or
otherwise encumber any or all of the Company's assets or Properties
to secure such borrowings; to sell or otherwise dispose of the
Properties and the assets of the Company; and to undertake and carry
on all activities necessary or advisable in connection with the
acquisition, ownership, leasing, operation, management and sale of
the Properties.
IV. CAPITAL
4.1 MANAGING MEMBERS. The Managing Member and the Special Managing
Member shall be obligated to make capital contributions to the
Company, to the extent not previously made, in the amounts of $600
and $400, respectively. The Managing Members shall not be obligated
to make any other contributions to the capital of the Company, except
that, in the event that the Managing Members have negative balances
in their capital accounts after dissolution and winding up of, or
withdrawal from, the Company, the Managing Members will contribute to
the Company an amount equal to the lesser of (a) the deficit balances
in their capital accounts or (b) 1.01% of the total capital
contributions of the Limited Members' over the amount previously
contributed by the Managing Members hereunder.
4.2 LIMITED MEMBER CAPITAL CONTRIBUTIONS.
(a) INITIAL CONTRIBUTION. There shall initially be
available for subscription by prospective Limited Members an
aggregate of 10,000,000 Limited Liability Company Units. Except
to the extent that a limited member may be credited for reduced
commissions in accordance with Section 6.11, the purchase price
of each Unit shall be $10.00. Except as provided in section 4.10,
each subscriber must subscribe for a minimum purchase of five
hundred Units, and subscribers may purchase any number of Units
above such minimum.
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(b) REQUIREMENTS FOR LIMITED MEMBER STATUS. Upon the
initial closing of the sale of Units, the purchasers will be
admitted as Limited Members not later than 15 days after the
release from impound of the purchasers' funds. Thereafter, an
investor will be admitted to the Company not later than the first
day of each month provided that his or her subscription for Units
has been received at least five business days prior to such date.
All subscriptions for Units shall be accepted or rejected by the
Company within 30 days of their receipt; if rejected, all funds
shall be returned to the subscriber within ten business days. The
Managing Member shall promptly send each Limited Member a
confirmation of such Limited Member's purchase and admission as a
Limited Member. The Members shall not be obligated to make any
additional contributions to the capital of the Company.
4.3 CAPITAL ACCOUNTS. A separate capital account shall be maintained
by the Company for each Member. It is intended that the capital
account of each Member will be maintained in accordance with the
capital accounting rules of Treas. Reg. Section 1.704-1(b)(2)(iv). In
general this will mean that the capital account of each Member shall
be initially credited with the amount of his or her cash contribution
to the capital of the Company. The capital account of each Member
shall further be credited by the amount of any additional
contributions to the capital of the Company made by such Member from
time to time, shall be debited by the amount of any cash
distributions made by the Company to such Member and shall be
credited with the amount of income and gains and debited with the
amount of losses of the Company allocated to such Member. In all
instances the capital accounting rules in Treas. Reg. Section 1.704-
1(b)(2)(iv) will determine the proper debits or credits to each
Member's capital account. The Managing Member may, at its option,
increase or decrease the capital accounts of the Members to reflect a
revaluation of Company Property on the Company's books at the times
when, pursuant to Treas. Reg. Section 1.704-1(b)(2)(iv), such
adjustments may occur. The adjustments, if made, will be made in
accordance with such Regulation, including allocating taxable items,
as computed for book purposes, to the capital accounts as prescribed
in such Regulation. In the case of the transfer of all or a part of
an interest in the Company, the capital account of the transferor
Member attributable to the transferred interest will carry over to
the transferee Member. In the case of termination of the Company
pursuant to Section 708 of the Code, the rules of Treas. Reg. Section
1.704-1(b)(2)(iv) shall govern adjustments to the capital accounts.
If there are any adjustments to Company property as a result of
Sections 732, 734, or 743, the capital accounts of the Members shall
be adjusted as provided in Treas. Reg. Section 1.701-1(b)(2)(iv)(m).
Except as provided in Section 4.1 of this agreement, in the event
that any Member has a negative capital account balance after
dissolution and winding up of the Company, such Member will not be
obligated to contribute capital in the amount of such deficit.
4.4 NO RIGHT TO RETURN OF CONTRIBUTION. The Limited Members shall
have no right to withdraw or to receive a return of their
contributions to the capital of the Company, as reflected in their
respective capital accounts from time to time, except upon
presentment of Units in accordance with Section 7.7 or upon the
dissolution and liquidation of the Company pursuant to Article XII.
4.5 RETURN OF UNUSED NET OFFERING PROCEEDS. In the event that any
portion of the Limited Members' capital contributions is not invested
or committed for investment in real property before the later of two
years after the date of the Prospectus or twelve months after the
date of the offer and sale of Units pursuant to the Prospectus is
terminated (except for amounts utilized to pay operating expenses of
the Company and to establish reasonable working capital reserves as
determined by the Managing Member), such portion of the capital
contributions shall be distributed, without interest but with any
Front-End Fees, including without limitation commissions or other
Organization and Offering Expenses, paid thereon, by the Company to
the Limited Members as a return of capital. All of such capital
contributions will be available for the general use of the Company
during such period and may be expended in operating the Properties
that have been acquired. For the purpose of the foregoing, funds will
be deemed to have been committed to investment, and will not be
returned to the Limited Members to the extent written contractual
agreements have been executed prior to the expiration of the
preceding period, regardless of whether any such investment is
ultimately consummated pursuant to the written contractual agreement.
To the extent any funds have been reserved to make contingent
payments in connection with any Property pursuant to a written
contractual agreement in connection with such Property or pursuant to
a reasonable decision of the Managing Members that additional
reserves are necessary in connection with any Property, regardless of
whether any such payment is ultimately made, subscription funds will
not be returned to the Limited Members.
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4.6 LOANS TO COMPANY; NO INTEREST ON CAPITAL. The Members may make
loans to the Company from time to time, as authorized by the Managing
Member, in excess of their contributions to the capital of the
Company, and any such loans shall not be treated as a contribution to
the capital of the Company for any purpose hereunder, nor shall any
such loans entitle such Member to any increase in his or her share of
the profits and losses and cash distributions of the Company, nor
shall any such loans constitute a lien against the Properties. The
amount of any such loans with interest thereon at a rate determined
by the Managing Member, in its absolute discretion, but not to exceed
the rate that otherwise would be charged by unaffiliated lending
institutions on comparable loans for the same purpose, shall be an
obligation of the Company to such Member. No interest shall be paid
by the Company on the contributions to the capital of the Company by
the Members.
4.7 PURCHASE OF LIMITED LIABILITY COMPANY UNITS BY MANAGING MEMBERS.
The Managing Members and their Affiliates may subscribe for and
acquire Units for their own account; provided, however, that any
Units acquired by the Managing Members or their Affiliates will be
acquired for investment and not with a view to the distribution
thereof and that the aggregate amount of Units so purchased by the
Managing Members will not exceed five percent (5%) of the Units
offered. With respect to such Units, the Managing Members and their
Affiliates shall have all the rights afforded to Limited Members
under this agreement, except as may be expressly provided in this
agreement.
4.8 NONRECOURSE LOANS. A creditor who makes a nonrecourse loan to
the Company will not have or acquire, at any time as a result of
making the loan, any direct or indirect interest in the profits,
capital or property of the Company other than as a secured creditor.
4.9 WORKING CAPITAL RESERVE. The Managing Members shall use their
commercially reasonable efforts to maintain a working capital reserve
of one-half percent (1/2%) of the aggregate Adjusted Capital
Contributions and to restore such reserve if depleted.
4.10 DISTRIBUTION REINVESTMENT PLAN.
(a) "DURING THE OFFERING PERIOD, a Limited Member may elect
to participate in a program for the reinvestment of his or her
distributions of Net Cash Flow (the "Distribution Reinvestment
Plan") and have his or her distributions of Net Cash Flow
from operations reinvested in Units of the Company. Limited
Members participating in the Distribution Reinvestment Plan may
purchase fractional Units and there shall be no minimum purchase
amount with respect to such participants. Each Limited Member
electing to participate in the Distribution Reinvestment Plan
shall receive, at the time of each distribution of Net Cash Flow,
a notice advising such Limited Member of the number of additional
Units purchased with such distribution and advising such Limited
Member of his or her ability to change his or her election
to participate in the Distribution Reinvestment Plan.
(b) If a Limited Member withdraws from the Distribution
Reinvestment Plan, such withdrawal shall be effective only with
respect to distributions made more than 30 days following receipt
by the Company of written notice of such withdrawal. In the event
of a transfer by a Limited Member of Units, such transfer shall
terminate the Limited Member's participation in the plan as of
the first day of the quarter in which the transfer is effective.
(c) Distributions may be reinvested only if (i) the sale of
Units continues to be registered or qualified for sale under
federal and applicable state securities laws; (ii) each
continuing Participant has received a current prospectus relating
to the Company, including any supplements thereto; and (iii)
there has been no distribution of Net Proceeds of Sale or
Refinancing. If (A) any of the foregoing conditions are not
satisfied at the time of any distribution, or (B) no interests
are available to be purchased, such distributions shall be paid
in cash.
(d) Each Limited Member electing to participate in the
Distribution Reinvestment Plan hereby agrees that his or her
investment in this Company constitute his or her agreement to be
a Limited Member of the Company and to be bound by the terms and
conditions of this agreement and, if at any time he or she fails
to meet applicable investor suitability guidelines or cannot make
the other investor representations required or set forth in the
then current Company agreement prospectus or subscription
agreement, he or she will promptly notify the Managing Members in
writing.
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(e) The Company will not pay any commissions in connection
with any reinvestment pursuant to the plan to any broker-dealer
designated by the Participant in the plan. No fees shall be paid
to the Company or the Managing Members at the time of any such
reinvestment, but the Managing Members of the Company may be
reimbursed for the Cost incurred in making such reinvestment, in
accordance with the provisions of this agreement.
(f) The Managing Members may, at their option, elect to
terminate the Distribution Reinvestment Plan at any time without
notice to Limited Members.
V. ALLOCATION OF PROFITS, GAINS AND LOSSES; DISTRIBUTIONS TO
MEMBERS
The Members agree that the income, profits, gains and losses of
the Company shall be allocated and that cash distributions of the
Company shall be made as follows:
5.1 ALLOCATION OF INCOME, PROFITS, GAINS AND LOSSES. For income tax
purposes, income, profits, gains and losses of the Company for each
fiscal year, other than any gain or loss realized upon the sale,
exchange or other disposition of any Property, using such methods of
accounting for depreciation and other items as the Managing Member
determines to use for federal income tax purposes, shall be allocated
as of the end of each fiscal year to each Member based upon his or
her varying interest in the Company during such fiscal year. The
Company shall determine, in the discretion of the Managing Member and
as recommended by the Company auditors, whether to prorate items of
income and deduction according to the portion of the year for which a
Member was a member of the Company or whether to close the books on
an interim basis and divide such fiscal year into segments. Subject
to Section 5.6, for income tax purposes, income, profits, gains and
losses, other than any gain or loss realized upon the sale, exchange
or other disposition of any Property, shall be allocated as follows:
(a) Net loss shall be allocated 99% to the Limited Members,
.6% to the Managing Member and .4% to the Special Managing
Member; and
(b) Net income, profits and gains shall be allocated 97.0%
to the Limited Members, 1.8% to the Managing Member and 1.2% to
the Special Managing Member.
5.2 DISTRIBUTIONS OF NET CASH FLOW. Net Cash Flow from operations,
if any, with respect to a fiscal year will be distributed 97% to the
Limited Members and 3% to the Managing Members. Any amounts
distributed to the Limited Members in accordance with this Section
5.2 shall be allocated among the Limited Members pro rata based upon
the number of Units held by each Limited Member and the number of
days such Units were held during such fiscal year.
5.3 ALLOCATION OF GAIN OR LOSS UPON SALE, EXCHANGE OR OTHER
DISPOSITION OF A PROPERTY.
(a) Subject to Section 5.6, for income tax purposes, the
gain realized upon the sale, exchange or other disposition of any
Property shall be allocated as follows:
(i) First, to and among the Members in an amount equal
to the negative balances in their respective capital accounts
(pro rata based upon the respective amounts of such negative
balances).
(ii) Next, 99% to the Limited Members and 1% to the
Managing Members until the balance in each Limited Member's
capital account equals the sum of such Limited Member's
Adjusted Capital Contribution plus an amount equal to a 6.5%
per annum return on such Limited Member's Adjusted Capital
Contribution, cumulative but not compounded, to the extent not
previously distributed pursuant to Section 5.2 and Section
5.4(a).
(iii) The balance of any remaining gain will then be
allocated 90% to the Limited Members and 10% to the Managing
Members.
(b) Subject to Section 5.6, any loss on the sale, exchange
or other disposition of any Property will be allocated 99% to the
Limited Members and 1% to the Managing Members.
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5.4 DISTRIBUTION OF NET PROCEEDS OF SALE. Upon refinancing, sale or
other disposition of any of the Properties, Net Proceeds of Sale may
be reinvested in additional properties; provided, however, that
sufficient cash is distributed to the Limited Members to pay state
and federal income taxes (assuming Limited Members are taxable at a
marginal rate of 7% above the federal capital gains rate applicable
to individuals) created as a result of such transaction. Except for
distributions upon liquidation of the Company (which are governed by
Section 12.3 of this agreement), Net Proceeds of Sale that are not
reinvested in additional properties will be distributed as follows:
(a) First, 99% to the Limited Members and 1% to the
Managing Members until the Limited Members have received an
amount from Net Proceeds of Sale equal to the sum of (i) an
amount equal to a 6.5% per annum return on their Adjusted Capital
Contributions, cumulative but not compounded, to the extent such
6.5% return has not been previously distributed to them pursuant
to Section 5.2 and this Section 5.4(a), plus (ii) their Adjusted
Capital Contributions.
(b) Any remaining balance will be distributed 90% to the
Limited Members and 10% to the Managing Members.
In no event will the Managing Members receive more than 10% of Net
Proceeds of Sale.
5.5 CUMULATIVE RETURN. The Company shall pay a cumulative, but not
compounded, 6% per annum return on Adjusted Capital Contributions
before applying Net Proceeds of Sale to a reduction of Adjusted
Capital Contributions. The cumulative (but not compounded) return on
Adjusted Capital Contributions with respect to each Unit shall
commence on the first day of the calendar quarter following the date
upon which such Unit is initially held by a Limited Member.
5.6 REGULATORY ALLOCATIONS. The following Regulatory Allocations
shall be made in the following order:
(a) MINIMUM GAIN CHARGEBACK. Except as otherwise provided
in Section 1.704-2(f) of the Treasury Regulations,
notwithstanding any other provision of these Regulatory
Allocations, if there is a net decrease in Company minimum gain
during any Company fiscal year, each Member shall be specially
allocated items of Company income and gain for such year (and, if
necessary, subsequent years) in an amount equal to that Member's
share of the net decrease in Company minimum gain (within the
meaning of Treas. Reg. 1.704-2(b)(2) and 1.704-2(d))
determined in accordance with Treas. Reg. 1.704-2(g).
Allocations pursuant to the previous sentence shall be made in
proportion to the respective amounts required to be allocated to
each Member pursuant thereto. The items to be so allocated shall
be determined in accordance with Treas. Reg. 1.704-2(f)(6) and
1.704-2(j)(2). This paragraph (a) is intended to comply with the
minimum gain chargeback requirement in Treas. Reg. 1.704-2(f)
and shall be interpreted consistently therewith.
(b) MEMBER MINIMUM GAIN CHARGEBACK. Except as otherwise
provided in Treas. Reg. 1.704-2(i)(4), notwithstanding any
other provision of these Regulatory Allocations, if there is a
net decrease in Member nonrecourse debt minimum gain, as defined
in Treas. Reg. 1.704-2(i)(2) and determined pursuant to Treas.
Reg. 1.704-2(i)(3), attributable to a Member nonrecourse debt,
as defined in Treas. Reg. 1.704-2(b)(4), during any Company
fiscal year, each Member who has a share of the Member
nonrecourse debt minimum gain attributable to such Member
nonrecourse debt, determined in accordance with Treas. Reg.
1.704-2(i)(5), shall be specially allocated items of Company
income and gain for such year (and if necessary, subsequent
years) in an amount equal to such Member's share of the net
decrease in Member nonrecourse debt minimum gain attributable to
such Member nonrecourse debt, determined in accordance with
Treas. Reg. 1.704-2(i)(4). Allocations pursuant to the previous
sentence shall be made in proportion to the respective amounts
required to be allocated to each Member pursuant thereto. The
items to be so allocated shall be determined in accordance with
Treas. Regulations 1.704-2(i)(4) and 1.704-2(j)(2). This
paragraph (b) is intended to comply with the minimum gain
chargeback requirement in Treas. Reg. 1.704-2(i)(4) and shall
be interpreted consistently therewith.
(c) QUALIFIED INCOME OFFSET. If a Member unexpectedly
receives an adjustment, allocation or distribution described in
Treas. Reg. s 1.704-1(b)(2)(ii)(d)(4), (5) or (6), and such
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unexpected adjustment, allocation or distribution puts such
Member's capital account into a deficit balance or increases such
deficit balance determined after such account is credited by any
amounts which the Member is obligated to restore or is deemed to
be obligated to restore pursuant to the penultimate sentence of
Treas. Reg. 1.704-2(g)(1) and 1.704-2(i)(5) and debited by the
items described in Treas. Reg. 1.704-1(b)(2)(ii)(d)(4), (5)
and (6) and for all other allocations tentatively made pursuant
to these Regulatory Allocations as if this paragraph (c) were not
in this agreement, such Member shall be allocated items of
Company income and gain in an amount and manner sufficient to
eliminate such deficit or increase as quickly as possible. It is
intended that this paragraph (c) shall meet the requirement that
this agreement contain a "qualified income offset" as defined in
Treas. Reg. 1.704-1(b)(2)(ii)(d) and this Section shall be
interpreted and applied consistently therewith.
(d) GROSS INCOME ALLOCATION. In the event any Member has a
deficit capital account at the end of any fiscal year which is in
excess of the sum of (i) the amount such Member is obligated to
restore pursuant to any provision of this agreement, and (ii) the
amount such Member is deemed to be obligated to restore pursuant
to the penultimate sentences of Treas. Reg. 1.704-2(g)(1) and
1.704-2(i)(5), each such Member shall be specially allocated
items of Company income and gain in the amount of such excess as
quickly as possible, provided that an allocation pursuant to this
paragraph (d) shall be made only if and to the extent that such
Member would have a deficit capital account in excess of such sum
after all other allocations provided for in these Regulatory
Allocations have been made as if paragraph (c) and this paragraph
(d) were not in the Agreement.
(e) NONRECOURSE DEDUCTIONS. Nonrecourse deductions, within
the meaning of Treas. Reg. 1.704-2(b)(1), for any fiscal year
or other period shall be specially allocated to the Members in
proportion to their Units.
(f) MEMBER NONRECOURSE DEDUCTIONS. Any Member nonrecourse
deductions, within the meaning of Treas. Reg. 1.704-2(i)(1)
and 1.704-2(i)(2), for any fiscal year or other period shall be
specially allocated to the Member who bears the economic risk of
loss with respect to the Member nonrecourse debt to which such
Member nonrecourse deductions are attributable in accordance with
Treas. Regulations Section 1.704-2(i).
(g) SECTION 754 ADJUSTMENT. To the extent an adjustment to
the adjusted tax basis of any Company asset pursuant to Code
Sections 732, 734(b) or 743(b) is required, pursuant to Treas.
Reg. 1.704-1(b)(2)(iv)(m)(2) or (4), to be taken into account
in determining capital accounts, the amount of such adjustment to
the capital accounts shall be treated as an item of gain (if the
adjustment increases the basis of the asset) or loss (if the
adjustment decreases such basis) and such gain or loss shall be
specially allocated to the Members in a manner consistent with
the manner in which their capital accounts are required to be
adjusted pursuant to such Sections of the Treasury Regulations.
(h) Limitation on Loss Allocation. Notwithstanding anything
in Sections 5.1 above, losses allocated pursuant to Section 5.1 shall
not exceed the maximum amount of losses that can be so allocated
without causing a Member to have an adjusted capital account deficit
at the end of any fiscal year. In the event one of the Members would
have an adjusted capital account deficit as a consequence of an
allocation of losses pursuant to Section 5.1, the limitation set
forth herein shall be applied on a Member by Member basis so as to
allocate the maximum permissible losses to each Member under Section
1.704-1(b)(2)(ii)(d) of the Regulations. All losses in excess of the
foregoing limitation shall be allocated to the Members in proportion
to their Units.
The Regulatory Allocations are intended to comply with certain
requirements of the Treasury Regulations. It is the intent of the
Members that to the extent possible, all Regulatory Allocations shall
be offset either with other Regulatory Allocations or with special
allocations of other items of Company income, gain, loss, or
deduction pursuant to this paragraph. Therefore, notwithstanding any
other provision of these Regulatory Allocations (other than the
Regulatory Allocations), the Managing Member shall make such
offsetting special allocations of Company income, gain, loss, or
deduction in whatever manner it determines appropriate so that, after
such offsetting allocations are made, each Member's capital account
balance is, to the extent possible, equal to the capital account
balance such Member would have had if the Regulatory Allocations were
not part of the Agreement and all Company items were allocated
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pursuant to Section 12.1 and Section 12.2. In exercising its
discretion under this paragraph, the Managing Member shall take into
account future Regulatory Allocations under Sections paragraphs (a)
and (b) that, although not yet made, are likely to offset other
Regulatory Allocations previously made under paragraphs (e) and (f).
5.7 ALLOCATION AMONG MANAGING MEMBERS. Any allocations or
distributions to the Managing Members shall be made in the following
ratio: 60% to the Managing Member and 40% to the Special Managing
Member.
VI. RIGHTS, POWERS AND DUTIES OF MANAGING MEMBERS
The Members agree that the Managing Members, acting through the
Managing Member, shall have the following rights, powers and, where
provided, duties in connection with the conduct of the business of
the Company.
The Managing Member shall manage the affairs of the Company in a
prudent and business-like fashion and shall use its best efforts to
carry out the purposes and character of the business of the Company.
The Managing Member shall devote such of its time as it deems
necessary to the management of the business of the Company and may
enter into agreements with an Affiliate to provide services for the
Company, provided that such services are furnished at Cost.
6.1 APPOINTMENT OF MANAGING MEMBER. Subject to the limitations
herein, and to the express rights afforded Limited Members herein,
including, without limitation, the rights set forth in Articles VII
and XI herein, the Special Managing Member and the Limited Members
delegate to the Managing Member the sole and exclusive authority for
all aspects of the conduct, operation and management of the business
of the Company, including making any decision regarding the sale,
exchange, lease or other disposition of the Properties; provided,
however, that the Managing Member shall be required to obtain the
prior consent of a majority of the Limited Members, by interest,
excluding any Units held by the Managing Members, (i) to the sale of
all or substantially all of the assets of the Company or (ii) to any
material change to the investment objectives and policies of the
Company as described in the Prospectus. In the event the Managing
Member proposes to cause the Company to enter into a transaction
requiring the consent of the Special Managing Member, the Managing
Member shall forthwith notify the Special Managing Member of its
intentions in writing. The Special Managing Member shall be
considered to have consented to such proposal if he fails to notify
the Managing Member of his objection thereto within 20 days of the
date of notice of such proposal, such notification to include a brief
statement of each reason for the Special Managing Member's opposition
to such proposal. With the exceptions stated above, the Managing
Member shall have the exclusive authority to make all decisions
affecting the Company and to exercise all rights and powers granted
to the Managing Members.
6.2 REIMBURSEMENT OF EXPENSES.
(a) Subject to the limitations set forth in Section 6.2(b),
the Company shall reimburse the Managing Members and their
affiliates at their Cost: (i) for any expenditures of their own
funds for purposes of organizing the Company and arranging for
the offer and sale of Units (including commissions); (ii) for all
Acquisition Expenses incurred by them out of the proceeds from
the initial offering of Units, (iii) for the services they
provide in the sales effort of the Properties, and (iv) for the
expenses of controlling persons and overhead expenses directly
attributable to the forgoing services or attributable to
Administrative Services (which overhead expenses shall be
allocated based upon the amount of time personnel actually spend
providing such services, or such other method of allocation as is
acceptable to the Company's independent public accountant). In
addition, the Company shall reimburse the Managing Members and
their affiliates at their Cost for (i) Acquisition Expenses
related to properties purchased with Net Proceeds of Sale of
other properties, and (ii) for Administrative Expenses necessary
for the prudent operation of the Company, provided that any
expenses of controlling persons and overhead expenses included in
such Administrative Expense reimbursements shall be subject to
the limitations set forth in Section 6.2(b). The Company shall
also pay to the Managing Member an Organization Fee, to compensate
the Managing Member for expenditure of its own funds prior to
reimbursement and for the risk that such expenditures in forming
the Company would not be reimbursed, in an amount equal to 1.5% of
capital contributions, but only to the extent that such
reimbursement, when combined with all other Organization and
Offering Costs, does not exceed 15% of capital contributions.
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(b) The aggregate cumulative reimbursements pursuant to
Section 6.2(a)(i) to (iv) to the Managing Members and their
Affiliates, when combined with the Organization Fee, will not
exceed, at the end of any fiscal year, the sum of (i)the Front-End
Fees of up to 20% of capital contributions, (ii) property
management fees of up to 1% of gross revenues on each lease,except
for a one time initial leasing fee of 3% of the gross revenues on
each lease payable over the first five full years of the original
term of the lease, (iii) real estate commission of 3% of Net
Proceeds of Sale of properties on which the Managing Members or
Affiliates furnish a substantial amount of sales efforts, and (iv)
10% of Net Cash Flow less the Net Cash Flow actually distributed
to the Managing Members. The Managing Members will review the
reimbursements that they and their Affiliates receive at the end
of each fiscal year of the Company. If the Managing Members and
their Affiliates receive reimbursement for items set forth in
Section 6.2(a)(i) to (iv) in excess of the limitations set forth
in this section, they will refund the difference to the Company
within 30 days of discovery of such excess. Such review shall not
take into account any of the fees that might be paid in years
after the fiscal year for which the calculation is made.
(c) The Company's annual report to Limited Members will
contain information concerning reimbursements made to the
Managing Member and its Affiliates. Within the scope of the
annual audit, an independent certified public accountant shall
verify the allocation of costs to the Company. The methods of
verification shall be in accordance with generally accepted
auditing standards and shall, accordingly, include such tests of
the accounting records and such other auditing procedures that
the Managing Member's independent certified public accountants
consider appropriate in the circumstances. Such methods of
verification shall at a minimum provide: (i) a review of the time
records of employees and control persons, the costs of whose
services were reimbursed and (ii) a review of the specific nature
of the work performed by each such employee and control person.
The additional cost of such verification will be itemized by such
accountant on a program-for-program basis, and the Managing
Members will be reimbursed for such additional cost only to the
extent that the cost of such verification, when added to all
reimbursements to the Managing Members for services rendered to
the Company, does not exceed the competitive price for such
services which would be charged by non-affiliated persons
rendering similar services in the same or comparable geographic
location.
(d) The Managing Members and their Affiliates will not be
reimbursed or otherwise paid for any services except as set forth
in Section 6.2(a).
6.3 OTHER ACTIVITIES OF MANAGING MEMBERS. The Managing Members,
during the term of this Company, may engage in and possess an
interest for their own account in other business ventures of every
nature and description, independently or with others, including, but
not limited to, the ownership, financing, leasing, operation,
management, syndication, brokerage, investment in and development of
real estate; and neither the Company nor any Member, by virtue of
this agreement, shall have any right in and to said independent
ventures or any income or profits derived therefrom. Nothing in this
section shall be deemed to diminish the Managing Member's overriding
fiduciary obligation to the Company, or to constitute a waiver of any
right or remedy the Company or Limited Members may have in the event
of a breach by a Managing Member of such obligation.
6.4 INDEMNIFICATION AND LIABILITY OF MANAGING MEMBERS.
(a) The Company shall indemnify each of the Managing
Members and their Affiliates (other than an Affiliate that is
acting in the capacity of a Broker-Dealer selling Units) against
any claim or liability incurred or imposed upon such Managing
Member or such Affiliates provided such Managing Member or
Affiliate was acting on behalf of or performing services for the
Company and the Managing Member has determined, in good faith,
that the course of conduct which caused the loss or liability was
in the best interests of the Company, and such conduct of the
Managing Member or Affiliate did not constitute misconduct or
negligence. The Managing Members or Affiliates shall not be
liable to the Company or any Member by reason of any act or
omission of such Managing Member or Affiliate provided the
Managing Member has determined, in good faith, that the course of
conduct which caused the loss or liability was in the best
interests of the Company, and such conduct of the Managing Member
or Affiliate did not constitute misconduct or negligence. Solely
for purposes of this Section 6.4, but for all such purposes, the
term "Affiliate" shall mean only those Affiliates, as defined in
Section 2.5, that furnish services to the Company within the
scope of the Managing Members' authority.
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(b) No Managing Member or Affiliate or any Broker-Dealer
selling Units shall be indemnified for any liability imposed by
judgment, or costs associated therewith, including attorneys'
fees, arising from or out of a violation of state or federal
securities laws. The Managing Members and such Affiliates, and
such Broker-Dealers, shall be indemnified for settlements and
related expenses of lawsuits alleging securities law violations,
and for expenses incurred in successfully defending such
lawsuits, provided that the party seeking indemnification places
before the court the position of the Massachusetts Securities
Division, of the Missouri Securities Division, of the
Pennsylvania Securities Commission, of the administrator of other
relevant state securities laws and of the Securities and Exchange
Commission on indemnification for securities law violations, and
the court thereafter either:
(i) approves the settlement and finds that
indemnification of the settlement and related costs should be
made, or
(ii) approves indemnification of litigation costs if a
successful defense is made.
Any indemnification pursuant to this Section 6.4, or otherwise,
shall be recoverable only from the assets of the Company and not
from any of the Limited Members. No Managing Member or Affiliate
shall be entitled to advances for legal expenses and other costs
incurred as a result of legal action initiated against the
Managing Members or Affiliate unless (1) the action relates to
the performance of the duties of such Managing Member or
Affiliate on behalf of the Company, (2) the action is not
initiated by a Limited Member, and (iii) the Managing Member or
Affiliate undertakes to repay such advances in cases in which it
is determined they are not entitled to indemnification.
(c) The Managing Member shall have fiduciary responsibility
for the safekeeping and use of all funds and assets of the
Company, whether or not in its immediate possession or control,
and the Managing Member shall not employ, or permit another to
employ, such funds or assets in any manner except for the
exclusive benefit of the Company. The Managing Members and the
Company may not permit the Limited Members to contract away the
fiduciary duty owed to the Limited Members by the Managing
Members under the common law.
6.5 PROHIBITED TRANSACTIONS. Notwithstanding anything to the
contrary contained herein, the Managing Members and Affiliates of the
Managing Members (i) may not receive interest and other financing
charges or fees on loans made to the Company in excess of the amounts
that would otherwise be charged by unaffiliated lending institutions
on comparable loans for the same purpose and in the same locality of
the Property if the loan is made in connection with a particular
Property, (ii) may not require a prepayment charge or penalty on any
loan from the Managing Members to the Company, (iii) may not provide
financing to the Company that is payable over a period exceeding 48
months or for which more than 50% of the principal is due in more
than 24 months, (iv) may not grant to themselves an exclusive listing
for the sale of any Property, (v) may not directly or indirectly pay
or award any commissions or other compensation to any person engaged
by a potential investor for investment advice as an inducement to
such adviser to advise the purchaser of the Units, provided, however,
that this provision shall not prohibit the normal sales commissions
payable to a registered broker-dealer or other properly licensed
person for selling the Units, (vi) may not commingle Company funds
with the funds of any other person, (vii) may not sell property to,
purchase property from, or lease property to or from the Company,
provided that the Company may purchase real property from the
Managing Members or their Affiliates if the Managing Members or their
Affiliates purchased the property in their own name and temporarily
held title thereto for a period not in excess of twelve months for
the purpose of facilitating the acquisition of the property, the
borrowing of money, the obtaining of financing for the Company or any
other purpose related to the business of the Company, and the
property is purchased by the Company for a price no greater than the
price paid by the Managing Members or their Affiliates plus
Acquisition Expenses in accordance with the provisions of this
agreement, and any profit or loss on such property during such period
is paid to or charged against the Company, and there is no other
benefit arising out of such transaction to the Managing Members or
their Affiliates apart from compensation otherwise permitted by this
agreement (the prohibitions of this Section 6.5(vii) shall also apply
to any program in which the Managing Members have an interest),
(viii) may not receive a commission or fee in connection with the
reinvestment or distribution of the proceeds of the resale, exchange
or refinancing of the Properties (ix) may not cause the Company to
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incur indebtedness directly or indirectly related to the purchase of
properties, from any source, (x) may not cause the Company to invest
in other limited partnerships or limited liability companies,
provided that joint venture arrangements set forth in Section 6.6
shall not be prohibited, (xi) may not cause the Company to acquire
property in exchange for Units, (xii) may not cause the Company to
pay a fee to the Managing Members or their Affiliates for insurance
coverage or brokerage services, (xiii) may not cause the Company to
make loans or investments in real property mortgages other than in
connection with the purchase or sale of the Company's properties,
(xiv) may not cause the Company to operate in a manner as to be
classified as an "investment company" for purposes of the Investment
Company Act of 1940, (xv) may not cause the Company to underwrite or
invest in the securities of other issuers, except as specifically
discussed in Section 6.6 and in the Prospectus, (xvi) may not cause
the Company to incur the cost of that portion of liability insurance
that insures the Managing Members or their Affiliates for any
liability as to which such Managing Members or their Affiliates are
prohibited from being indemnified under Section 6.4, (xvii) may not
receive a real estate commission in connection with the purchase,
sale or financing of a Property and will not permit aggregate
compensation to others in connection with the sale of any Property to
exceed a Competitive Real Estate Commission, (xviii) may not receive
an Acquisition Fee (including, without limitation, Development Fee or
Construction Fee) or permit such Acquisition Fees, together with
Acquisition Expenses paid to any party, by the Company to exceed 18%
of the total capital contributions of Limited Members pursuant to
Section 4.2 of this agreement, (xix) may not cause the Company to
incur Front-End Fees to the extent that such fees would cause the
Company's Investment in Properties to be less than 80% of capital
contributions, (xx) may not receive any rebate or give-up nor
participate in any reciprocal business arrangement in circumvention
of the NASAA Guidelines, nor shall any Managing Member participate in
any reciprocal business arrangement that would circumvent the
restrictions of such NASAA Guidelines against dealing with affiliates
or promoters, and (xxi) may not cause the Company to make any loans
or advances at any time to the Managing Members or their Affiliates.
6.6 INVESTMENTS IN OTHER PROGRAMS. The Company may not purchase
limited partnership or limited liability company interests of another
program and will not purchase general partnership interests in a
limited partnership. The Company may, however, invest (a) in general
partnerships or joint ventures that own and operate a particular
property provided the Company, either alone or together with any
publicly-registered Affiliate,acquires a controlling interest in such
other ventures or general partnerships, and such general partnerships
or joint venture does not result in duplicate fees, (b) in general
partnerships or joint ventures with another publicly-registered
program sponsored by the Managing Members or their Affiliates, or
(c) in general partnerships or joint ventures with the Managing
Members or their Affiliates other than another publicly registered
program. For purposes of Section 6.6(a), "controlling interest"
means an equity interest possessing the power to direct or cause the
direction of the management and policies of the partnership or joint
venture, including the authority to
(i) review all contracts entered into by the general
partnership or joint venture that will have a material effect
on its business or property;
(ii) cause a sale or refinancing of the property or the
Company's interest therein subject in certain cases where
required by the partnership or joint venture agreement, to
limits as to time, minimum amounts and/or a right of first
refusal by the joint venture partner or consent of the joint
venture partner;
(iii) approve budgets and major capital expenditures,
subject to a stated minimum amount;
(iv) veto any sale or refinancing of the property, or,
alternatively, to receive a specified preference on sale or
refinancing proceeds; and,
(v) exercise a right of first refusal on any desired
sale or refinancing by the joint venture partner of its
interest in the property except for transfer to an Affiliate
of the joint venture partner.
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For purposes of 6.6(b), the Company shall be permitted to invest
in general partnerships or joint ventures with another
publicly-registered program or programs sponsored by the Managing
Members or their Affiliates for the purpose of acquiring a property
from unaffiliated parties only if all the following conditions are
met:
(a) The two programs have substantially identical
investment objectives;
(b) There are no duplicate property management or other
fees;
(c) The Managing Members' compensation is substantially
similar in each program;
(d) In the event of a proposed sale of property held in the
joint venture by the other joint venture member, the Company will
have a right of first refusal to purchase the other party's
interest; and
(e) The investment by each of the programs in the joint
venture must be upon substantially the same terms and conditions.
For purposes of 6.6(c), the Company shall be permitted to invest
in general partnerships or joint ventures with the Managing Members
or their Affiliates other than a publicly-registered program for the
purpose of acquiring a property from unaffiliated parties only if
all the following conditions are met:
(a) The investment is necessary to relieve the Managing
Member or their Affiliates from any commitment to purchase the
property entered into in compliance with Section 6.5(vii) prior
to the closing of the offering period of the Company;
(b) There are no duplicate property management or other
fees;
(c) The investment by each of the programs in the joint
venture must be upon substantially the same terms and conditions;
(d) In the event of a proposed sale of property held in the
joint venture by the other joint venture member, the Company will
have a right of first refusal to purchase the other party's
interest.
6.7 UNIMPROVED OR NON-INCOME PRODUCING PROPERTY/PROPERTY UNDER
CONSTRUCTION.
(a) The Company may not acquire unimproved or non-income
producing property except in amounts and upon terms which can be
financed by the Limited Members' capital contributions or from
funds provided from operations. In no event shall the Company
acquire unimproved or non-income producing property exceeding 10%
of the total capital contributions of Limited Members pursuant to
Section 4.2 of this agreement. For purposes of this Section 6.7,
properties that are expected to produce income within two years
shall not be considered unimproved or non-income producing
properties. Neither the Managing Members nor any Affiliate will
develop, construct or provide Major Repairs or Rehabilitation for
properties, or render services in connection with such
activities; provided that nothing in this section shall prohibit
an unaffiliated third party from engaging in such activities on
behalf of the Company.
(b) The Company may not acquire property which is under
construction unless completion is guaranteed at the purchase
price contracted for by (i) a completion bond, (ii) a written
guarantee of completion by a person who, or entity that, has
provided financial statements demonstrating sufficient net worth
and collateral, or (iii) retention of a reasonable portion of the
purchase price as an offset in the event the seller does not
perform.
6.8 INVESTMENTS IN JUNIOR TRUST DEEDS. The Company may not invest in
junior trust deeds and other similar obligations except to the extent
such investments arise upon sale of Properties. In no event shall
such investments exceed 10% of the gross assets of the Company.
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6.9 REQUIREMENT FOR REAL PROPERTY APPRAISAL. All Property
acquisitions by the Company will be supported by an appraisal
prepared by a competent, independent appraiser. The appraisal will be
maintained in the Company's records for at least five years and will
be available for inspection and duplication by any Limited Member.
6.10 BALLOON PAYMENTS.
(a) Any Indebtedness of the Company (which shall, in any
event, be subject to the limitations contained in Section 6.5(ix)
of this agreement) which is not fully amortized in equal payments
over a period of not more than 30 years, shall have a maturity
date (due date) which is not earlier than ten years after the
date of purchase of the underlying property or two years after
the anticipated holding period of the property (provided such
holding period is at least seven years); provided, however, that
this Section 6.10(a) shall not limit the ability of the Company
to finance Properties using adjustable rate mortgages.
(b) The Company may not incur indebtedness of any kind,
including all-inclusive and wrap-around loans and interest-only
loans, in connection with the purchase of a Property.
(c) The provisions of this Section 6.10 shall not apply
(but the provisions of section 6.5(ix) shall apply) to
indebtedness representing, in the aggregate, 25% or less of the
total purchase price of all Properties acquired, or to interim
financing, including construction financing, with a full take-out
commitment.
6.11 SELLING COMMISSIONS.
(a) Except as otherwise provided in this Section 6.11, the
Company shall pay any and all Selling Commissions and a
nonaccountable expense allowances in the amount of $1.00 per Unit
sold in accordance with the Dealer Manager Agreement with AEI
Securities, Inc. The Company shall also reimburse the Dealer
Manager for the bona fide due diligence expenses of dealers selling
Units to the extent the aggregate of such reimbursements do not
exceed $0.05 per Unit sold.
(b) The dealer manager, a participating dealer or their
respective officers, employees or registered representatives may
purchase Units at a per Unit purchase price of $9.35. A Limited
Member who purchases Units in an account managed by an investment
advisor who receives compensation on a fee for services basis,
and is affiliated with a participating dealer who does not
receive commissions on the purchase, may purchase at a price of
$9.35 per Unit.
(c) The Managing Member and its Affiliates may purchase
Units at a per Unit purchase price of $9.35.
(d) Subject to agreement with the Limited Member purchasing
the Units, the participating dealer through which the Units are
purchased, and AEI Securities, Inc., any Limited Member
purchasing Units may purchase Units for an initial purchase price
of $9.50 per Unit, provided the Limited Member agrees to apply to
payment of deferred commissions $0.10 per Unit per year from
distributions of Net Cash Flow and or Net Proceeds of Sale of
Properties during each of the five years after the year of
purchase of the Units. Subject to such agreement, the Company
shall pay AEI Securities, Inc. selling commissions and
nonaccountable expenses of $0.50 per Unit upon admission of such
Limited Member to the Company and shall pay AEI Securities, Inc.
an additional $0.10 per Unit (the "Deferred Commissions") on the
first distribution date next following each of the first five
anniversary dates of such admission; provided, however, that such
Deferred Commissions shall be accelerated (i) upon any attempted
sale or transfer of such Limited Member's Units so that such
transfer is conditioned on either the payment of all deferred
commissions or the agreement of the transferee to apply
distributions to the payment of such deferred commissions, and
(ii) upon the final dissolution and winding up of the Company and
shall be paid out of any proceeds otherwise distributable to such
Limited Member as a part of that liquidation.
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6.12 ROLL-UP TRANSACTIONS.
(a) The Company shall not participate in any Roll-Up (i)
which would result in Limited Members having democracy rights in
the Roll-Up Entity which are less than those provided in this
Operating Agreement (provided that, if the form of the Roll-Up
entity is other than a Company, the democracy rights shall
conform to those provided in this Operating Agreement to the
greatest extent possible); (ii) which includes provisions that
would act to materially impede or frustrate the accumulation of
shares of any purchaser of the securities of the Roll-Up entity
(except to the extent required to preserve the tax status of the
Roll-Up Entity); (iii) which would limit the rights of Limited
Members to exercise voting rights in the securities of the Roll-
Up entity on the basis of the number of equity interests held by
such Limited Members; (iv) which would result in a Roll-Up Entity
which would have rights to access of records less than those of
the Company; or (v) which provides for the costs of the Roll-Up
to be borne by the Company and which is not approved by Limited
Members.
(b) No Roll-Up shall be conducted unless an appraisal of
all material Company assets has been obtained from a competent
person or entity that has no material current or prior business
or personal relationship with the Managing Members or their
Affiliates and who is engaged to a substantial extent in the
business of rendering opinions regarding the value of assets of
the type held by the Company and is qualified to perform such
appraisal. The appraisal shall be based upon an evaluation of all
relevant information, assuming an orderly liquidation of the
Company's assets over a 12-month period, and shall indicate the
value of the Company's material assets as of a date immediately
preceding announcement of the proposed Roll-Up. The appraiser
expert performing the appraisal shall be engaged for the benefit
of the Company and its Members. A summary of the appraisal shall
be included in a report to the Limited Members in connection with
the Proposed Roll-Up and if such report is a part of a prospectus
used to offer securities in the Roll-Up Entity, the appraisal
shall be filed with the SEC and the states in connection with the
registration statement for the offering.
(c) Any Limited Member who votes against a Roll-Up that is
completed, shall be given the option to (i) accept the securities
in the Roll-Up Entity in the Roll-Up, or (ii) either one of (x)
remaining a Limited Member in the Company or (y) receiving cash
in the amount of the appraised value of the assets of the
Company.
VII. PROVISIONS APPLICABLE TO LIMITED MEMBERS
The following provisions shall apply to the Limited Members, and
the Limited Members hereby agree thereto.
7.1 LIABILITY. The Limited Members shall be liable with respect to
the Company only to the extent of the amount of the contribution to
capital made by such Limited Members as provided in Section 4.2. The
Units are non-assessable.
7.2 NO PARTICIPATION IN MANAGEMENT. No Limited Member shall take any
part or participate in the conduct of, or have any control over, the
business of the Company, and no Limited Member shall have any right
or authority to act for or to bind the Company; provided, however,
that the Company may not sell all or substantially all of the assets
of the Company without the prior written consent of a majority of the
Limited Members, by interest.
7.3 NO WITHDRAWAL OR DISSOLUTION. No Limited Member shall at any
time withdraw from the Company except as provided in this agreement.
No Limited Member shall have the right to have the Company dissolved
or to have his or her contribution to the capital of the Company
returned except as provided in this agreement. The death or
bankruptcy of a Limited Member shall not dissolve or terminate the
Company.
7.4 CONSENT. To the fullest extent permitted by law, each of the
Limited Members hereby consents to the exercise by the Managing
Member of all the rights and powers conferred on the Managing Member
by this agreement.
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7.5 POWER OF ATTORNEY. Each of the Limited Members and the Special
Managing Member hereby irrevocably constitute and appoint the
Managing Member his or her or its true and lawful attorney, in his or
her or its name, place and stead to make, swear to, execute,
acknowledge and file:
(a) this Operating Agreement and any and all certificates
of formation of the Company, and any amendments thereto that may
be required by the Limited Liability Company Act, including
amendments required for the reflection of return of capital to
any Member or the contribution of any additional capital, and the
continuation of the business of the Company by a substitute
and/or additional Managing Member;
(b) any certificate or other instrument and any amendments
thereto that may be required to be filed by the Company in order
to accomplish the business and the purposes of the Company,
including any business certificate, fictitious name certificate
or assumed name certificate;
(c) any cancellation of such certificates of formation,
this Operating Agreement and any and all other documents and
instruments that may be required upon the dissolution and
liquidation of the Company;
(d) new certificates of formation and any and all documents
and instruments that may be required to effect a continuation of
the business of the Company as provided in this agreement; and
(e) any amended operating agreement or certificate of
formation that has been duly adopted hereunder or authorized
hereby.
It is expressly intended that the foregoing power of attorney is
(1) coupled with an interest and shall survive the bankruptcy, death,
incompetence or dissolution of any person hereby giving such power
and (2) does not affect the Limited Members' rights to approve or
disapprove any amendments to this agreement or other matters as
provided elsewhere herein.
If a Limited Member assigns his or her interest in the Company,
as provided in Article IX, the foregoing power of attorney shall
survive the delivery of the instruments effecting such assignment for
the purpose of enabling the Managing Member to sign, swear to,
execute and acknowledge and file any and all amendments to the
certificates of formation of the Company and other instruments and
documents necessary to effectuate the substitution of the assignee as
a Limited Member.
7.6 LIMITATION OF ACQUISITION OF EQUITY SECURITIES OF THE MANAGING
MEMBERS. The Limited Members (excluding the Managing Members or their
Affiliates who purchase Limited Liability Company Units) shall not
own, directly or indirectly, individually or in the aggregate, more
than 20% of the outstanding equity securities of either of any
Managing Member or its Affiliates.
The phrase "own, directly or indirectly" used herein shall have
the meaning set forth in Section 318 of the Internal Revenue Code of
1954, as currently in effect or as hereafter amended. As of the date
hereof, such term includes ownership by a Limited Member, his or her
spouse, children, grandchildren, parents, any Company of which the
Limited Member or any of the foregoing is a member, any estate or
trust of which the Limited Member or any of the foregoing is the
beneficiary and any corporation at least 50% owned in the aggregate
by said Limited Member or any of the foregoing.
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7.7 RIGHT TO PRESENT UNITS FOR PURCHASE.
(a) Beginning 36 months from the date of the Prospectus, each
Limited Member shall have the right, subject to the provisions of
this Section 7.7, to present his or her Units to the Company for
repurchase by submitting a proper written request to the Managing
Member specifying the number of Units he or she wishes
repurchased. Such notice must be postmarked after January 1 but
before January 31, and after July 1 but before July 31 of each
year (the "Presentment Periods"). On March 31 and September 30 of
each year (hereafter, a "Repurchase Date"), and subject to the
limitations set forth in Section 7.7 (c), the Managing Member
shall cause the Company to repurchase the Units of Limited
Members who have tendered their Units to the Company. The
purchase price shall be equal to eighty-five percent (85%) of the
Net Value Per Unit as of the preceding December 31 (in the case
of repurchases as of March 31) or June 30 (in the case of
repurchases as of September 30) (such dates being hereafter
referred to as a "Determination Date"), and less any
distributions to the tendering Limited Member after the
Determination Date and prior to the Repurchase Date. The Managing
Members shall publish the repurchase price offered for Units
based on its determination of the Net Value per Unit as soon as
possible after each Determination Date.
(b) Beginning 36 months from the date of the Prospectus, and
subject to the conditions and limitations described in this
Section 7.7, the Managing Member may repurchase Units upon the
death of a Limited Member who is a natural person, including
Units held by a Limited Member in an IRA or other qualified plan,
upon receipt of a proper written request from the Limited
Member's estate or from the recipient of the Units through
bequest or inheritance. Written notice must be received within
180 days after the death of the Limited Member accompanied by
evidence of the death of the Limited Member acceptable to the
Managing Member, and executed by the executor/executrix of the
estate, the heir or beneficiary, or their trustee or authorized
agent. If the Units are held jointly and either of the joint
owners dies, the written request may be made and executed by the
surviving joint owner. The price paid for the Units repurchased
upon death will be equal to 100% of the Net Value per Unit
established as of the preceding Determination Date, and less any
distributions to the tendering Limited Member after the preceding
Determination Date and prior to the Repurchase Date. On the
Repurchase Dates referenced in Section 7.7 (a) and subject to the
limitations set forth in Section 7.7 (c), the Managing Member
shall cause the Company to repurchase the Units of Limited
Members who have tendered their Units to the Company. If the
Limited Member is a trust, partnership, corporation or similar
entity, and/or the units were not acquired directly from the
Company, these rights of presentment for repurchase upon death do
not apply.
(c) The Company will not be obligated to purchase in any
year more than 2% of the total number of Units outstanding on
January 1 of such year. In the event requests for purchase of
Units received in any given year exceed the two percent (2%)
limitation, the Units to be purchased will be determined based
upon the postmark date of the written notice of Limited Members
tendering Units. Any Units tendered but not selected for purchase
in any given year will be considered for purchase in subsequent
years only if the Limited Member retenders his or her Units. In
no event shall the Company be obligated to purchase Units if, in
the sole discretion of the Managing Member, such purchase would
impair the capital or operation of the Company nor shall the
Company purchase any Units in violation of applicable legal
requirements.
(d) For purposes of all calculations pursuant to Article V
of this agreement, any Net Cash Flow or Net Proceeds of Sale used
to repurchase Units or to repay borrowings that were used to
repurchase Units shall be deemed distributed to the remaining
Limited Members pro rata based upon the ratio of the number of
Units owned to all Units outstanding after such repurchase.
7.8 VOTING RIGHTS. To the extent permitted under the Limited
Liability Company Act, as amended, the Limited Members may, by vote
of a majority of the outstanding Units (excluding Units held by the
Managing Members for their own accounts), and without the concurrence
of the Managing Members:
(1) amend this Operating Agreement in accordance with the
provisions of Article XI;
(2) remove the Managing Member and elect a new Managing
Member in accordance with Section 10.4 of this agreement;
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(3) approve or disapprove the sale of all or substantially
all of the assets of the Company;
(4) dissolve the Company in accordance with Section 12.1(g).
VIII. BOOKS OF ACCOUNT; REPORTS AND FISCAL MATTERS
8.1 BOOKS; PLACE; ACCESS. The Managing Member shall maintain
accurate books of account and each and every transaction shall be
entered therein. The Company records shall contain the names and
addresses of all Members and shall maintain, for a period of six
years after completion of the offering of Units, copies of all
subscriptions and other materials used to determine that the purchase
of the Units was suitable for each Limited Member. The books of
account and the records shall be kept at the office of the Company in
St. Paul, Minnesota, and any Member or his or her legal counsel may
inspect and copy the Company books and records at any time during
ordinary business hours. The Managing Member shall have no obligation
to deliver or mail to Limited Members copies of certificates of
formation or amendments thereto.
8.2 METHOD. The books of account shall be kept in accordance with
generally accepted accounting principles.
8.3 FISCAL YEAR. The fiscal year of the Company shall end on
December 31 of each year.
8.4 ANNUAL REPORT. At the Company's expense, the books of account
shall be audited at the close of each fiscal year by a firm of
independent public accountants selected by the Managing Member, and a
copy of its report shall be transmitted within 120 days after the
close of such fiscal year to the Members and to such state securities
commissioners as may be required by the rules and regulations of the
various states.
The annual report shall contain (a) a balance sheet as of year
end, a statement of operations for the year then ended, a statement
of Members' equity, and statement of cash flows, all of which shall
be audited with a report containing an unqualified opinion expressed
thereon, or an opinion containing no material qualification of an
independent public accountant, (b) a report of the activities of the
Company during the period covered by the report and (c) the amount of
any fees or other reimbursements to the Managing Members or any
Affiliates of the Managing Members during the fiscal year to which
such annual report relates, including information required by Section
6.2. Such report shall set forth distributions to Limited Members for
the period covered thereby and shall separately identify
distributions from (i) cash flow from operations during the period,
(ii) cash flow from operations during a prior period that had been
held as reserves, (iii) proceeds from the disposition of property and
investments and (iv) reserves from the gross proceeds of the offering
originally obtained from the Limited Members. The financial
information contained in the annual report will be prepared on the
GAAP basis. The annual report will also include the estimate of the
value of a unit in the Company determined by our Managing Member, a
statement of the method used to develop this estimated value, and the
date of the data used to develop the estimated value. The Managing
Member also shall make available to each Limited Member, upon
request, a copy of any annual reports that the Company may be
required to file with the Securities and Exchange Commission within
90 days after the close of the period to which such reports relate.
8.5 QUARTERLY REPORTS. During the life of the Company, the Managing
Member shall prepare and distribute to all Members within 60 days
after the end of each quarter and to such state securities
commissioners as may be required by the rules and regulations of the
various states, a quarterly summary of Company financial results.
Such quarterly reports shall contain (a) a current condensed balance
sheet, which may be unaudited, (b) a condensed operating statement
for the quarter then ended, which may be unaudited, (c) a condensed
cash flow statement for the quarter then ended, which may be
unaudited, and (d) other pertinent information regarding the Company
and its activities during the quarter covered by the report. Such
quarterly reports shall also contain a detailed statement setting
forth the services rendered, or to be rendered, by the Managing
Members or their Affiliates and the amount of the fees received. The
Managing Member also shall make available to each Limited Member,
upon request, a copy of any reports that the Company may be required
to file with the Securities and Exchange Commission within 45 days
after the close of the period to which such reports relate.
8.6 SPECIAL REPORTS. The Managing Member shall have prepared, as of
the end of each quarter in which a Property is acquired, a special
report of real property acquisitions within the quarter. Such special
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reports shall be distributed to the Limited Members for each quarter
in which a Property is acquired until all proceeds available from the
offering of Units are invested or returned to the Limited Members as
provided in Section 4.5. Such special reports shall describe the
Properties acquired, the terms of the lease affecting the property,
the tenant and use of the property, and shall include a description
of the geographic location and the market upon which the Managing
Member is relying. The special report shall include all facts that
reasonably appear to materially influence the value of the Property,
including, but not limited to, the date and amount of the appraised
value, the receipt of a commitment of title insurance and if
development is required on the property, the receipt of appropriate
completion bonds, the purchase price and terms of the purchase, the
amount of proceeds in the Company that remain unexpended or
uncommitted and any Acquisition Expenses paid by the Company to the
Managing Members or their Affiliates in connection with real property
acquisitions within the quarter.
8.7 TAX RETURNS; TAX INFORMATION. Within 75 days after the close of
each fiscal year, all necessary tax information shall be transmitted
to all Members and to such state securities commissioners as may be
required by the rules and regulations of the various states.
8.8 BANK ACCOUNTS. Except as otherwise described in the Prospectus,
the Managing Member shall select a bank account or accounts for the
funds of the Company, and all funds of every kind and nature received
by the Company shall be deposited in such account or accounts. The
Managing Member shall designate from time to time the persons
authorized to withdraw funds from such accounts. The funds of the
Company will not be commingled with funds of any other person or
entity.
8.9 TAX ELECTIONS. In the event of a transfer of all or part of the
Company interest of any Member, the Company, in the sole discretion
of the Managing Member, may elect pursuant to Section 754 of the
Internal Revenue Code of 1986 (or any successor provisions) to adjust
the basis of the assets of the Company. The Managing Member shall be
the "tax matters partner" for the Company as that term is defined in
Section 6231 of the Internal Revenue Code of 1986, as amended.
8.10 INVESTOR LIST. In addition to the other records maintained by
the Company, the Company shall maintain at all times, in alphabetical
order and on white paper with printing in not less than 10 point
type, a list of Limited Members, including the names, addresses and
business telephone numbers of the Limited Members and the number of
Units held by each, which shall be updated at least quarterly to
reflect changes in the information contained therein. The list of
Limited Members shall be available for inspection by any Limited
Member or such Limited Member's designated agent at the office of the
Company upon request of such Limited Member. In addition, a copy of
the Limited Member list shall be mailed to any Limited Member
requesting the same within ten (10) days of the receipt of a written
request. The Company may charge a reasonable fee to such Limited
Member to cover the costs of reproduction and postage. The purposes
for which such list may be requested by the Limited Members shall
include, without limitation, matters relating to voting rights of the
Limited Members and the exercise of rights of the Limited Members
under federal proxy laws. If the Managing Member neglects or refuses
to exhibit, produce or mail a copy of the Limited Member list as
requested, the Managing Member shall be liable for the costs,
including attorneys' fees, incurred by the Limited Member in
compelling the production of the list and for the actual damages
suffered by the Limited Member by reason of such refusal or neglect.
It shall be a defense that the actual purpose and reason for the
request for inspection or for a copy of the Limited Member list is to
secure such list or other information for the purpose of selling such
list or copies thereof, or of using the same for a commercial purpose
other than in the interest of the applicant as a Limited Member
relative to the affairs of the Company. The Managing Member may
require the Limited Member requesting such list to represent that the
list is not requested for a commercial purpose unrelated to the
Limited Member's interest in the Company. For all such purposes, the
acquisition of additional Units shall be considered a commercial
purpose unrelated to the Limited Member's interest in the Company.
The Managing Member may also require, as a condition to making such
list available, (i) that the list be requested under the signature of
the Limited Member of record rather than a person or entity holding a
power of attorney for such Limited Member; and (ii) whenever the list
will be used to solicit purchases of Units, that the requesting
Limited Member agree to provide materials to the persons solicited,
and to the Managing Member for review and comment prior to use,
generally complying with the disclosure requirements of Section 14(d)
of the Securities Exchange Act of 1934 and Rule 14d-6 promulgated
thereunder, including, without limitation, the price at which the
Fund last agreed to repurchase Units and the price at which Units
were last purchased in any secondary trading service that is
published, prominently displayed in type size no less than 14 point;
provided, however, that the Managing Member may not refuse to provide
the list if the materials contain the foregoing information because
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it is not otherwise satisfied with the materials to be sent. The
remedies set forth in this section 8.10 shall be in addition to, and
not by way of limitation of, remedies available to Limited Members
under federal law, or the laws of any state.
IX. ASSIGNMENT OF LIMITED MEMBER'S INTEREST
The Company interest of a Limited Member shall be represented by
a Certificate of Participation. The form and content of the
Certificate of Participation shall be determined by the Managing
Member. The Company interest of a Limited Member may not be assigned,
pledged, mortgaged, sold or otherwise disposed of, and no Limited
Member shall have the right to substitute an assignee in his or her
place, except as provided in this Article IX.
9.1 LIMITATIONS ON TRANSFER RELATED TO TAX STATUS. Other than
pursuant to a Permitted Transfer, no Limited Member shall transfer or
assign any part of his or her interest in the Company, and no such
transfer or assignment shall be recognized by the Company but shall
be null and void, if such transfer or assignment, when added to all
other transfers or assignments made during the same fiscal year,
other than (A) Permitted Transfers, (B) Qualified Matching Service
Transfers, or (C) transfers pursuant to the repurchase provisions of
section 7.7 of this agreement, would constitute transfers of in
excess of two percent (2%) of Company interests outstanding. The
Managing Member may request such information from a transferring
Limited Member as is necessary to determine whether a transfer is a
Permitted Transfer or a Qualified Matching Service Transfer. The
Managing Member may refuse to affect any transfer if the transferring
Limited Member is unable, or refuses, to demonstrate that the
transfer is a Permitted Transfer or Qualified Matching Service
Transfer or if the Managing Member is not able to verify, to its
satisfaction, that the transfer will qualify for a safe harbor under
Treasury Regulation 1.7704-1(e) or (g).
9.2 PROTECTIVE PROVISIONS RELATING TO TRANSFER FRAUD. No Limited
Member shall be obligated to sell, assign or transfer any Units or
any other interest in the Company, prior to receipt of adequate
disclosure relating to the Company. The Company shall provide to any
Limited Member, upon request and without charge, prior to the date of
any transfer, copies of the most recent reports (forms 10-Q, 10-K
etc.) filed by the Company with the Securities and Exchange
Commission, together with information relating to the Net Value Per
Unit as of the most recent Determination Date. Other than pursuant to
a Permitted Transfer, no Limited Member shall transfer any part of
his or her interest in the Company, and no such transfer or
assignment or any agreement executed by a Limited Member with respect
to such transfer or assignment shall be recognized by the Company but
shall be null and void, unless such Limited Member shall have
confirmed in writing to the Managing Member that he or she received
and reviewed such information relating to Net Value Per Unit at least
24 hours prior to completion of transfer, and has received copies of
such reports as he or she may have requested. For purposes of the
foregoing, confirmation on behalf of a Limited Member by power of
attorney shall not be effective unless the attorney so appointed
provides proof acceptable to the Managing Member of the Limited
Member's incapacity to provide confirmation directly.
9.3 RIGHT OF FIRST REFUSAL. Except with respect to (A) Permitted
Transfers, (B) Qualified Matching Service Transfers, or (C) transfers
pursuant to the repurchase provisions of section 7.7 of this
agreement, no Member (the "Offering Member") may assign, transfer,
convey or otherwise dispose of all or any part of any Unit directly
or indirectly unless such Member shall have given notice ("Offer
Notice") in writing to the Company, setting forth the number of Units
(the "Offered Units") to be transferred, the consideration (the
"Offer Price") for which such Units would be transferred. Subject to
the terms and conditions hereinafter set forth, the Company shall
have the right to purchase all but not less than all of the Offered
Units at the Offer Price. The Company may exercise such right by
delivering to the Offering Member its election to exercise within 15
days after the date on which the Company has received the Offer
Notice. Subject to the limitations set forth in Section 9.1 (which
shall be controlling), the closing of any such purchase by the
Company shall occur within 60 days of such exercise by delivery of
payment on the same terms as specified in the Offer Notice. Offered
Units purchased by the Company shall be canceled. Unless all Units
are purchased pursuant to the option granted in this Section 9.3, the
Offering Member shall be free, for a period of 90 days after the
expiration of such fifteen day period, to sell the Offered Units to
the proposed transferee on the same terms as were described in the
Offer Notice. Unless the transfer is approved by the Managing Member
in accordance with this Article IX and the transferee acknowledges in
writing that he, she or it is bound by the terms of this Agreement as
provided in Section 9.5, the transferee shall not become a Member of
the Company but shall only be an assignee of the financial rights of
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his, her or its assignor. Any Member who transfers all of his, her or
its financial rights shall cease to be a Member of the Company. All
notices shall be in writing.
9.4 TRANSFERS. Except as provided in Section 9.1, 9.2 and 9.3, each
Limited Member may transfer or assign all or part of his or her
interest in the Company as provided in the Limited Liability Company
Act; provided, however, that no transfer or assignment shall be
effective until written notice thereof is received by the Managing
Member and the Managing Member approves such transfer or assignment.
Such approval shall be granted unless the Managing Member determines
that the transfer will cause a violation of the provisions of this
agreement, including the percentage limitations referred to in
Section 9.1 above and the provisions of section 9.2 or 9.3. In any
case that a transfer is not permitted for any reason other than
pursuant to the limitations set forth in section 9.1, 9.2 or 9.3, the
decision to prohibit the transfer shall be supported by an opinion of
counsel. All transfers or assignments of interests in the Company
occurring during any month shall be deemed effective (i.e., the
transferee shall become a Limited Member of record) on the last day
of the calendar month in which written notice thereof is received by
the Managing Member.
9.5 ADMISSION OF ASSIGNEE AS MEMBER. No assignee of all or part of
the Company interests of any Limited Member shall have the right to
become a substitute Limited Member unless (i) his or her assignor has
confirmed the matters set forth in Section 9.2, (ii) his or her
assignor has stated such intention in the instrument of assignment,
(iii) such assignee shall pay all expenses in connection with such
admission as a substitute Limited Member, as described in Section 9.8
and (iv) the transfer to such assignee has been made in compliance
with Section 9.1 and 9.3. By executing and adopting this agreement,
each Limited Member hereby consents to the admission of additional or
substitute Limited Members by the Managing Member and to any assignee
of his or her Units becoming a substitute Limited Member.
9.6 MINIMUM SIZE. No purported sale, assignment or transfer by a
Limited Member of less than 500 Units will be permitted or
recognized, except by gift, inheritance, intra-family transfers,
family dissolutions, transfers to Affiliates or by operation of law.
9.7 DEATH OF LIMITED MEMBER. If a Limited Member dies, his or her
executor, administrator or trustee, or if he or she is adjudged
incompetent or insane, his or her guardian or conservator, or if he
or she becomes bankrupt, the receiver or trustee of his or her
estate, shall have the rights of a Limited Member for the purpose of
settling or managing his or her estate and such power as the decedent
or incompetent possessed to assign all or any part of his or her
Units and to join with the assignee thereof in satisfying conditions
precedent to such assignee becoming a substitute Limited Member. The
death, dissolution or adjudication of incompetency or bankruptcy of a
Limited Member shall not dissolve the Company.
9.8 DOCUMENTS AND EXPENSES. As a condition to admission as a
substitute Limited Member, an assignee of all or part of the Company
interest of any Limited Member or the legatee or distributee of all
or any part of the Company interest of any Limited Member shall
execute and acknowledge such instruments, in form and substance
satisfactory to the Managing Member, as the Managing Member shall
deem necessary or advisable to effectuate such admission and to
confirm the agreement of the person being admitted as such substitute
Limited Member to be bound by all of the terms and provisions of this
agreement. Such assignee, legatee or distributee shall pay all
reasonable expenses, not exceeding $100, in connection with such
admission as a substitute Limited Member.
9.9 ACQUIT COMPANY. In the absence of written notice to the Company
of any assignment of a Company interest, any payment to the assigning
Member or his or her executors, administrators or representatives
shall acquit the Company of liability to the extent of such payment
to any other person who may have an interest in such payment by
reason of an assignment by the Member or by reason of such Member's
death or otherwise.
9.10 RESTRICTION ON TRANSFER. Notwithstanding the foregoing
provisions of this Article IX, no sale or exchange of a Company
interest may be made if the interest sought to be sold or exchanged,
when added to the total of all other Company interests sold or
exchanged within the period of 12 consecutive months prior thereto,
would result in the termination of the Company under section 708 of
the Internal Revenue Code of 1986 (or any successor section).
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9.11 ENDORSEMENT ON CERTIFICATE. The foregoing provisions governing
the assignment of the Company interest of a Limited Member shall be
indicated by an endorsement on the certificate evidencing such
Limited Member's interest in the Company, in the form as determined
from time to time by the Managing Member.
X. DEATH, WITHDRAWAL, EXPULSION AND REPLACEMENT OF THE MANAGING
MEMBERS
10.1 DEATH. In the event of the death of the Special Managing Member,
the estate of the Special Managing Member shall assume all of his
obligations under this agreement and be responsible for their
discharge. The estate may elect to withdraw from the Company only
upon satisfaction of the conditions in Section 10.2 applicable to the
Special Managing Member.
10.2 WITHDRAWAL. The Managing Member may not withdraw from the
Company without first providing 90 days' written notice to the
Limited Members of its intent to so withdraw and providing a
substitute Managing Member to the Company that shall be accepted by a
vote of not less than a majority, by interest, of the Limited Members
(excluding any Limited Company Units held by any Managing Member for
its own account); provided, however, that nothing in this Agreement
shall be deemed to prevent the merger, consolidation or
reorganization of the Managing Member into or with a successor entity
controlled by, or under common control with, a Managing Member, and
such successor entity shall be deemed to be the Managing Member of
the Company for all purposes and effects and shall succeed to and
enjoy all rights and benefits and bear all obligations and burdens
conferred or imposed hereunder upon the Managing Member. The Limited
Members shall vote to accept or reject the proposed substitute
Managing Member in person or by proxy at a meeting called by the
Managing Member for such purpose in accordance with Section 11.1 of
this agreement.
The Special Managing Member may not withdraw from the Company
prior to December 31, 2006.
10.3 EXPULSION. A Managing Member shall be expelled without further
action for "cause," which means (1) final judicial determination or
admission of its bankruptcy or insolvency, (2) withdrawal from the
Company without providing a substitute Managing Member in accordance
with Section 10.2 or (3) final judicial determination that it (i) was
grossly negligent in its failure to perform its obligations under
this agreement, (ii) committed a fraud upon the Members or upon the
Company, or (iii) committed a felony in connection with the
management of the Company or its business. This section does not
limit the right of the Limited Members to remove the Managing Members
upon a majority vote of the Limited Members.
10.4 REMOVAL AND REPLACEMENT OF MANAGING MEMBERS. In the event of (i)
the wrongful withdrawal of a Managing Member or the expulsion of a
Managing Member under circumstances that the Company lacks a Managing
Member or (ii) the written proposal of Limited Members holding 10% or
more of the issued and outstanding Units, and upon providing not less
than 10 nor more than 60 days' written notice by certified mail to
all Members, the Limited Members may call a meeting of the Company
for the purpose of removing or replacing any or all of the Managing
Members. At such meetings, any of the Managing Members may be removed
or replaced without cause by a vote (rendered in person or by proxy)
of a majority, by interest, of the Limited Members (excluding Units
held by the Managing Members for their own accounts).
10.5 PAYMENT FOR REMOVED MANAGING MEMBER'S INTEREST. Upon the
expulsion, withdrawal or removal of a Managing Member, the Company
shall pay to the terminated Managing Member all amounts then accrued
and owing to the terminated Managing Member and an amount equal to
the then present fair market value of the terminated Managing
Member's interest in the Company determined by agreement of the
terminated Managing Member and the Company, or, if they cannot agree,
by arbitration in accordance with the then current rules of the
American Arbitration Association. The expense of arbitration shall be
borne equally by the terminated Managing Member and the Company. The
fair market value of the terminated Managing Member's interest shall
be the amount the terminated Managing Member would receive upon
dissolution and termination of the Company assuming that such
dissolution or termination occurred on the date of the terminating
event and the assets of the Company were sold for their then fair
market value without any compulsion on the part of the Company to
sell such assets. In the case of a voluntary withdrawal, the
withdrawing Managing Member shall be paid the fair market value of
its or his interest by the issuance by the Company of a non-interest
bearing unsecured promissory note providing for payment of principal
from distributions that the withdrawing Managing Member otherwise
would have been entitled to receive under this agreement had such
Managing Member not withdrawn. In the case of an involuntary
termination, the terminated Managing Member shall be paid the fair
A-25
market value of its or his interest by the issuance by the Company of
a promissory note with a five-year maturity payable in five equal
installments of principal and interest at the prevailing market rate
of interest.
10.6 FAILURE TO ADMIT SUBSTITUTE MANAGING MEMBER. In the event that a
substitute Managing Member has not been appointed and admitted as
provided in Section 10.4 so that there is no Managing Member acting,
the Company shall then be dissolved, terminated and liquidated.
XI. AMENDMENT OF AGREEMENT AND MEETINGS
11.1 GENERAL. Either Managing Member may, at any time, propose an
amendment to this agreement and shall notify all Members thereof in
writing, together with a statement of the purpose(s) of the amendment
and such other matters as the Managing Member deems material to the
consideration of such amendment. If such proposal does not adversely
affect the rights of the Limited Members, such proposal shall be
considered adopted and this agreement deemed amended. At any time,
Limited Members holding not less than 10% of the issued and
outstanding Units may propose an amendment to this agreement, or a
meeting of Limited Members to consider any other proposal for which
the Limited Members may vote hereunder, including the sale of all or
substantially all of the assets of the Company. Upon the request in
writing to the Managing Member of any person entitled to call a
meeting, or in the event a proposal of a Managing Member adversely
effects the rights of Limited Members, or in the event of objection
by 10% of Limited Members by interest to such a proposal, the
Managing Member shall call a special meeting of all Members, in each
case at a location convenient to Limited Members, to consider the
proposal at the time requested by the person requesting the meeting
which shall be not less than 15 nor more than 60 days after receipt
of such request. Written notice of the meeting shall be given to all
Members either personally or by certified mail not less than 10 nor
more than 60 days before the meeting, but in any case where a meeting
is duly called by request of Limited Members, not more than 10 days
after receipt of such request. Included in the notice shall be a
detailed statement of the action proposed, including a verbatim
statement of the wording of any resolution or amendment proposed. The
notice shall provide that Limited Members may vote in person or by
proxy. The affirmative vote of a majority, by interest, of the
Limited Members (excluding any Units held by the Managing Members for
their own accounts) shall decide the matter, without the consent of
the Managing Members. In any event, however, no such amendment shall
affect the allocation of economic interests to the Members or alter
the allocation of Company management responsibilities and control
without the approval of each Managing Member and a majority by
interest, of the Limited Members, except as otherwise provided in
Article X.
11.2 ALTERNATIVE TO MEETINGS. As an alternative to voting at meetings
of the Company pursuant to this and other Articles of this agreement,
the Limited Members may consent to and approve by written action any
matter that the Limited Members may consent to and approve by vote at
a meeting. In order to consent to and approve the matter, the same
percentage of Limited Members, by interest, must sign the written
action as is required by vote at a meeting; provided, however, that
written notice is given to all Members at least 15 days before
solicitation of signatures is begun.
XII. DISSOLUTION AND LIQUIDATION
12.1 EVENTS CAUSING DISSOLUTION. The Company shall be dissolved only
upon the occurrence of one or more of the following events:
(a) the expiration of the term set forth in Section 1.4;
(b) the occurrence of any event that, under the laws of the
jurisdictions governing the Company shall dissolve the Company;
(c) the bankruptcy of the Company or any of the Managing
Members;
(d) the withdrawal or the expulsion of a Managing Member if
a substitute Managing Member has not been timely admitted as
provided in Article X, with the result that there is no Managing
Member acting;
A-26
(e) the decree of court that other circumstances render a
dissolution of the Company equitable or required by law;
(f) the sale or other disposition of all or substantially
all of the assets of the Company; and
(g) at any time by the affirmative vote of a majority, by
interest, of the Limited Members (excluding Units held by the
Managing Members for their own accounts) at a meeting called in
accordance with Section 11.1 of this agreement.
12.2 CONTINUATION OF BUSINESS. Except as provided in Section 12.3,
upon the dissolution of the Company for any reason, the business of
the Company and title to the property of the Company shall be vested
in the Company continuing the business. Upon any such dissolution no
Member, nor his or her legal representatives, shall have the right to
an account of his or her interest as against the Company continuing
the business, and no Member, nor his or her legal representatives, as
against the Company continuing the business, shall have the right to
have the value of his or her interest as of the date of dissolution
ascertained nor have any right as a creditor or otherwise with
respect to the value of his or her interest.
12.3 LIQUIDATION AND WINDING UP. If dissolution of the Company should
be caused by reason of (a) an event that makes it unlawful for the
business of the Company to be carried on or for the Members to carry
it on in the Company, (b) the bankruptcy of the Company, (c) the
withdrawal or expulsion of a Managing Member and no substitute
Managing Member has been timely admitted as provided in Article X,
with the result that there is no Managing Member acting, (d) a decree
of court that other circumstances render a dissolution and winding up
of the affairs of the Company equitable or required by law, (e) the
sale of all or substantially all of the assets of the Company, (f)
the express will of Limited Members as provided in Section 12.1(g)
above, the Company shall be liquidated and the Managing Member (or
the person or persons selected by a decree of court to carry out the
winding up of the affairs of the Company) shall wind up the affairs
of the Company.
The Managing Member or the person winding up the affairs of the
Company shall promptly proceed to liquidate the Company. No
distribution upon liquidation in kind of property and assets shall be
made to Limited Members. In settling the accounts of the Company, the
assets and the property of the Company shall be distributed in the
following order of priority:
(a) To the payment of all debts and liabilities of the
Company, including loans by Members that are secured by
mortgages, but excluding any other loans or advances that may
have been made by the Members to the Company, in the order of
priority as provided by law;
(b) To the establishment of any reserves deemed necessary
by the Managing Member or the person winding up the affairs of
the Company for any contingent liabilities or obligations of the
Company;
(c) To the repayment of any unsecured loans or advances
that may have been made by any Members to the Company in the
order of priority as provided by law;
(d) Any remaining balance will be distributed to the
Members pro rata based on each Member's positive capital account
balance, after giving effect to allocations pursuant to Sections
5.1 and 5.3 and after taking into account all capital account
adjustments for the Company taxable year during which liquidation
occurs (other than those made pursuant to this Section 12.3(d)).
XIII. MISCELLANEOUS PROVISIONS
13.1 INTERPRETATION. The terms and provisions of this agreement shall
be governed by and construed in accordance with the laws of the State
of Delaware. All references herein to Articles and Sections refer to
Articles and Sections of this agreement. All Article and Section
headings are for reference purposes only and shall not affect the
interpretation of this agreement. The use of the masculine gender,
for all purposes of this agreement, shall be deemed to refer to both
male and female Members.
13.2 NOTICE. Any notice given in connection with the business of the
Company shall be duly given if mailed, by certified or registered
mail, postage prepaid: if to the Company, to the principal office of
the Company set forth in Section 1.3 or to such other address as the
Company may hereafter designate by notice to the Members; if to the
Managing Member or the Special Managing Member, to the address set
A-27
forth in Section 1.3 or such other address as such Managing Members
may hereafter designate by notice to the Company; if to the Limited
Members, to the addresses set forth in the subscription agreement
executed by each Limited Member or to such other address as such
Limited Members may hereafter designate by notice to the Company.
13.3 SUCCESSORS AND ASSIGNS. Except as herein otherwise provided to
the contrary, this agreement shall be binding upon and inure to the
benefit of the parties hereto and their personal representatives,
assigns and successors.
13.4 COUNTERPARTS. This agreement may be executed in several
counterparts, and all so executed shall constitute one agreement,
binding upon all parties hereto, notwithstanding that all of the
parties are not signatory to the original or the same counterpart.
13.5 SEVERABILITY. In the event that any provision of this agreement
shall be held to be invalid, the same shall not affect the validity
of the remainder of this agreement or the validity or the formation
of the Company as a limited Company under the Limited Liability
Company Act.
IN WITNESS WHEREOF, this agreement has been executed as of the
day of , .
LIMITED MEMBERS MANAGING MEMBERS
By AEI Fund Management XXI, Inc., AEI Fund Management XXI, Inc.
attorney-in-fact Managing Member
By
Robert P. Johnson, President Robert P. Johnson, President
Robert P. Johnson,
Special Managing Member
A-28
EXHIBIT B
PRIOR PERFORMANCE TABLES
The information presented in the following tables updates
the tables represents the historical experience of all
public real estate programs organized by our managers or
their affiliates during the periods indicated. You should
not assume that AEI Fund 26 will generate results, or that
you will receive benefits, comparable to the results
generated by, or benefits received by investors in, these
prior real estate programs. You will have no interest in
the assets or operations of our managers.
We have filed a registration statement that contains
additional information about the performance of prior
programs in "Part II". You can obtain a copy of the
registration statement by contacting Mr. Robert P. Johnson,
President, AEI Fund Management XXI, Inc., 1300 Wells Fargo
Place, 30 East Seventh Street, Saint Paul, Minnesota 55101.
The programs included in the following tables have
investment objectives similar to those of AEI Fund 26,
including protection of capital, distribution of partially
"tax sheltered" cash flow from operations, and capital
appreciation.
Table Index Description Page
I Experience in Raising and Investing Funds B-2
II Compensation to Sponsors B-3
III Operating Results of Prior Programs B-4
IV Results of Completed Programs B-7
V Sales or Disposals of Properties B-8
B-1
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(Unaudited)
The following table provides information at December 31, 2004, as to the
experience of the Managing Members and their Affiliates in raising and
investing funds with respect to all prior public programs closed in the
last five years.
AEI AEI AEI
Income & Income & Income &
Growth Growth Growth
Fund 23 Fund 24 Fund 25
Dollar Amount Offered $24,000,000 $50,000,000 $50,000,000
Dollar Amount Raised $13,349,321 $24,831,283 $29,591,879
Percentage of Amount
Raised 100.0% 100.0% 100.0%
Less Offering Expenses:
Selling Commissions
and Discount 10.0 10.0 10.0
Organizational
Expenses 5.0 4.8 4.7
Other (a) 2.6 0.0 0.0
Less Reserves 0.4 0.2 .1
----------- ----------- -----------
Percent Available
for Investment 82.0% 85.0% 85.2%
=========== =========== ===========
Acquisition Costs:
Prepaid Items and
Fees Related
to Purchase of
Property 0.0% 0.0% 0.0%
Investment in
Properties (b) 82.0 85.0 34.4(c)
Acquisition Fees 0.0 0.0 0.0
----------- ----------- -----------
Total Acquisition Cost 82.0% 85.0% 34.4%
=========== =========== ===========
Percent Leverage 0.0% 0.0% 0.0%
Date Offering Began Mar. 99 May 01 May 03
Length of Offering
(months) 24 24 (d)
Months to Invest 90% of
Amount Available for
Investment (measured
from beginning of
offering) 28 31 (c)
(a) Represents distributions in excess of net cash flow (return of
capital).
(b) Includes cash down payments and capitalized costs and expenses
related to the purchase of properties, including the cost
of appraisals, attorney's fees, expenses of personnel in
investigating properties, and overhead allocated to such
activities.
(c) Acquisitions are in progress.
(d) Represents subscriptions accepted through December 31, 2004.
Offering had not closed as of December 31, 2004.
B-2
TABLE II
COMPENSATION TO SPONSORS
(Unaudited)
The following table provides information as to the compensation paid to
the Managing Member and their Affiliates during the period from March
1999 to December 31, 2004 for all prior public programs closed in the last
five years.
AEI AEI AEI
Income & Income & Income &
Growth Growth Growth
Fund 23 Fund 24 Fund 25
Type of Compensation
Date Offering Commenced Mar. 99 May 01 May 03
Dollar Amount Raised $13,349,321 $24,831,283 $29,591,879
Amount Paid to Sponsors
From Proceeds of Offering:
Underwriting Fees (a) 271,147 691,268 852,129
Acquisition Expenses
- purchase option on property 0 0 0
- real estate commission 0 0 0
- expense reimbursement 92,688(c) 158,363(c) 102,747(c)
Organization Offering Expenses 206,858 668,967 897,682
Dollar Amount of Cash
Generated From
Operations Before
Deducting Payments
to Sponsors 4,218,871 3,361,067 825,996
Amount Paid to Sponsors
From Operations:
Property Management
Fees (b) 0 0 0
Partnership
Management Fees (b) 0 0 0
Reimbursements (b) 798,544 605,899 166,433
Leasing Commissions 0 0 0
Participation in Cash Distributions 99,599 83,629 22,124
Dollar Amount of Property
Sales and Refinancing
Before Deducting
Payments to Sponsors:
- cash 6,047,165 3,743,988 0
- notes 0 0 0
Amount Paid to Sponsors
From Property Sales
and Refinancing:
Real Estate
Commissions (d) 0 0 0
Incentive Fees (d) 0 0 0
Reimbursements (d) 188,820 79,333 0
Participation in Cash Distributions 8,735 6,144 0
(a) Does not include fees paid to AEI Securities, Inc. which were
reallowed to participating dealers.
(b) Although not paid a fixed fee for property management and
partnership management, the Managing Members and Affiliates
were reimbursed at their Cost for the provision of such services.
Such reimbursements are reflected under the line item "Amount
Paid to Sponsors From Operations-Reimbursements."
(c) The Programs received reimbursements from the sellers and/or
lessees in the form of financing fees, commitment fees and expense
reimbursements to offset these costs. The reimbursements received
by Fund 23, Fund 24 and Fund 25 totaled $266,621, $252,187 and
$66,880, respectively.
(d) Although not paid a fixed fee from property sales, the Managing
Members and Affiliates were reimbursed at their Cost for the
provision of services related to property sales. Such
reimbursements are reflected under the line item "Amount Paid
to Sponsors From Property Sales and Refinancing - Reimbursements."
B-3
TABLE III
OPERATING RESULTS OF PRIOR PROGRAMS
(Unaudited)
The following table provides information as to the results of all prior
programs closed in the past five years for each year of the five years (or
from inception if formed after January 1, 2000) ended December 31, 2004.
AEI INCOME & GROWTH FUND 23
Years Ended December 31
2000 2001 2002 2003 2004
Gross Revenues from Operations $ 432,076 $ 1,039,824 $ 1,063,481 $ 880,585 $ 943,673
Profit on Sale of Properties 0 0 362,730 1,079,117 0
Less:
Operating Expenses 165,308 213,395 168,324 174,563 183,937
Depreciation 17,427 204,430 267,495 175,111 151,844
Real Estate Impairment 0 0 0 1,600,393 0
---------- ----------- ----------- ----------- -----------
Net Income (Loss) - GAAP Basis $ 249,341 $ 621,999 $ 990,392 $ 9,635 $ 607,892
========== =========== =========== =========== ===========
Taxable Income:
-from operations $ 322,431 $ 627,673 $ 641,442 $ 547,981 $ 498,390
-from gain on sale 0 0 344,446 1,051,952 0
========== =========== =========== =========== ===========
Cash Generated (Deficiency) From Operations $ 338,558 $ 698,009 $ 939,872 $ 697,744 $ 791,251
Cash Generated From Sales 0 0 2,178,700 3,679,645 0
Cash Generated From Refinancing 0 0 0 0 0
---------- ----------- ----------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 338,558 698,009 3,118,572 4,377,389 791,251
Less: Cash Distributions to Investors
-from operating cash flow 323,653 698,009 873,962 697,744 347,113
-from sales and refinancing 0 0 97,727 292,929 482,860
-from cash reserves (a) 0 145,109 0 63,085 0
---------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 14,905 (145,109) 2,146,883 3,323,631 (38,722)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0 0
---------- ----------- ----------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 14,905 $ (145,109) $ 2,146,883 $ 3,323,631 (38,722)
========== =========== =========== =========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 51 48 47 40 36
-from recapture 0 0 5 4 0
Capital Gain (Loss) 0 0 19 74 0
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 39 47 71 1 44
-Return of Capital 12 17 0 77 17
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 7 22 36
-Refinancing 0 0 0 0 0
-Operations 51 53 64 51 25
-Cash Reserves (a) 0 11 0 5 0
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 100%
(a) Represents initial capital or cash retained from
prior years' cash flow.
(b) Based on an investment of a weighted average Unit
outstanding.
B-4
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 24
Years Ended December 31
2001 2002 2003 2004
Gross Revenues from Operations $ 50,013 $ 537,720 $ 1,436,722 $ 1,700,553
Profit on Sale of Properties 0 0 703,102 130,829
Less:
Operating Expenses 22,087 164,203 244,633 538,918
Depreciation 8,886 101,688 336,661 465,163
Real Estate Impairment 0 0 0 434,065
---------- ---------- ----------- -----------
Net Income (Loss) - GAAP Basis $ 19,040 $ 271,829 $ 1,558,530 $ 393,236
========== ========== =========== ===========
Taxable Income (Loss):
-from operations $ 31,873 $ 290,954 $ 938,856 $ 1,163,904
-from gain on sale 0 0 661,553 121,430
========== ========== =========== ===========
Cash Generated (Deficiency) From Operations $ 112,098 $ 364,271 $ 1,208,879 $ 1,086,520
Cash Generated From Sales 0 0 3,155,310 509,345
Cash Generated From Refinancing 0 0 0 0
---------- ---------- ----------- -----------
Cash Generated From Operations,
Sales and Refinancing 112,098 364,271 4,364,189 1,595,865
Less: Cash Distributions to Investors
-from operating cash flow 0 267,186 694,545 1,086,520
-from sales and refinancing 0 0 281,111 333,333
-from cash reserves (a) 0 0 0 360,452
---------- ---------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions 112,098 97,085 3,388,533 (184,440)
Less: Special Items (Not Including
Sales and Refinancing) 0 0 0 0
---------- ---------- ----------- -----------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 112,098 $ 97,085 $ 3,388,533 $ (184,440)
========== ========== ========== ===========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 14 31 42 45
-from recapture 0 0 9 0
Capital Gain (Loss) 0 0 21 5
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 0 29 44 14
-Return of Capital 0 0 0 55
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0 13 13
-Refinancing 0 0 0 0
-Operations 0 29 31 42
-Cash Reserves (a) 0 0 0 14
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 100%
(a) Represents initial capital or cash retained from
prior years' cash flow.
(b) Based on an investment of a weighted average Unit
outstanding.
B-5
TABLE III (Continued)
OPERATING RESULTS OF PRIOR PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 25
Years Ended December 31
2003 2004
Gross Revenues from Operations $ 66,069 $ 773,695
Profit on Sale of Properties 0 0
Less:
Operating Expenses 18,772 161,429
Depreciation 4,108 189,655
Real Estate Impairment 0 0
--------- ---------
Net Income (Loss) - GAAP Basis $ 43,189 $ 422,611
========= =========
Taxable Income (Loss):
-from operations $ 54,486 $ 469,399
-from gain on sale 0 0
========= =========
Cash Generated (Deficiency) From Operations $ 93,292 $ 733,149
Cash Generated From Sales 0 0
Cash Generated From Refinancing 0 0
--------- ---------
Cash Generated From Operations,
Sales and Refinancing 93,292 733,149
Less: Cash Distributions to Investors
-from operating cash flow 5,135 463,742
-from sales and refinancing 0 0
-from cash reserves (a) 0 0
--------- ---------
Cash Generated (Deficiency)
After Cash Distributions 88,157 269,407
Less: Special Items (Not Including
Sales and Refinancing) 0 0
--------- ---------
Cash Generated (Deficiency)
After Cash Distributions and
Special Items $ 88,157 $ 269,407
========= =========
Tax and Distribution Data
Per $1,000 Invested (b)
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 12 29
-from recapture 0 0
Capital Gain (Loss) 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-Investment Income 1 26
-Return of Capital 0 3
Cash Distributions to Investors:
Source (on cash basis)
-Sales 0 0
-Refinancing 0 0
-Operations 1 29
-Cash Reserves (a) 0 0
Amount (in percentage terms) remaining
invested in program properties at the
end of the last period reported in the
Table 100%
(a) Represents initial capital or cash retained from
prior years' cash flow.
(b) Based on an investment of a weighted average Unit
outstanding.
B-6
TABLE IV
RESULTS OF COMPLETED PROGRAMS
(Unaudited)
The following table provides the results of all programs that
have completed operations (no longer hold properties) within the five
years ended December 31, 2004.
Net Lease
Income & AEI Real AEI Real AEI Real
Growth Estate Estate Estate
Fund 84-A(a) Fund 85-A(b) Fund 86-A(c) Fund XVI(d)
Dollar Amount Raised $5,000,000 $7,500,000 $7,500,000 $15,000,000
Number of Properties Purchased 8 15 11 24
Date of Closing of Offering Dec. 84 Jun. 85 Jul. 86 Nov. 87
Date of First Sale of Property Mar. 96 Sep. 93 Aug. 89 Aug. 89
Date of Final Sale of Property Feb. 01 Aug. 03 Jun. 04 May 04
Tax and Distribution Data Per
$1,000 Investment:
Federal Income Tax Results:
Ordinary Income (Loss)
-from operations 747 792 771 617
-from recapture 10 49 5 20
Capital Gain (Loss) 449 500 296 132
Deferred Gain
Capital 0 0 0 0
Ordinary 0 0 0 0
Cash Distributions to Investors
Source (on GAAP basis)
-Investment Income 1,265 1,146 990 786
-Return of Capital 924 1,068 943 854
Source (on cash basis)
-Sales 1,035 1,059 925 829
-Refinancing 0 0 0 0
-Operations 1,154 1,155 1,008 811
-Other 0 0 0 0
(a)Final sale of property was completed February 1, 2001.
(b)Final sale of property was completed August 15, 2003.
(c)Final sale of property was completed June 1, 2004.
(d)Final sale of property was completed May 25, 2004.
B-7
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
The following table provides information with respect to sales or disposals
of property by prior programs during the three years ended December 31, 2004.
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Income & Champps
Growth Fund XXI Schaumburg IL(b) Dec.97 Feb.02 54,266 0 0 0 54,266 0 41,954 41,954 19,378
AEI Income & Denny's
Growth Fund XXI Covington LA Mar.97 Feb.02 816,142 0 0 0 816,142 0 1,304,948 1,304,948 601,361
AEI Real Estate Johnny Carino's
Fund 85-A Austin TX(c) Sep.01 May 02 857,972 0 0 0 857,972 0 749,587 749,587 70,248
AEI Income & Johnny Carino's
Growth Fund 23 Austin TX(c) Sep.01 May 02 567,176 0 0 0 567,176 0 501,879 501,879 47,598
AEI Real Estate Hops Grill & Bar
Fund 85-A Palm Harbor FL Mar.86 Jun.02 1,062,953 0 0 0 1,062,953 0 1,094,373 1,094,373 1,241,674
AEI Real Children's World
Estate West
Fund 85-A Bridgewater MA(b)Oct 01 Jun 02 106,530 0 0 0 106,530 0 89,285 89,285 5,565
AEI Real Estate Applebee's
Fund XVI Victoria TX Mar.96 Jul.02 673,665 0 0 0 673,665 0 1,335,555 1,335,555 578,445
AEI Real Estate Rally's
Fund XVIII San Antonio TX Dec.92 Jul.02 0 0 0 0 0 0 308,997 308,997 140,958
AEI Real Estate Children's World Apr. 02 to
Fund 85-A Plainfield IL(c) May 01 Jul.02 360,564 0 0 0 360,564 0 294,542 294,542 26,092
AEI Net Lease Applebee's
I&G Fund XIX Beaverton OR Dec.93 Aug 02 3,156,082 0 0 0 3,156,082 0 1,760,079 1,760,079 2,040,066
B-8
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Champps
Fund XVIII Columbus OH(b) Aug.96 Aug.02 164,858 0 0 0 164,858 0 115,627 115,627 78,136
AEI Net Lease Johnny Carino's May 02 to
I&G Fund XX Austin TX(c) Sep.01 Aug.02 506,007 0 0 0 506,007 0 454,305 454,305 51,879
AEI Income & Johnny Carino's
Growth Fund XXI Austin TX(c) Sep.01 Aug.02 603,681 0 0 0 603,681 0 544,819 544,819 66,428
AEI Real Estate Tractor Supply
Fund XV Maryville TN(b) Feb.96 Sep.02 147,133 0 0 0 147,133 0 110,276 110,276 74,832
AEI Real Estate TGI Friday's Jun.02 to
Fund XVII Greensburg PA(c) Dec.97 Sep.02 1,223,603 0 0 0 1,223,603 0 1,009,045 1,009,045 488,875
AEI Income & TGI Friday's Aug.02 to
Growth Fund XXIIGreensburg PA(c)Dec.97 Sep.02 789,247 0 0 0 789,247 0 653,563 653,563 308,347
AEI Income & Children's World Sep.02 to
Growth Fund XXIIPlainfield IL(c) May 01 Oct.02 230,243 0 0 0 230,243 0 188,152 188,152 23,791
AEI Real Estate Marie Callender's Jan.02 to
Fund 85-A Gresham OR(c) Sep.99 Oct.02 914,707 0 0 0 914,707 0 813,982 813,982 201,529
AEI Income & Children's World
Growth Fund XXIIGolden CO(c) Sep.00 Oct.02 41,925 0 0 0 41,925 0 33,119 33,119 6,601
AEI Income & Hollywood Video Jul.02 to
Growth Fund XXIISaraland AL(c) Jan.99 Oct.02 896,350 0 0 0 896,350 0 846,185 846,185 277,442
AEI Real Estate All Tune & Lube
Fund 85-B Merrillville IN Oct.86 Oct.02 238,879 0 0 0 238,879 0 304,432 304,432 488,046
B-9
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Auto Max
Fund 86-A Coon Rapids MN Jul.87 Oct.02 638,523 0 0 0 638,523 0 795,818 795,818 1,259,517
AEI Real Estate Denny's
Fund 85-B Ft. Worth TX Oct.86 Nov.02 582,182 0 0 0 582,182 0 981,764 981,764 998,808
AEI Real Estate Auto Max
Fund 86-A Bloomington MN Jun.87 Nov.02 789,374 0 0 0 789,374 0 838,749 838,749 1,679,011
AEI Income & Champps Mar.02 to
Growth Fund XXI Livonia MI(c) May 98 Nov.02 4,134,997 0 0 0 4,134,997 0 3,092,903 3,092,903 1,379,697
AEI Real Estate Jack-in-the-Box
Fund 85-A Ft. Worth TX Dec.85 Dec.02 897,165 0 0 0 897,165 0 1,005,586 1,005,586 2,408,044
AEI Net Lease Children's World
I&G Fund XX New Albany OH(d) Mar.01 Dec.02 685,831 0 0 0 685,831 0 540,366 540,366 88,093
AEI Income & Children's World
Growth Fund 23 New Albany OH(d) Mar.01 Dec.02 587,854 0 0 0 587,854 0 465,163 465,163 75,507
AEI Real Estate Fuddrucker's Nov.02 to
Fund XVIII Thornton CO(c) Jul.97 Dec.02 1,274,700 0 0 0 1,274,700 0 904,176 904,176 520,317
AEI Net Lease Champps Feb.02 to
I&G Fund XX Schaumburg IL(c) Dec.97 Dec.02 2,218,837 0 0 0 2,218,837 0 1,669,074 1,669,074 825,986
AEI Real Estate Denny's
Fund XVII Casa Grande AZ Mar.89 Dec.02 1,090,781 0 0 0 1,090,781 0 721,420 721,420 1,245,355
AEI Net Lease Denny's
I&G Fund XX Burleson TX Dec.94 Dec.02 810,000 0 0 0 810,000 0 923,480 923,480 627,636
B-10
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Net Lease Denny's
I&G Fund XX Grapevine TX Nov.95 Dec.02 958,166 0 0 0 958,166 0 1,354,721 1,354,721 749,496
AEI Income & Arby's Aug.02 to
Growth Fund 23 Coon Rapids MN(c)Aug.01 Dec.02 1,023,670 0 0 0 1,023,670 0 907,056 907,056 99,130
AEI Net Lease Champps Sep.02to
I&G Fund XX Lyndhurst OH(c) Apr.96 Dec.02 3,390,504 0 0 0 3,390,504 0 2,307,711 2,307,711 1,640,745
AEI Net Lease Champps
I&G Fund XX Columbus OH(c) Apr.99 Dec.02 518,443 0 0 0 518,443 0 399,177 399,177 156,315
AEI Real Estate Fuddruckers
Fund XVIII Thornton CO(c) Jul.97 Jan.03 714,327 0 0 0 714,327 0 490,902 490,902 290,624
AEI Income & Children's World
Growth Fund XXIIPlainfield IL(b) May 01 Jan.03 220,430 0 0 0 220,430 0 175,379 175,379 27,740
AEI Net Lease Champps Jan.03 to
I&G Fund XX Columbus OH(c) Apr.99 Feb.03 1,034,237 0 0 0 1,034,237 0 778,366 778,366 312,896
AEI Real Estate Marie Callender's
Fund 85-A Gresham OR(b) Sep.99 Feb.03 231,683 0 0 0 231,683 0 201,792 201,792 62,566
AEI Real Estate Cheddar's
Fund 85-B Ft. Wayne IN Dec.86 Feb.03 1,540,416 0 0 0 1,540,416 0 1,480,553 1,480,553 3,076,004
AEI Real Estate Champps Jan.03 to
Fund XV Troy, MI(c) Sep.98 Feb.03 1,776,832 0 0 0 1,776,832 0 1,330,265 1,330,265 623,782
AEI Real Estate Children's World
Fund XV West Chester OH Jul.99 Mar.03 1,223,310 0 0 0 1,223,310 0 999,162 999,162 333,443
B-11
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Jemcare
Fund XV Haltom City TX Apr.87 Mar.03 247,219 0 0 0 247,219 0 417,213 417,213 536,704
AEI Real Estate Jemcare
Fund XVI Arlington TX Dec.87 Mar.03 172,822 0 0 0 172,822 0 450,475 450,475 618,687
AEI Real Estate Jemcare
Fund XVI Arlington TX Dec.87 Mar.03 321,970 0 0 0 321,970 0 603,641 603,641 659,127
AEI Income & Johnny Carino's Jan.03 to
Growth Fund 23 Victoria TX(c) Dec.00 Mar.03 2,161,939 0 0 0 2,161,939 0 1,656,473 1,656,473 388,865
AEI Real Estate Arby's
Fund 85-A Hudsonville MI(b)Sep.99 Mar.03 10,027 0 0 0 10,027 0 11,358 11,358 3,544
AEI Net Lease Party City
I&G Fund XIX Gainesville GA Dec.97 Mar.03 1,711,879 0 0 0 1,711,879 0 1,435,309 1,435,309 811,813
AEI Real Lake Michigan
Estate Credit Union
Fund XVI Wyoming MI May 87 Mar.03 399,184 0 0 0 399,184 0 626,240 626,240 484,153
AEI Real Estate Children's World Feb.03 to
Fund XVIII Phoenix AZ(c) Sep.89 Mar.03 1,592,169 0 0 0 1,592,169 0 883,486 883,486 1,415,857
AEI Real Estate Champps Feb.03 to
Fund XVII Troy MI(c) Sep.98 Apr.03 1,753,563 0 0 0 1,753,563 0 1,289,135 1,289,135 635,825
AEI Net Lease Applebee's
I&G Fund XX Brownsville TX Aug.95 Apr.03 730,292 0 0 0 730,292 0 1,378,736 1,378,736 1,076,990
AEI Real Estate Champps
Fund XVIII Troy MI(c) Sep.98 Apr.03 1,657,062 0 0 0 1,657,062 0 1,192,496 1,192,496 594,132
B-12
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Net Lease Champps Apr.03 to
I&G Fund XIX Troy MI(c) Sep.98 May 03 1,612,362 0 0 0 1,612,362 0 1,180,397 1,180,397 598,025
AEI Income & Children's World Apr.03 to
Growth FundXXII Houston TX(c) Jul.99 May 03 1,056,594 0 0 0 1,056,594 0 892,219 892,219 291,524
AEI Income & Champps
Growth Fund XXIICenterville OH(c)Jan.99 May 03 1,314,145 0 0 0 1,314,145 0 924,843 924,843 441,861
AEI Real Estate Tumbleweed
Fund XVIII Columbus OH(b) Dec.98 May 03 704,001 0 0 0 704,001 0 554,269 554,269 279,694
AEI Real Estate Rio Bravo
Fund 85-A St. Paul MN(b) Dec.85 May 03 91,744 0 0 0 91,744 0 135,265 135,265 240,698
AEI Real Estate Denny's
Fund XV Greenville TX Jan.96 May 03 467,789 0 0 0 467,789 0 1,028,432 1,028,432 581,245
AEI Real Estate Champps May 03 to
Fund XVII Centerville OH(c)Jan.99 Jun.03 782,545 0 0 0 782,545 0 551,677 551,677 258,926
AEI Income & Children's World
Growth Fund XXI Mundelein IL(c) Mar.01 Jul.03 2,010,839 0 0 0 2,010,839 0 1,618,824 1,618,824 332,834
AEI Income & Arby's
Growth Fund XXIIHomewood AL(c) Jul.99 Jul.03 1,562,751 0 0 0 1,562,751 0 1,384,408 1,384,408 425,701
AEI Real Estate Arby's
Fund XVI Grand Rapids MI May.87 Jul.03 256,443 0 0 0 256,443 0 652,880 652,880 544,100
AEI Net Lease Denny's
I&G Fund XIX Apple Valley CA May 94 Jul.03 947,709 0 128,750 0 1,076,459 0 1,177,655 1,177,655 1,510,313
B-13
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Net Lease Tumbleweed May 03 to
I&G Fund XIX Columbus OH(c) Dec.98 Jul.03 1,038,773 0 0 0 1,038,773 0 823,496 823,496 378,357
AEI Real Estate Champps Jun.03 to
Fund XVIII Centerville OH(c)Jan.99 Jul.03 2,126,740 0 0 0 2,126,740 0 1,502,252 1,502,252 718,764
AEI Real Estate Taco Cabana
Fund 86-A Houston TX(e) Jul.91 Jul.03 1,090,031 0 0 0 1,090,031 0 859,159 859,159 1,512,353
AEI Net Lease Taco Cabana
I&G Fund XIX Houston TX(e) Jul.91 Jul.03 674,797 0 0 0 674,797 0 547,322 547,322 936,432
AEI Real Estate Taco Cabana
Fund XVII San Marcos TX Nov.88 Jul.03 1,333,145 0 0 0 1,333,145 0 1,013,505 1,013,505 2,218,543
AEI Real Estate Creative Years
Fund XVI Houston TX Apr.87 Aug.03 228,440 0 0 0 228,440 0 483,128 483,128 653,525
AEI Real Children's World
Estate West Jan.03 to
Fund 85-A Bridgewater MA(c)Oct.01 Aug.03 1,217,325 0 0 0 1,217,325 0 969,605 969,605 147,470
AEI Real Estate Cheddar's
Fund XVI IndianapolisIN(f)Feb.88 Aug.03 406,892 0 0 0 406,892 0 750,714 750,714 808,513
AEI Real Estate Cheddar's
Fund XVII IndianapolisIN(f)Feb.88 Aug.03 406,892 0 0 0 406,892 0 774,077 774,077 809,194
AEI Income & Champps Jul.03 to
Growth Fund XXI Centerville OH(c)Jan.99 Aug.03 1,384,939 0 0 0 1,384,939 0 984,426 984,426 484,595
AEI Real Estate Fuddruckers
Fund XVI Omaha NE Nov.87 Aug.03 1,860,767 0 0 0 1,860,767 0 1,151,543 1,151,543 2,424,903
B-14
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Income & Johnny Carino's Jul.03 to
Growth Fund 23 San Antonio TX(c)Nov.01 Sep.03 1,517,706 0 0 0 1,517,706 0 1,105,231 1,105,231 232,490
AEI Net Lease Johnny Carino's May 03 to
I&G Fund XIX San Antonio TX(c)Nov.01 Oct.03 1,651,078 0 0 0 1,651,078 0 1,194,932 1,194,932 245,604
AEI Net Lease Garden Ridge Sep.03 to
I&G Fund XX Pineville NC(c) Mar.96 Oct.03 1,973,128 0 0 0 1,973,128 0 1,667,092 1,667,092 1,341,477
AEI Net Lease Applebee's
I&G Fund XIX CrestviewHillsKY(b)Jun.93 Oct.03 23,207 0 0 0 23,207 0 14,039 14,039 20,121
AEI Income & Garden Ridge Nov.03 to
Growth Fund XXI Pineville NC(c) Mar.96 Dec.03 3,968,116 0 0 0 3,968,116 0 3,310,163 3,310,163 2,751,908
AEI Real Estate Garden Ridge
Fund XV Woodlands TX(c) Aug.03 Dec.03 2,032,178 0 0 0 2,032,178 0 1,746,370 1,746,370 61,586
AEI Real Estate Johnny Carino's
Fund XV Pharr TX(b) Sep.03 Dec.03 275,548 0 0 0 275,548 0 216,515 216,515 9,786
AEI Net Lease Garden Ridge Feb.03 to
I&G Fund XIX Pineville NC(c) Mar.96 Dec.03 4,381,044 0 0 0 4,381,044 0 3,615,378 3,615,378 2,964,657
AEI Income & Hollywood Video
Growth Muscle Shoals Nov.03 to
Fund XXII AL(c) Aug.99 Dec.03 871,473 0 0 0 871,473 0 761,257 761,257 304,816
AEI Income & Winn-Dixie
Growth Fund XXI Panama City FL(b)Sep.03 Dec.03 26,607 0 0 0 26,607 0 24,162 24,162 464
AEI Income & Winn-Dixie
Growth Fund 24 Panama City FL(c)Sep.03 Dec.03 1,410,400 0 0 0 1,410,400 0 1,203,610 1,203,610 22,736
B-15
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Income & Children's World
Growth Round Lake Beach Oct.03 to
Fund 24 IL(c) Nov.01 Dec.03 1,744,910 0 0 0 1,744,910 0 1,342,850 1,342,850 278,210
AEI Real Estate Cheddar's
Fund XVIII Clive, IA Jan.91 Jan.04 2,131,025 0 0 0 2,131,025 0 1,392,249 1,392,249 2,607,617
AEI Real Estate Johnny Carino's
Fund XV Pharr, TX(c) Sep.03 Jan.04 2,274,068 0 0 0 2,274,068 0 1,780,398 1,780,398 90,415
AEI Income & Hollywood Video
Growth Muscle Shoals,
Fund XXII AL(c) Aug.99 Jan.04 668,266 0 0 0 668,266 0 579,370 579,370 236,858
AEI Income & Winn-Dixie
Growth Fund XXI Panama City,FL(c)Sep.03 Jan.04 874,236 0 0 0 874,236 0 745,138 745,138 16,947
AEI Income & Garden Ridge
Growth Fund XXI Pineville, NC(b) Mar.96 Jan.04 392,836 0 0 0 392,836 0 334,228 334,228 281,487
AEI Income & Tia's Tex-Mex
Growth Killeen, Jan.04 to
Fund XXII TX(c) Dec.03 Feb.04 1,330,280 0 0 0 1,330,280 0 1,041,935 1,041,935 15,134
AEI Income & Children's World
Growth Round Lake Beach, Jan.04 to
Fund 24 IL(c) Nov.1 Feb.04 509,345 0 0 0 509,345 0 405,299 405,299 91,857
AEI Real Estate Jiffy Lube
Fund XVI Dallas, TX(f) Dec.87 Feb.04 80,825 0 0 0 80,825 0 154,892 154,892 329,678
AEI Real Estate Jiffy Lube
Fund XVII Dallas, TX(f) Mar.88 Feb.04 242,485 0 0 0 242,485 0 454,624 454,624 945,220
B-16
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Children's World
Fund XVII Palatine, IL Sep.89 Apr.04 1,298,032 0 0 0 1,298,032 0 801,098 801,098 1,350,942
AEI Real Estate Cheddar's
FUnd XVII Davenport, IA Nov.91 Apr.04 2,527,592 0 0 0 2,527,592 0 1,530,934 1,530,934 2,874,252
AEI Real Children's World
Estate Sterling Heights,
Fund 85-B MI(g) Nov.87 May.04 184,008 0 0 0 184,008 0 143,392 143,392 324,762
AEI Real Children's World
Estate Sterling Heights,
Fund XVI MI(g) Nov.87 May.04 941,543 0 0 0 941,543 0 729,486 729,486 1,669,253
AEI Real Estate Delisi's
Fund 86-A Brooklyn Park,MN Jun.87 Jun.04 712,331 0 0 0 712,331 0 968,958 968,958 1,049,238
AEI Real Arby's
Estate Colorado Springs,
Fund 85-B Co Mar.87 Jun.04 138,113 0 0 0 138,113 0 447,176 447,176 615,011
AEI Real Estate Children's World
Fund XVII Chino, CA Sep.89 Sep.04 1,631,193 0 0 0 1,631,193 0 1,305,518 1,305,518 2,331,370
AEI Income & Johnny Carino's
Growth Fund XXI Farmington, NM May 03 Oct.04 2,893,779 0 0 0 2,893,779 0 2,183,344 2,183,344 360,011
AEI Real Estate Applebee's
Fund XVII Ashland, OH Apr.04 Oct.04 2,290,043 0 0 0 2,290,043 0 1,959,272 1,959,272 69,001
AEI Net Lease Applbee's
I & G Fund XIX Aurora, CO(b) Dec.92 Nov.04 77,724 0 0 0 77,724 0 44,782 44,782 75,771
B-17
TABLE V (Continued)
SALES OR DISPOSALS OF PROPERTIES
(Unaudited)
SELLING PRICE, NET OF CLOSING COSTS COSTS OF PROPERTIES, INCLUDING
AND GAAP ADJUSTMENTS CLOSING AND SOFT COSTS
Excess of
Total Property
Cash Purchase Adjustment Acquisition Operating
Received Money resulting Cost, Capital Cash
Net of Mortgage Mortgage from Original Improvements, Receipts
Date Date Closing Balance at Taken Back Application Mortgage Closing and Over Expen-
Program Property Acquired of Sale Costs Time of Sale by Program of GAAP Total Financing Soft Costs Total ditures(a)
AEI Real Estate Champps
Fund XVII Utica, MI(b) Feb.02 Dec.04 411,252 0 0 0 411,252 0 230,029 230,029 78,416
(a) Does not include deduction for partnership general and
administrative expenses not related to the properties.
(b) Represents the sale of a single tenant-in-common
property interest to a third party.
(c) Represents multiple sales of tenant-in-common property
interest to various third parties during the period
listed.
(d) This property was owned jointly by AEI Net Lease Income
& Growth Fund XX and AEI Income & Growth Fund 23.
(e) This property was owned jointly by AEI Real Estate Fund
86-A and AEI Net Lease Income & Growth Fund XIX.
(f) This property was owned jointly by AEI Real Estate Fund
XVI and AEI Real Estate Fund XVII.
(g) This property was owned jointly by AEI Real Estate Fund
85-B abd AEI Real Estate Fund XVI.
B-18
EXHIBIT C
AEI INCOME & GROWTH FUND 26 LLC
SUBSCRIPTION AGREEMENT
(Including Power of Attorney)
MAKE YOUR CHECK PAYABLE TO "FIDELITY BANK - AEI FUND 26 ESCROW"
(FOR CUSTODIAL ACCOUNTS, CHECKS SHOULD BE MADE PAYABLE TO THE
CUSTODIAN AND SENT WITH THIS FORM DIRECTLY TO CUSTODIAN.)
IMPORTANT REPRESENTATIONS ARE MADE ON THIS FORM. PLEASE
READ CAREFULLY BEFORE SIGNING. PLEASE TYPE OR PRINT.
1. INVESTMENT [ ] Initial Investment [ ] Add-On to Existing Investment
This subscription is in the amount of $______ for the purchase of _____ Units
at $10 per Unit. Minimum initial investment: 500 Units
[ ] Check the box to elect the deferred commission option. Must be
initialled by a qualified representative of the Participating
Dealer.
[ ] Check the box to waive payment of commission for the sale of units
to Purchaser through a registerd investment advisor who receives
compensation on a fee for services basis.
[ ] Check the box if Purchaser is a Registered Investment Advisor or
Registered Representative of the Participating Dealer investing a NAV.
2. OWNERSHIP [ ] Tenants in Common [ ] IRA [ ] Taxable Trust
[ ] Uniform Gift to Minors Act of the State of
[ ] Individual [ ] Community Property [ ] Keogh [ ] Partnership
[ ] Joint Tenants [ ] Other (Explain)
[ ] Pension/Profit Sharing Plan [ ] Non-Taxable Trust [ ] Corporation
3. REGISTERED OWNER (Name of Qualified Plan, Trust, Partnership or
Corporation, if applicable. Give both names if
jointly held. Include acct. no. if coustodial acct.)
Last Name(s) First Name(s) Middle Initial(s)
[ ] Mr. [ ] Ms.
[ ] Mr. [ ] Ms.
Mailing Address Street City State Zip Code Phone
Residential Address Street City State Zip Code Phone
REQUIRED FOR BLUE SKY REGISTRATION REQUIREMENTS FOR ALL ACCOUNT TYPES.
4. QUARTERLY DISTRIBUTIONS AUTHORIZATION FOR AUTOMATIC
Please send my distribution checks to the DEPOSITS (ACH) _ Please
following address (Insert "same" if checks include a copy of voided check
are to be sent to mailing address. INSERT or savings deposit slip.
NAME, ADDRESS, ACCOUNT NUMBER AND PHONE I authorize AEI Fund Management,
NUMBER IF CHECKS ARE TO BE SENT TO A Inc., and Fidelity Bank of Edina,
FINANCIAL INSTITUTION.) Minnesota, to initiate variable
entries to my checking or savings
account. This authority will
remain in effect until I notify
AEI in writing to cancel in such
Name and complete address: time as to afford AEI a
reasonable opportunity to act on
the cancellation.
Phone Number
Financial Institution Name,
Address and Phone Number
(Please Print):
Account Type (Circle One):
Checking Savings Other
Account Number:
Office Use Only: Bank Routing No.
Trans. Code
5. DISTRIBUTION REINVESTMENT PLAN (Expires after the offering period;
Plan election must be re-confirmed annually.)
Note: The deferred Commission Option is not available with regard to
additional units purchased as a result of Purchaser's
participation in the Distribution Reinvestment Plan
Do you elect to participate in the distribution reinvestment plan?[] Yes [] No
(If you elect to participate by checking "Yes," rental income and
other Fund income included in "Net Cash Flow" will not be distributed
to you but instead will be applied to the purchase of additional Units,
or fractional Units, at $10.00 per Unit as long as such purchase continues
to comply with applicable securities laws and the Fund has not
distributed proceeds from sale or refinancing of properties.)
6. CONSENT TO ELECTRONIC DELIVERY OF REPORTS
We may, at your election, deliver periodic reports of AEI Income & Growth
Fund 26 LLC to you electronically. If you agree to electronic delivery, you
agree to download these reports from our web site once you have been notified
by e-mail that they have been posted. You must have an e-mail address to use
this service. IF YOU ELECT TO RECEIVE THESE REPORTS ELECTRONICALLY, YOU WILL
NOT RECEIVE PAPER COPIES OF THE REPORTS IN THE MAIL, UNLESS YOU LATER REVOKE
YOUR CONSENT. You may revoke your consent and receive paper copies at any
time by notifying us in writing.
[ ] I wish to receive periodic reports [ ] I do not wish to receive
electronically periodic reports electronically
If you agree to accept reports electronically, please complete the
following enrollment information:
Name of Investor
E-Mail Address
(I understand that I must immediately advise the Fund at the
address above it my e-mail address changes.)
NOTE: SIGNATURES AUTHORIZING THIS INVESTMENT MUST APPEAR ON THE REVERSE
SIDE OF THIS FORM.
Please turn over
7. INVESTOR REPRESENTATIONS (Each of the following MUST BE INITIALED BY
INVESTOR for this Subscription Agreement to be accepted)
[ ] I/we have received a copy of the Prospectus of AEI Fund 26
dated (the "Prospectus")* and its Supplement (if any)
dated (Investor must enter the date of the Supplement, if
any, accompanying the Prospectus. IF THE DATE IS NOT ENTERED,
THE SUBSCRIPTION AGREEMENT WILL BE RETURNED FOR COMPLETION.)
[ ] I/we meet the minimum income and net worth standards set forth
in the Prospectus under the heading "Who May Invest" and am
purchasing Units for my own account.
[ ] I/we hereby make, constitute and appoint the Managing Members,
or either of them, with full power of substitution, my true
and lawful attorney for the purposes and in the manner
provided in Section 7.5 of the Operating Agreement of AEI
Fund 26, which section of the Operating Agreement is
incorporated herein by reference and hereby made a part
hereof.
*Your broker is obligated to provide you with a copy of the
Prospectus five business days before you subscribe.We are prohibited
from selling the Units to you until five days after you receive the
Prospectus. If you did not receive the Prospectus. If you did not
receive the Prospectus five business days in advance, you have the
right to withdraw your subscription until those 5 days have elapsed.
8. INVESTOR SIGNATURES
IMPORTANT FORM W-9 CERTIFICATION INSTRUCTIONS: YOU MUST CROSS OUT ITEM
(2) BELOW IF YOU HAVE BEEN NOTIFIED BY THE IRS THAT YOU ARE SUBJECT TO
BACKUP WITHHOLDING BECAUSE OF UNDERREPORTING INTEREST OR DIVIDENDS ON
YOUR TAX RETURN. However, if after being notified by the IRS that you
were subject to backup withholding you received another notification
from the IRS that you are no longer subject to backup withholding, do not
cross out item (2). Under penalties of perjury I certify that:
(1)The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), AND (2) I am
not subject to backup withholding either because I have not been notified
by the Internal Revenue Service (IRS) that I am subject to backup
withholding as a result of a failure to report all interest or dividends,
or the IRS has notified me that I am no longer subject to backup
withholding.
IMPORTANT - CHECK ONE:
THE INVESTOR IS A UNITED STATES CITIZEN OR RESIDENT ALIEN. Check Here [ ]
THE INVESTOR IS A FOREIGN INVESTOR. Check Here [ ] (Nonresident Alien
or Individual, Foreign Corporation, Foreign Partnership, or Foreign Trust
or Estate).
Note: If this investment is to be held within a qualified plan, such
as an IRA or Keogh Plan, the investor(s) and custodian must sign in
this Section 8.
(I/WE AM/ARE ARE AUTHORIZED TO ENTER INTO THIS SUBSCRIPTION AGREEMENT ON
BEHALF OF THE PERSON(s) OR ENTITY(s) LISTED IN 3 ABOVE) NEITHER A BROKER,
DEALER, INVESTMENT ADVISER NOR ANY OF THEIR AGENTS MAY SIGN ON BEHALF
OF AN INVESTOR. This Subscription Agreement is executed this day of , 200 .
Investor Signature(s) [X] [X]
Print Name & Capacity Print Name & Capacity
Tax ID Number (Primary) Tax ID Number
Authorized Signature of Custodian
(If Applicable) Medallion Stamp
9. BROKER/DEALER INFORMATION (Registered representative signature required
for processing. Please type or print.)
Broker/Dealer Firm Registered Representative Name
Registered Representative's Office Address Registered Representative's
E-mail Address
City State Zip Code Phone (including area code)
To substantiate compliance with Rule 2810 (b)(2) of the NASD'S Conduct Rules,
the undersigned registered representative hereby certifies as follows:
1. I have reasonable grounds to believe, based on information obtained from
the Subscriber concerning investment objectives, other investments,
financial situations and needs and other information known to me, that
investment in the Fund is suitable for such Subscriber in light of
income, finnancial position, net worth and other suitability
characteristics.
2. I have discussed with the Subscriber the risks associated with and the
liquidity of an investment in the Fund.
Dated:
Signature Registered Representative
Participatating Dealer Approval Signature (if required) Title:
Principal's Name - Typed or Printed
AEI Fund Management XXI, Inc., as Manager AEI Fund Management XXI, Inc.
of AEI Fund 26 LLC, hereby accepts this
Subscription Agreement this day of By
ATTEST Its
AEI INCOME & GROWTH FUND 26 LLC
SUBSCRIPTION AGREEMENT INSTRUCTIONS
INVESTOR To purchase Units of the currently effective LLC
INSTRUCTIONS complete and sign the Subscription Agreement and
deliver it to your broker, together with your check.
YOUR CHECK SHOULD BE MADE PAYABLE TO: FIDELITY BANK
AEI FUND 26 ESCROW. In order to invest, it is
necessary that all items on the Subscription
Agreement be completed.
1. INVESTMENT Limited Liability Company interests in the Fund are
being offered in units of $10. Insert the number of
Units to be purchased, multiply the dollar amount of
the investment ($10 x No.of Units). You must purchase
a minimum of 500 ($5,000) Units to invest.
2. OWNERSHIP Check the appropriate box indicating the manner in
which title is to be held. Please note that the box
checked must be consistent with the number of
signatures appearing in Section 8. (See Instruction
8). In the case of partnerships, corporations,
custodianships or trusts, the box checked must be
consistent with the legal title (registration).
PARTICIPANTS IN IRAS AND KEOGH PLANS SHOULD NOTE THE PURCHASE OF LLC UNITS
DOES NOT IN ITSELF CREATE THE PLAN; YOU MUST CREATE THE PLAN THROUGH A
BONAFIDE CUSTODIAN OR TRUSTEE WHO WILL ALSO SIGN THE SUBSCRIPTION AGREEMENT
IN BLOCK 8.
3. REGISTERED Please type or print the exact name (registration)
OWNER that should appear on the account. If the
investor is an individual, a partnership or a
corporation, please include in this space the
complete name and title in which the investment
is to be held. If the investor is a trust such as
an IRA or Keogh Plan, please include the name and
address of the trustee and the trust name. In the
case of a trust or custodian investment including
IRAs, Keogh Plans and other trusts or
custodianships, quarterly distributions and
investment correspondence will be sent to the
trustee or custodian at the mailing address. The
plan participant will receive correspondence at
at home. ALL ACCOUNTS MUST SUPPLY THE INVESTOR'S
RESIDENTIAL ADDRESS (FOR BLUE SKY REGISTRATION
PURPOSES).
4. QUARTERLY After impounds are met, Fidelity Bank will release
DISTRIBUTIONS the interest earned during the impound period to
(Automatic the designated address (distribution reinvestment
deposits does not apply to impound interest). AEI Fund 26
or checks) will then commence distributions of cash available
for distribution to investors. Please insert "same"
if the checks are to be mailed to the mailing
address. Please insert the name and address of the
financial institution as well as the account number,
if checks are to be sent to a bank, savings and loan,
or other financial institution or destination.
For Electronic Direct Deposit through ACH, a voided
check or savings deposit slip is required.
5. DISTRIBUTION Answer the question by checking yes or no if the
REINVESTMENT investor elects to participate in the Distribution
Reinvestment Plan.
6. CONSENT TO Please complete this section if you consent to
ELECTRONIC electronic delivery of financial reports. You must
DELIVERY OF have an e-mail address to use this service. Enter
REPORTS your name and e-mail address and enter your
signature(s) where indicated.
7. INVESTOR To comply with securities regulations, the investor
REPRESENTATIONS MUST make the representations in this Subscription
Agreement. ALL THREE SPACES MUST BE INITIALED BY
THE BENEFICIAL OWNER(S).
8. INVESTOR IRS regulations require our escrow bank to have the
SIGNATURES, W-9 ceftification completed for all Limited Members.
CERTIFICATIONS, This certifies that the taxpayer is not subject to
AND CUSTODIAN backup withholidng. If ceftification is not
SIGNATURE AND completed, the escrow agent must legally withhold,
GUARANTEE and pay to the IRS, 20% of the taxpayer's escrow
interest. Read the Subscription Agreement carefully
for additional W-9 Certification Instrustions. If
the investor is a Nonresident Alien or Individual,
Foreign Corporation, Foreign Partnership or Foreign
Trust or Estate, please check the FOREIGN STATUS
CETRIFICATION box. TO AUTHORIZED THE INVESTMENT,
sign in the space(s) provided. If title is to be
held as joint tenancy or tenants in common, at least
two signatures are required. In the case of
community property, only one investor signature is
required (see reverse side for details on required
signatures). ALL INVESTORS AND/OR PLAN PARTICIPANTS
MUST PROVIDE SOCIAL SECURITY NUMBERS. Trusts,
corporations, partnerships, custodians and estates
MUST ADDITIONALLY FURNISH a tax identification
number. Custodians of accounts must also sign and
medallion stamp in the space provided.
9. BROKER/DEALER IT IS NECESSARY THAT ALL ITEMS BE FULLY COMPLETED.
INFORMATION INCLUDE REGISTERED REPRESENTATIVE'S NAME AND BRANCH
OFFICE ADDRESS. THE REGISTERED REPRESENTATIVE
MUST SIGN AND DATE WHERE INDICATED IN ORDER FOR
THE APPLICATION TO BE ACCEPTED. PROVIDE THE
REGISTERED REPRESENTATIVE'S TELEPHONE NUMBER AND
E-MAIL ADDRESS.
AEI INCOME & GROWTH FUND 26 LLC
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the
various forms of registration. Accordingly, complete
subscription agreements and such supporting material as
may be necessary, must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature is required.
5. PENSION/PROFIT SHARING PLANS: The trustee signs the Subscription Agreement.
6. IRA AND IRA ROLLOVERS: Requires signature of authorized signer
(e.g. an officer) of the bank, trust company, or other fiduciary. The
address of the trustee must be provided in order for them to receive
distributions and other pertinent information regarding the investment.
7. KEOGH (HR 10): Same rules as those applicable to IRAs.
8. TRUST: The trustee signs the Subscription Agreement. Provide the name
of the trust, the name of the trustee and the name of the beneficiary.
Please provide a copy of the facing and signature pages of the
Trust document.
9. PARTNERSHIP: Identify the entity as to whether it is a general or limited
partnership. The general partners must be identified and their signatures
obtained on the order. In the case of an investment by a general
partnership, all partners must sign (unless a "managing partner" has been
designated for the partnership, in which case he may sign on behalf of
the partnership if a certified copy of the document granting him authority
to invest on behalf of the partnership is submitted).
10.CORPORATION: The Subscription Agreement must be accompanied by(1) a
certified copy of the resolution of the Board of Directors designating
the officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
11.UNIFORM GIFT TO MINORS ACT (UGMA): The required signature is that of
the custodian, not of the parent (unless the parent has been designated
as the custodian). Only one child is permitted in each investment under
the Uniform Gift to Minors Act. In addition, designate state under which
UGMA is being made.
12.OTHER: Please indicate any other ownership type. This space may also be
used to indicate that Transfer On Death ("TOD") instructions are included
with the Subscription Agreement. If TOD instructions are included, the
form of Ownership must still be indicated within Section 2. Please contact
AEI Investment Services at 800-328-3519 to obtain the form(s)
necessary to provide complete TOD instructions.
SUBSCRIPTION DOCUMENTS INCLUDE:
1. Completed Subscription Agreement
(all information completed, dated and signed)
2. Subscriber's Check
(made payable to Fidelity Bank - AEI Fund 26 Escrow)
IMPORTANT: MISSING SIGNATURES OR INVESTOR REPRESENTATIONS WILL DELAY ORDER
PROCESSING. ORIGINAL SIGNATURES ARE REQUIRED.
MAIL TO: Make your check payable to FIDELITY BANK- AEI FUND
26 ESCROW and return with the Subscription Agreement
to:
AEI Fund Management, Inc. WIRING INSTRUCTIONS
1300 Wells Fargo Place Bank: Fidelity Bank
30 East Seventh Street 7600 Parklawn Avenue
St. Paul, Minnesota 55101 Edina, MN 55435
Phone#: (952) 831-6600
651-227-7333 651-227-7705 (fax) 800-328-3519 RT#: 091014924
Account Name: AEI Income &
Growth Fund 26 Escrow
Account #: xxx-xx-xxx
Special instructions:
Contact Dorene Tryon or
Jane Holtan when wire
is received.
No person has been
authorized in connection 10,000,000 Units
with this offering to
give any information or AEI INCOME &
to make any GROWTH FUND 26 LLC
representation other than
those contained in this
prospectus. This
prospectus does not
constitute an offer or
solicitation in any state PROSPECTUS
or other jurisdiction to
any person to whom it is
unlawful to make such
offer or solicitation.
Neither the delivery of
this prospectus nor any
sale hereunder shall
under any circumstances AEI Securities, Inc.
create an implication
that there has been no
change in AEI Fund 26's
affairs since the date 1300 Wells Fargo Place
hereof. If, however, any 30 Seventh Street East
material change in AEI St. Paul, MN 55101
Fund 26's affairs occurs 800-328-3519 651-227-7333
at any time when this www.aeifunds.com
prospectus is required to
be delivered, this
prospectus will be
amended or supplemented
accordingly.
Investors are not to
construe the contents of
this prospectus as legal
or tax advice. Each
investor should consult
his or her own counsel,
accountant and other
financial advisors (and
be responsible for their
fees) regarding the
legal, tax and investment
aspects of this offering.
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
The disclosure required by Item 24, Item 25 and Item 26 is incorporated
by reference to previous filings.
Item 27. Exhibits.
Exhibit No. Description
*1.1 Revised Form of Dealer-Manager Agreement
*1.2 Form of Dealer Agreement
*3.1 Certificate of Formation
3.2 Form of Operating Agreement included as
Exhibit A to Prospectus
*5 Opinion of Dorsey & Whitney LLP as to the legality of the
securities registered, including consent
*8 Opinion of Dorsey & Whitney LLP as to tax matters,
including consent
*10.1 Revised Form of Impoundment Agreement with Fidelity Bank,
Edina, Minnesota
*10.2 Assignment and Assumption of Lease and Guaranty dated
April 3, 2006 between the Company and AEI Fund Management
XVII, Inc. realting to the Property at 6959 East 21st
Street, Wichita, Kansas (incorporated by reference to
Exhibit 10.1 of Form 8K filed April 5, 2006).
*10.3 Assignment and Assumption of Purchase and Sale Agreement
dated May 24, 2006 between the Company, AEI Income & Growth
Fund 24 LLC and AEI Fund Management, Inc. relating to the
Property at 65 North University Boulevard, Middletown, Ohio
(incorporated by reference to Exhibit 10.1 of Form 8K filed
June 5, 2006).
*10.4 Assignment and Assumption of Lease dated May 31, 2006
between the Company, AEI Income & Growth Fund 24 LLC and
Blue Partners, LLC relating to the Property at 65 North
University Boulevard, Middletown Ohio (incorporated by
reference to Exhibit 10.2 of Form 8K filed June 5, 2006).
*10.5 Assignment and Assumption of Purchase Agreement dated
September 11, 2006 between the Company, AEI Fund Management
XVII, Inc. and AEI Fund Management, Inc relating to the
Property at 7345 E Washington Street, Indianapolis,
Indiana (incorporated by reference to Exhibit 10.1 of
Form 8-K filed September 26, 2006).
*10.6 Net Lease Agreement dated September 21, 2006 between
the Company, AEI Fund Management XVII, Inc. and
Apple Indiana II LLC relating to the Property at 7345
E Washington Street, Indianapolis, Indidana
(incorporated by reference to Exhibit 10.2 of
Form 8-K filed September 26, 2006).
*10.7 Assignment and Assumption of Lease dated December 29,
2006 between the Company, AEI Income & Growth Fund XXII
Limited Partnership and AEI Fund Management XVII, Inc.
relating to the Property at 1516 South Washington Street,
Crawfordsville, Indiana (incorporated by reference to
Exhibit 10.1 of Form 8-K filed January 8, 2007).
23 Consent of Independent Public Accountants
*31.1 Certification of Chief Executive Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002 (incorporated
by reference to Exhibit 31.1 of Form 10QSB filed August 13,
2007).
*31.2 Certification of Chief Financial Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002 (incorporated
by reference to Exhibit 31.2 of Form 10QSB filed August 13,
2007).
*32 Certification of Chief Executive Officer and Chief
Financial Officer of Managing Member pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (incorporated by
reference to Exhibit 32 of From 10QSB filed August 13, 2007).
*Previously filed
Item 28. Undertakings.
The undersigned small business issuer undertakes
(1) to file, during any period in which it offers
or sells securities, a post-effective amendment to this
registration statement to
(i) include any prospectuses required by Section
10(a)(3) of the Securities Act of 1933 (the
"Securities Act");
II-1
(ii) reflect in the prospectus any facts or events
which, individually or together, represent a
fundamental change in the information in the
registration statement, and
(iii) include any additional of changed material
information on the plan of distribution ,
(2) that for the purpose of determining any
liability under the Securities Act the undersigned
small business issuer will treat each post-effective
amendment as a new registration statement relating to
the securities offered and will treat the offering of
the securities at that time to be the initial bona fide
offering,
(3) that all post-effective amendments will comply
with the applicable forms, rules and regulations of the
Securities and Exchange Commission (the "Commission")
in effect at the time the post-effective amendments are
filed,
(4) to file a post-effective amendment to remove
from registration any of the securities being
registered which remain unsold at the end of the
offering; and
(5) for determining liability of the undersigned
small business issuer under the Securities Act to any
purchaser in the initial distribution of the
securities, the undersigned small business issuer
undertakes that in a primary offering of securities of
the undersigned small business issuer pursuant to this
registration statement, regardless of the underwriting
method used to sell the securities to the purchaser, if
the securities are offered or sold to such purchaser by
means of any of the following communications, the
undersigned small business issuer will be a seller to
the purchaser and will be considered to offer or sell
such securities to such purchaser:
(i) Any preliminary prospectus or prospectus of
the undersigned small business issuer relating to
the offering required to be filed pursuant to Rule
424 (230.424 of this chapter);
(ii) Any free writing prospectus relating to the
offering prepared by or on behalf of the
undersigned small business issuer or used or
referred to by the undersigned small business
issuer;
(iii) The portion of any other free writing
prospectus relating to the offering containing
material information about the undersigned small
business issuer or its securities provided by or
on behalf of the undersigned small business
issuer; and
(iv) Any other communication that is an offer in
the offering made by the undersigned small
business issuer to the purchaser.
The undersigned small business issuer undertakes to
send to each limited member at least on an annual basis a
detailed statement of any transactions with the managing
members or their affiliates, and of fees, commissions,
compensation and other benefits paid, or accrued to the
managing members or their affiliates for the fiscal year
completed, showing the amount paid or accrued to each
recipient and the services performed.
The undersigned small business issuer undertakes to
provide to the limited members the financial statements
required by Form 10-K for the first full fiscal year of
operations of the Fund.
The undersigned small business issuer undertakes to
file a sticker supplement pursuant to Rule 424(b)(3) under
the Act during the distribution period describing each
property not identified in the prospectus at such time as
there arises a reasonable probability that such property
will be acquired and to consolidate such information in a
post- effective amendment filed at least once every three
months, with the information contained in such supplement or
post-effective amendment provided simultaneously to the
existing limited members. Each sticker supplement shall
disclose all compensation and fees received by the managing
members and their affiliates in connection with any such
acquisition.
The undersigned small business issuer also undertakes
to file, after the end of the distribution period, a current
report on Form 8-K containing the financial statements and
any additional information required by Form S-11, to reflect
each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period
involving the use of 10% or more (on a cumulative basis) of
the net proceeds of the offering and to provide the
information contained in such report to the limited members
at least once each quarter after the distribution period of
the offering has ended.
II-2
Each prospectus filed pursuant to Rule 424(b) as part
of a registration statement relating to this offering, shall
be deemed to be part of and included in the registration
statement as of the date it is first used after
effectiveness; provided, however, that no statement made in
a registration statement or prospectus that is part of the
registration statement or made in a document incorporated or
deemed incorporated by reference into the registration
statement or prospectus that is part of the registration
statement will, as to a purchaser with a time of contract of
sale prior to such first use, supersede or modify any
statement that was made in the registration statement or
prospectus that was part of the registration statement or
made in any such document immediately prior to such date of
first use.
Insofar as indemnification for liabilities arising
under the Securities Act may be permitted to managing
members of the undersigned small business issuer pursuant to
the operating agreement, or otherwise, the undersigned small
business issuer has been advised that in the opinion of the
Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for
indemnification against such liabilities (other than the
payment by the Securities and Exchange of expenses incurred
or paid by a managing member of the undersigned small
business issuer in the successful defense of any action,
suit or proceeding) is asserted by a managing member in
connection with the securities being registered, the
undersigned small business issuer will, unless in the
opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act
and will be governed by the final adjudication of such
issue.
II-3
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
The following table provides information with respect to properties
acquired in the three years ended December 31, 2006.
Applebee's
Ashland
Name, Location and Ohio
Type of Property Restaurant
Gross Leasable Space 3,491
Date of Purchase 4/30/04
Mortgage Financing at
Date of Purchase 0
Cash Down Payment $1,923,432
Contract Purchase
Price Plus
Acquisition Fee 0
Other Cash Expenditures
Expensed 0
Other Cash Expenditures
Capitalized 35,840
Total Acquisition Cost $1,959,272
II-4
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI REAL ESTATE FUND XVIII
Jared
Jewelry Applebee's Eckerd
Lakewood Stow Auburn
Name, Location and Colorado Ohio New York
Type of Property Retail Store Restaurant Retail Store
Gross Leasable Space 6,104 5,066 13,813
Date of Purchase 2/5/04 4/30/04 5/10/04
Mortgage Financing at
Date of Purchase 0 0 0
Cash Down Payment $1,989,981(a) $1,548,942(a) $2,243,950(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0
Other Cash Expenditures
Expensed 0 0 0
Other Cash Expenditures
Capitalized 27,652 26,813 43,183
Total Acquisition Cost $2,017,633 $1,575,755 $2,287,133
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-5
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI NET LEASE INCOME & GROWTH FUND XIX
Jared Advance Tractor
Jewelry Applebee's Eckerd Auto Supply
Lakewood Stow Auburn Harlingen, Mesquite,
Name, Location and Colorado Ohio New York Texas Texas
Type of Property Retail Store Restaurant Retail Store Retail Store Retail Store
Gross Leasable Space 6,104 5,066 13,813 6,768 19,080
Date of Purchase 2/5/04 4/30/04 5/10/04 2/17/06 3/10/06
Mortgage Financing at
Date of Purchase 0 0 0 0 0
Cash Down Payment $1,989,981(a) $1,548,942(a) $2,243,950(a) $1,561,900 $1,214,800(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0
Other Cash Expenditures
Capitalized 27,622 26,813 43,341 38,103 16,825
Total Acquisition Cost $2,017,603 $1,575,755 $2,287,291 $1,600,003 $1,231,625
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-6
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI NET LEASE INCOME & GROWTH FUND XX
Chammpps Jared Tractor
Americana Jewlery Applebee's Supply
West Chester, Hanover, Sandusky Mesquite,
Name, Location and Ohio Maryland Ohio Texas
Type of Property Restaurant Retail Store Restaurant Retail Store
Gross Leasable Space 9,935 5,809 4,994 19,080
Date of Purchase 1/13/04 2/9/04 4/30/04 3/10/06
Mortgage Financing at
Date of Purchase 0 0 0 0
Cash Down Payment $1,565,000(a) $1,963,800(a) $1,254,896(a) $1,214,800(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0
Other Cash Expenditures
Capitalized 4,884 25,305 22,047 16,824
Total Acquisition Cost $1,569,884 $1,989,105 $1,276,943 $1,231,624
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-7
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND XXI
Jared Jared
Jewelry Eckerd Jewlery CarMax Applebee's
Hanover Utica Auburn Hills Lithia Springs Johnstown,
Name, Location and Maryland New York Michigan Georgia Pennsylvania
Type of Property Retail Store Retail Store Retail Store Retail Store Restaurant
Gross Leasable Space 5,809 14,700 5,759 19,242 5,194
Date of Purchase 2/9/04 9/20/04 1/14/05 3/18/05 9/21/06
Mortgage Financing at
Date of Purchase 0 0 0 0 0
Cash Down Payment $1,963,800(a) $1,818,800(a) $1,440,000(a) $1,864,000(a) $1,655,391(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0
Other Cash Expenditures
Capitalized 25,335 29,307 26,048 21,231 27,496
Total Acquisition Cost $1,989,135 $1,848,107 $1,466,048 $1,885,231 $1,682,887
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-8
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND XXII
Champps Jared Advance
Americana Jewelry Applebee's Auto Applebee's
West Chester, Sugar Land Johnstown Indianapolis, Crawfordsville
Name, Location and Ohio Texas Pennsylvania Indiana Indiana
Type of Property Restaurant Retail Store Restaurant Retail Store Restaurant
Gross Leasable Space 9,935 6,115 5,194 7,000 5,260
Date of Purchase 1/13/04 7/15/04 9/21/06 12/21/06 12/29/06
Mortgage Financing at
Date of Purchase 0 0 0 0 0
Cash Down Payment $1,565,000(a) $1,510,760(a) $1,014,595(a) $1,217,775(a) $1,827,193(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0
Other Cash Expenditures
Capitalized 4,884 23,206 16,592 26,398 29,463
Total Acquisition Cost $1,569,884 $1,533,966 $1,031,187 $1,244,173 $1,856,656
(a) Represents a partial ownership interest in such property. An
affiliated entity(s) purchased the remaining interest.
II-9
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 23
Jared
Jewelry CarMax
Madison Heights Columbia
Name, Location and Michigan South Carolina
Type of Property Retail Store Retail Store
Gross Leasable Space 6,067 41,169
Date of Purchase 2/6/04 9/15/05
Mortgage Financing at
Date of Purchase 0 0
Cash Down Payment $1,920,620(a) $1,778,625(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0
Other Cash Expenditures
Expensed 0 0
Other Cash Expenditures
Capitalized 27,418 24,385
Total Acquisition Cost $1,948,038 $1,803,010
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-10
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 24
Advance
Applebee's CarMax Auto Applebee's
Sandusky Lithia Springs Middletown, Fishers,
Name, Location and Ohio Georgia Ohio Indiana
Type of Property Restaurant Retail Store Retail Store Restaurant
Gross Leasable Space 4,994 19,242 6,880 5,050
Date of Purchase 4/30/04 3/18/05 6/1/06 9/21/06
Mortgage Financing at
Date of Purchase 0 0 0 0
Cash Down Payment $1,533,762(a) $1,304,800(a) $819,180(a) $2,954,256
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0
Other Cash Expenditures
Capitalized 27,509 15,536 16,710 48,297
Total Acquisition Cost $1,561,271 $1,320,336 $835,890 $3,002,553
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-11
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 25
Jared Jared Mimi's Jared
Jewelry Jewelry Applebee's Cafe Jewelry
Madison Heights, Godlettsville, Macedonia, Kansas City, Auburn Hills
Name, Location and Michigan Tennessee Ohio Missouri Michigan
Type of Property Retail Store Retail Store Restaurant Restaurant Retail Store
Gross Leasable Space 6,067 5,818 5,400 6,935 5,759
Date of Purchase 2/6/04 2/6/04 4/30/04 6/30/04 1/14/05
Mortgage Financing at
Date of Purchase 0 0 0 0 0
Cash Down Payment $ 840,271(a) $ 972,300(a) $3,079,652 $1,100,000(a) $2,160,000(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0
Other Cash Expenditures
Capitalized 12,321 15,954 55,146 10,561 39,067
Total Acquisition Cost $ 852,592 $ 988,254 $3,134,798 $1,110,561 $2,199,067
<a) Represents a partial ownership interest in such property. An affiliated
entity(s) purchased the remaining interest.
II-12
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 25 (continued)
Tractor Johnny Tractor Jared
Supply CarMax Carino's Supply Jewlery
Marion, Lithia Springs, Pueblo, Yankton, Concord,
Name, Location and Indiana Georgia Colorado South Dakota New Hampshire
Type of Property Retail Store Retail Store Restaurant Retail Store Retail Store
Gross Leasable Space 19,097 19,242 6,733 19,234 5,868
Date of Purchase 2/9/05 3/18/05 6/20/05 10/25/05 12/1/05
Mortgage Financing at
Date of Purchase 0 0 0 0 0
Cash Down Payment $2,900,000 $4,194,000(a) $2,255,100 $2,225,800 $4,072,800
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0 0
Other Cash Expenditures
Capitalized 39,385 48,438 36,118 40,136 84,834
Total Acquisition Cost $2,939,385 $4,242,438 $2,291,218 $2,265,936 $4,157,634
II-13
TABLE VI (Continued)
ACQUISITIONS OF PROPERTIES BY PROGRAMS
(Unaudited)
AEI INCOME & GROWTH FUND 25 (continued)
Jared Advance Advance
Jewlery Gart Sports Auto Auto
Aurora, Wichita, Brownsville, Indianapolis
Name, Location and Illinois Kansas Texas Indiana
Type of Property Retail Store Retail Store Retail Store Retail Store
Gross Leasable Space 6,051 52,259 6,880 7,000
Date of Purchase 12/16/05 12/22/05 2/17/06 12/21/06
Mortgage Financing at
Date of Purchase 0 0 0 0
Cash Down Payment $4,192,600 $3,300,000(a) $1,544,500 $655,725(a)
Contract Purchase
Price Plus
Acquisition Fee 0 0 0 0
Other Cash Expenditures
Expensed 0 0 0 0
Other Cash Expenditures
Capitalized 78,732 46,155 40,769 14,251
Total Acquisition Cost $4,271,332 $3,346,155 $1,585,269 $669,976
(a) Represents a partial ownership interest in such property.
An affiliated entity(s) purchased the remaining interest.
II-14
SIGNATURES
Pursuant to the requirements of the Securities Act of
1933, the Registrant certifies that it has reasonable grounds to
believe that it meets the requirements for filing on Form SB-2
and has duly caused this Post-Effective Amendment No. 8 to the
Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of St. Paul
on the 21st day of August 2007.
AEI INCOME & GROWTH FUND 26 LLC
By: AEI Fund Management XXI, Inc.
Managing Member
By: /s/ Robert P Johnson
Robert P. Johnson, President
In accordance with the requirements of the Securities Act of 1933,
this Amendment No. 8 to the Registration Statement was signed by the
following persons in the capacities and on the dates stated.
MANAGING MEMBER
AEI Fund Management XXI, Inc. Date
By:/s/ Robert P Johnson Sole Director and August 21, 2007
Robert P.Johnson President (principal
executive officer)
By:/s/ Patrick W Keene Chief Financial Officer August 21, 2007
Patrick W.Keene and Treasurer (principal
financial and accounting
officer)
INDIVIDUAL MANAGING MEMBER
By:/s/ Robert P Johnson Individual Managing Member August 21, 2007
Robert P. Johnson
EXHIBIT INDEX
Exhibit No. Description
*1.1 Revised Form of Dealer-Manager Agreement
*1.2 Form of Dealer Agreement
*3.1 Certificate of Formation
3.2 Form of Operating Agreement included as
Exhibit A to Prospectus
*5 Opinion of Dorsey & Whitney LLP as to the legality of the
securities registered, including consent
*8 Opinion of Dorsey & Whitney LLP as to tax matters,
including consent
*10.1 Revised Form of Impoundment Agreement with Fidelity Bank,
Edina, Minnesota
*10.2 Assignment and Assumption of Lease and Guaranty dated
April 3, 2006 between the Company and AEI Fund Management XVII,
Inc. realting to the Property at 6959 East 21st Street, Wichita,
Kansas (incorporated by reference to Exhibit 10.1 of Form 8K
filed April 5, 2006).
*10.3 Assignment and Assumption of Purchase and Sale Agreement
dated May 24, 2006 between the Company, AEI Income & Growth Fund
24 LLC and AEI Fund Management, Inc. relating to the Property at
65 North University Boulevard, Middletown, Ohio (incorporated by
reference to Exhibit 10.1 of Form 8K filed June 5, 2006).
*10.4 Assignment and Assumption of Lease dated May 31, 2006
between the Company, AEI Income & Growth Fund 24 LLC and Blue
Partners, LLC relating to the Property at 65 North University
Boulevard, Middletown Ohio (incorporated by reference to Exhibit
10.2 of Form 8K filed June 5, 2006).
*10.5 Assignment and Assumption of Purchase and Sale
Agreement dated September 11, 2006 between the Company, AEI
Fund Management XVII, Inc. and AEI Fund Management, Inc.
relating to the Property at 7345 E. Washington Street,
Indianapolis, Indiana (incorporated by reference to Exhibit
10.1 of Form 8-K filed September 26, 2006).
*10.6 Net Lease Agreement dated September 21, 2006 between
the Company, AEI Fund Management XVII, Inc. and Apple Indiana
II LLC relating to the Property at 7345 E. Washington Street,
Indianapolis, Indiana (incorporated by reference to Exhibit
10.2 of Form 8-K filed September 26, 2006).
*10.7 Assignment and Assumption of Lease dated December 29,
2006 between the Company, AEI Income & Growth Fund XXII
Limited Partnership and AEI Fund Management XVII, Inc.
relating to the Property at 1516 South Washington Street,
Crawfordsville, Indiana (incorporated by reference to
Exhibit 10.1 of Form 8-K filed January 8, 2007).
23 Consent of Independent Public Accountants
*31.1 Certification of Chief Executive Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002 (incorporated
by reference to Exhibit 31.1 of Form 10QSB filed August 13,
2007).
*31.2 Certification of Chief Financial Officer of Managing
Member pursuant to Rule 15d-14(a)(17 CFR 240.15d-14(a)) and
Section 302 of the Sarbanes-Oxley Act of 2002 (incorporated
by reference to Exhibit 31.2 of Form 10QSB filed August 13,
2007).
*32 Certification of Chief Executive Officer and Chief
Financial Officer of Managing Member pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (incorporated by
reference to Exhibit 32 of From 10QSB filed August 13, 2007).
* Previously filed.