[Federal Register Volume 59, Number 77 (Thursday, April 21, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-9637]
[[Page Unknown]]
[Federal Register: April 21, 1994]
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SECURITIES AND EXCHANGE COMMISSION
[Rel. No. IC-20222; 812-8916]
WNC California Housing Tax Credits IV, L.P., Series 4 Through 9,
and WNC California Tax Credit Partners IV, L.P.; Notice of Application
April 15, 1994.
AGENCY: Securities and Exchange Commission (``SEC'').
ACTION: Notice of Application for Exemption under the Investment
Company Act of 1940 (the ``Act'').
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APPLICANTS: WNC California Housing Tax Credits IV, L.P. Series 4, WNC
California Housing Tax Credits IV, L.P., Series 5, WNC California
Housing Tax Credits IV, L.P., Series 6, WNC California Housing Tax
Credits IV, L.P., Series 7, WNC California Housing Tax Credits IV,
L.P., Series 8, WNC California Housing Tax Credits IV, L.P., Series 9
(individually, a ``Series,'' and collectively, the ``Fund'') and WNC
California Tax Credit Partners IV, L.P. (the ``General Partner'').
RELEVANT ACT SECTIONS: Exemption requested under section 6(c) from all
provisions of the Act.
SUMMARY OF APPLICATION: Applicants request an order to permit each
Series to invest in limited partnerships that engage in the ownership
and operation of apartment complexes for low and moderate income
persons.
FILING DATE: The application was filed on March 30, 1994.
HEARING OR NOTIFICATION OF HEARING: An order granting the application
will be issued unless the SEC orders a hearing. Interested persons may
request a hearing by writing to the SEC's Secretary and serving
applicants with a copy of the request, personally or by mail. Hearing
requests should be received by the SEC by 5:30 p.m. on May 10, 1994,
and should be accompanied by proof of service on applicants, in the
form of an affidavit or, for lawyers, a certificate of service. Hearing
requests should state the nature of the writer's interest, the reason
for the request, and the issues contested. Persons may request
notification of a hearing by writing to the SEC's Secretary.
ADDRESSES: Secretary, SEC 450 5th Street NW., Washington, DC 20549.
Applicants, 3158 Redhill Avenue, suite 120, Costa Mesa, California
92626-3416.
FOR FURTHER INFORMATION CONTACT:
Elaine M. Boggs, Staff Attorney, at (202) 942-0572, or Robert A.
Robertson, Branch Chief, at (202) 942-0564 (Division of Investment
Management, Office of Investment Company Regulation).
SUPPLEMENTARY INFORMATION: The following is a summary of the
application. The complete application may be obtained for a fee at the
SEC's Public Reference Branch.
Applicants' Representations
1. Each Series was formed as a California limited partnership on
March 11, 1994. Each Series will operate as a ``two-tier'' partnership,
i.e., each Series, as a limited partner, will invest in other limited
partnerships (``Local Limited Partnerships''). The Local Limited
Partnerships in turn will engage in the ownership and operation of
apartment complexes expected to be qualified for low income housing tax
credit under the Internal Revenue Code of 1986.
2. The objectives of each Series are to (a) provide current tax
benefits primarily in the form of low income housing credits which
investors may use to offset their Federal and California income tax
liabilities, (b) preserve and protect its capital, and (c) provide cash
distributions from sale or refinancing transactions.
3. On March 28, 1994, the Fund filed a registration statement under
the Securities Act of 1933, pursuant to which the Fund intends to offer
publicly, in one or more series of offerings, 50,000 units of limited
partnership interest (``Units'') at $1,000 per unit. The minimum
investment will be five Units. Purchasers of the Units will become
limited partners (``Limited Partners'') of the Series offering the
Units.
4. A Series will not accept any subscriptions for Units until the
requested exemptive order is granted or the Series receives an opinion
of counsel that it is exempt from registration under the Act.
Subscriptions for Units must be approved by the General Partner. Such
approval will be conditioned upon representations as to suitability of
the investment for each subscriber. The suitability standards provide,
among other things, that investment in a Series is suitable only for an
investor who either (a) has a net worth (exclusive of home,
furnishings, and automobiles), of at least $60,000 and an annual gross
income of at least $60,000, or (b) irrespective of annual income, has a
net worth (exclusive of home, furnishings, and automobiles) of at least
$175,000. Units will be sold only to investors who meet these
suitability standards, or more restrictive suitability standards as may
be established by certain states for purchases of Units within their
respective jurisdictions. In addition, transfers of Units will be
permitted only if the transferee meets the same suitability standards
as had been imposed on the transferor Limited Partner.
5. Although a Series' direct control over the management of each
apartment complex will be limited, the Series' ownership of interests
in Local Limited Partnerships will, in an economic sense, be tantamount
to direct ownership of the apartment complexes themselves. A Series
normally will acquire at least a 90% interest in the profits, losses,
and tax credits of the Local Limited Partnerships. However, in certain
cases, the Series may acquire a lesser interest. In these cases, the
Series normally will acquire at least a 50% interest in the profits,
losses, and tax credits of the Local Limited Partnership. From 95% to
100% of the proceeds from a sale or refinancing of an apartment complex
normally will be paid to the Series until it has received a full return
of that portion of the net proceeds invested in the Local Limited
Partnership (which may be reduced by any cash flow distributions
previously received). A Series also will receive a share of any
remaining sale or refinancing proceeds. A Series' share of these
proceeds may range from 10% to 90%.
6. Each Series will have certain voting rights with respect to each
Local Limited Partnership. The voting rights will include the right to
dismiss and replace the local general partner on the basis of
performance, to approve or disapprove a sale or refinancing of the
apartment complex owned by such Local Limited Partnership, to approve
or disapprove the dissolution of the Local Limited Partnership, and to
approve or disapprove amendments to the Local Limited Partnership
agreement materially and adversely affecting the Series' investment.
7. Each Series will be controlled by the General Partner, pursuant
to a partnership agreement (the ``Partnership Agreement''). The Limited
Partners, consistent with their limited liability status, will not be
entitled to participate in the control of the business of the Series.
However, a majority-in-interest of the Limited Partners will have the
right to amend the Partnership Agreement (subject to certain
limitations), to remove any General Partner and elect a replacement,
and to dissolve the Series. In addition, under the Partnership
Agreement, each Limited Partner is entitled to review all books and
records of the Series.
8. The Partnership Agreement and prospectus of the Series contain
numerous provisions designed to insure fair dealing by the General
Partner with the Limited Partners. All compensation to be paid to the
General Partner and its affiliates is specified in the Partnership
Agreement and prospectus. While the fees and other forms of
compensation that will be paid to the General Partner and its
affiliates will not have been negotiated at arm's length, applicants
believe that the compensation is fair and on terms no less favorable to
the Series that would be the case if such arrangements had been made
with independent third parties.
9. During the offering and organizational phase, the General
Partner and its affiliates will receive a nonaccountable expense
reimbursement equal to 2% of capital contributions. The General Partner
also will be reimbursed by such Series for the actual amount of
expenses incurred in connection with organizing the Series and
conducting the offering. However, the General Partner has agreed to pay
any organization and offering expenses (including selling commissions
and the nonaccountable expense reimbursement) in excess of 15% of
capital contributions.
10. During the acquisition phase, each Series will pay the General
Partner or its affiliates a selection fee equal to 8% for analyzing and
evaluating potential investments in Local Limited Partnerships. The
General Partner and its affiliates will be reimbursed by each Series
for the actual amount of any partnership acquisition expenses advanced
by them, provided that acquisition expenses will not exceed 1.2% of
capital contributions. Aggregate acquisition fees and acquisition
expenses paid in connection with the acquisition of Local Limited
Partnership interests by each Series will be limited by the Partnership
Agreement and will comply with guidelines published by the North
American Securities Administrators Association. These guidelines
require that a specified percentage (generally 80%, but subject to
reduction) of the aggregate Limited Partners' capital contributions to
a Series be committed to Local Limited Partnership interests.
11. During the operating phase, the General Partner will receive 1%
of any cash available for distribution and each Series may pay certain
fees and reimbursements to the General Partner or its affiliates. An
asset management fee will be payable for services related to the
administration of the affairs of each Series in connection with each
Local Limited Partnership in which the Series invests. Other fees may
be paid in consideration of property management services provided by
the General Partner or its affiliates as to the management and leasing
agents for some of the apartment complexes. In addition, the General
Partner and its affiliates generally will be allocated 1% of profits
and losses of each Series for tax purposes and tax credits.
12. During the liquidation phase, and subject to certain prior
payments to the Limited Partners, each Series will pay the General
Partner or its affiliates a fee equal to 1% of the sales price of the
properties sold in which the General Partner or its affiliates had
provided a substantial amount of services. The General Partner also
will receive 10% of any additional sale or refinancing proceeds
remaining after the return of the Limited Partners' capital
contribution, subject to certain prior payments.
13. All proceeds from any Series of the public offering of Units
initially will be placed in an escrow account with the National Bank of
Southern California (``Escrow Agent''). Pending release of offering
proceeds to an individual Series, the Escrow Agent will deposit
escrowed funds in short-term United States Government securities,
securities issued or guaranteed by the United States Government, and
certificates of deposit or time or demand deposits in commercial banks.
Upon receipt of a prescribed minimum amount of capital contributions
for a Series, funds in escrow will be released to an individual Series
and held by it pending investment in Local Limited Partnerships.
14. If investment opportunities may be invested in by more than one
entity that the General Partner or its affiliates advises or manages,
the decision as to the particular entity which will be allocated the
investment will be based upon such factors as the effect of the
acquisition on diversification of each entity's portfolio, the
estimated income tax effects of the purchase on each entity, the amount
of funds of each entity available for investment, and the length of
time such funds have been available for investment. Priority generally
will be given to the entity having uninvested funds for the longest
period of time. However, each Series and any other partnerships formed
to invest primarily in apartment complexes eligible for California and
Federal low income housing credits will be given priority with respect
to any investment that is eligible for California low income housing
credits.
Applicants' Legal Analysis
1. Applicants believe that the Fund and its Series will not be
``investment companies'' under sections 3(a)(1) or 3(a)(3) of the Act.
If the Fund and its Series are deemed to be investment companies,
however, applicants request an exemption under section 6(c) from all
provisions of the Act.
2. Section 3(a)(1) of the Act provides that an issuer is an
``investment company'' if it is or holds itself out as being engaged
primarily, or proposes to engage primarily, in the business of
investing, reinvesting, or trading in securities.
3. Section 3(a)(3) of the Act provides that an issuer is an
``investment company'' if it is engaged or proposes to engage in the
business of investing, reinvesting, owning, holding, or trading in
securities, and owns or proposes to acquire ``investment securities''
having a value exceeding 40% of the value of such issuer's total assets
(exclusive of Government securities and cash items).
4. Applicants believe that the two-tier structure is consistent
with the purposes and criteria set forth in the SEC's release
concerning two-tier real estate partnerships.\1\ The release lists two
conditions, designed for the protection of investors, which must be
satisfied by two-tier partnerships to qualify for an exemption under
section 6(c). First, interests in the issuer should be sold only to
persons for whom investments in limited profit, essentially tax-
shelter, investments would not be unsuitable. Second, requirements for
fair dealing by the general partner of the issuer with the limited
partners of the issuer should be included in the basic organizational
documents of the company.
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\1\Investment Company Act Release No. 8456 (Aug. 9, 1974).
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5. Applicants assert, among other things, that the suitability
standards set forth in the application, the requirements for fair
dealing provided by the Partnership Agreement, and pertinent
governmental regulations imposed on each Local Limited Partnership by
various Federal, state, and local agencies provide protection to
investors in Units comparable to that provided by the Act.
6. Section 6(c) provides that the SEC may exempt any person from
any provision of the Act and any rule thereunder, if, and to the extent
that, such exemption is necessary or appropriate in the public interest
and consistent with the protection of investors and the purposes fairly
intended by the policy and provisions of the Act. Applicants believe
that the requested relief meets these standards.
For the Commission, by the Division of Investment Management,
pursuant to delegated authority.
Margaret H. McFarland,
Deputy Secretary.
[FR Doc. 94-9637 Filed 4-20-94; 8:45 am]
BILLING CODE 8010-01-M
